The Ultimate Guide to Applying for a Business Loan

If your business has reached a point where it needs an infusion of funds in order to grow, you may be in the market for a business loan. A business loan can help a struggling small business establish itself better, or help a thriving company expand its line of products, open an additional location, move to a larger site, hire new team members or purchase expensive equipment.

Here’s all you need to know about applying for a business loan:

Make sure your credit is in order

Before applying for a business loan, check your personal and business credit health.

A personal credit score is measured in the hundreds, with scores ranging from 300-850. A score that falls from 580-669 is considered fair, 670-739 is good, 740-799 is very good, and 800-850 is considered exceptional. You can check your personal credit report once a year at no cost from AnnualCreditReport.com. Review your score for any inaccuracies or fraudulent charges and be sure to dispute these immediately through any of the credit bureau websites: Experian, Equifax or TransUnion.

Business credit scores are measured differently.

Experian uses Intelliscore Plus as its credit scoring model, with scores ranging between 1 and 100.

Equifax assigns each business three different scores: a payment index score, which assesses the company’s payment history with the score ranging between 0 and 100; a credit-risk score evaluating how likely it is the business will not meet on-time payments with the score ranging between 100 and 992; and a business failure score measuring how likely a business will fail, with the score ranging between 1,000 and 1,880.

Business credit scores are also measured by the Dun & Bradstreet Corporation. The D&B score range is 0 to 100 and the key factor it considers is the timeliness of payments made to previous creditors. In order to receive a D&B score, a business must file for a free DUNS number and information about the company’s borrowing habits must be provided by a minimum of four lenders or suppliers.

Finally, the FICO Small Business Scoring Service (SBSS) score ranges from 0 to 300 and considers variables, such as the business owner’s personal credit score, the company’s payment history, number of employees and the age of the business.

If your personal and/or business credit scores are low, work on improving your credit before applying for a loan by meeting your monthly payments on time and keeping credit utilization low.

Update your business plan

Be sure to have a fully crafted business plan to show a prospective lender before applying for a loan. The plan should include details about how the company intends to use the funds from the loan, the anticipated increase in revenue and plans for repaying the loan.

Consider arranging supplemental collateral

Lenders generally prefer to reduce the risk of a borrower defaulting on a loan by securing collateral for the loan. For business loans, this usually takes the form of the company’s accounts receivable, equipment or other valuable assets. The lender can seize the collateral if the business fails and the borrower cannot repay the loan.

When applying for a business loan, you can offer additional collateral to the lender, such as personal assets, like real estate or other valuables. This will make you more likely to qualify for the loan and may bring down the interest rate on your loan as well.

Organize your personal and business documents

You’ll need the following documents and identifying paperwork to apply for a business loan:

Photo ID
Accurate monthly financial statements from the past two years
Business license
Any commercial leases
Business insurance plans
Payroll records
Incorporation documents
Current financial obligations
3 months of bank statements
Personal and business tax returns
Collateral, if required

Research potential lenders

It’s best to take some time researching potential lenders before applying for a loan. Learn about each lender’s eligibility criteria so you can anticipate whether or not you will qualify for a loan. Look up average loan interest rates for each lender, as well.

As you complete this step, choose a general source for your loan.

Startups may not qualify for a large loan and can be better off pursuing a microloan, or a small, short-term loan offered by a nonprofit lender. These loans can often be applied for online.

If you need a larger loan, consider applying for a business loan through a credit union. A credit union will offer you personalized service, looser qualifying criteria and a competitive interest rate that will help you keep more money in your business throughout the life of the loan.

Freedom FCU’s business loans offer generous terms and competitive rates. Call, click, or stop by today to apply.

Submit your application

Once you’ve gotten all of your paperwork in order and you’ve chosen a lender, you’re ready to apply for a loan. Depending on your lender, you may be able to begin and/or complete the application process online. Be patient; loans can take anywhere from one day to several months from application to funding. With luck, you’ll soon have the funds you need to take your business to the next level.

About Freedom Federal Credit Union

Freedom serves and is open to anyone who lives, works, worships, attends school, volunteers, or has family in Harford or Baltimore County, MD. As a credit union, we are committed to putting you first, not shareholders, and helping you achieve your financial goals. Learn more at freedomfcu.org or call us 800-440-4120 to see how we can help.

Your Turn: What are your best tips for taking out a business loan? Tell us about it on Facebook, Twitter, or Instagram. @FreedomFedCU

Millennials Hit Hardest by Coronavirus Recession

The coronavirus recession hasn’t been easy on anyone, but millennials may have been hit hardest.

According to many economic experts, the 73 million millennials in the U.S. could experience financial setbacks from COVID-19 that have a longer-reaching impact than those experienced by any other age group.

Here’s why the coronavirus pandemic has been especially hard for those in 25- to 39-year-old age bracket.

Another recession for millennials

Economic recessions are nothing new for this demographic. They already lived through the Great Recession of 2008, and for many, the impact of the last recession is still being felt today.

The Great Recession hit millennials when they were still in college or just starting out on their career paths. For some, it meant the choices for their first post-college job were very slim. For others, it meant dropping out of college when there was no longer a guarantee of a degree netting them a higher-paying job. Regardless of how they were impacted, many millennials are still playing catch-up from the recession of 2008.

“For this cohort, already indebted and a step behind on the career ladder, this second pummeling could keep them from accruing the wealth of older generations,” says Gray Kimbrough, Washington, D.C. economist and American University professor.

Job losses across the board

More than 40 million workers in the U.S. have filed for unemployment since the beginning of the pandemic, but this is another area where millennials have been hit harder than most.

According to a recent report by Data for Progress, 52% of respondents under age 45 have lost jobs, been furloughed or had their work hours cut due to COVID-19. In contrast, just 26% of respondents over age 45 have suffered a job loss of some kind during the coronavirus pandemic.

Millions of millennials have lost jobs that are impossible to do while adhering to social distancing mandates. At the height of the economic lockdowns in April, the economy shed a staggering 20.5 million jobs. Of these jobs, 7.7 million were in the leisure and hospitality sector — a sector that is dominated by millennials. An additional 1.4 million lost jobs were in health care, primarily in ambulatory services — another field that employs a disproportionately large number of millennials.

No nest egg

Many millennials who are still on the rebound from the Great Recession are carrying piles of debt and have minimal savings — or none at all.

According to surveys conducted in 2018 by the Federal Reserve, 1 in 4 millennial families have a negative net worth, or debts that outweigh their assets. One in six millennials would not be able to find the funds to cover a $400 emergency. For these young employees, a relatively mild setback from the coronavirus can be devastating to their finances.

Millennials also tend to neglect their retirements. A recent report by the National Institute on Retirement Security found that 66% of millennials in the workforce have nothing put away for their retirement.

Can millennials recover?

Millennials had still not fully recovered from the Great Recession when the coronavirus pummeled the economy. They have shouldered a large share of job losses and have little or no savings to fall back on.

But there is hope. Millennials may not be as young as they were during the Great Recession, but they still have time to bounce back. They can use the unique challenges presented by the coronavirus pandemic as an opportunity to reevaluate their career track and move onward toward a brighter future.

This age group, also known as Gen Y, is famous for its resilience and can-do attitude. They’ve gotten through the Great Recession of 2008 and they’ll beat the coronavirus recession, too. With hard work, perseverance and small steps toward a better future, millennials can pull themselves up and regain their financial health.

If you’re experiencing financial difficulties, we can help. Call, click or stop by Freedom FCU to speak to a member service representative today.

Your Turn: Are you a millennial who has been impacted by the coronavirus recession? Tell us about it on Facebook, Twitter, or Instagram. @FreedomFedCU

Beware the Pending Package Scam

Everyone loves a surprise package, and scammers are taking the excitement out of that experience by using bogus packages as a cover for a nefarious scam that tricks victims into sharing personal information.

Here’s all you need to know about the pending package scam:

How the scam plays out

In the pending package scam, the victim receives a text message from a contact who is an alleged mail carrier or represents a package-delivery service. The contact tells them that they were unable to deliver a package to the victim’s home. The victim is asked to reply to confirm their identity; however, as soon as they engage with the scammer, they are asked to share personal information or credit card details for scheduling delivery. This, of course, places the victim at risk for identity theft.

Red flags

There are two primary red flags that can warn you about the pending package scam.

First, the original text or email will generally not inform the victim of the identity of the company they represent. The scammer will only claim to be an employee of a mail or package-delivery service, but will not verify if they work for UPS, FedEx or another legitimate organization. However, this is not always the case.

Second, the scammers don’t always check if the victim actually has a package in transit. They’ll either assume the victim has recently ordered something online or they’ll claim a friend or family member has sent a surprise gift. If you know that neither of these is true, you can be on the alert for a possible scam.

Third, the text message may address you by the wrong name. Scammers may try to take advantage of your good conscience by baiting you into clicking a malicious link to report that they have reached the wrong individual.

Don’t get scammed!

Take these precautions to avoid being the next victim of a pending package scam:

Be wary of unsolicited communications. Your mail carrier and package delivery services will never contact you via text message. If a package cannot be delivered for any reason, they will usually leave a note on the door.
Track all incoming packages. After placing an order for an item, record the tracking number for the package so you can easily verify its whereabouts. This way, you can quickly confirm the authenticity of any suspicious texts, emails or phone calls about your package.
Never share personal information with an unverified contact. Be super-wary when asked to share sensitive information via text. If you suspect fraud, end the conversation immediately and do not engage further.
Never click on links in unsolicited text messages. Links in text messages can download malware onto your computer or device.

If you’ve been targeted

If you believe you’ve been targeted by a pending package scam, it’s important not to engage with the scammer. Delete any suspicious text messages and block the number of the contact. You can also report the scam at FTC.gov .

Your turn: How do you determine if you’ve been targeted by a pending package scam? Tell us about it on Facebook, Twitter, or Instagram. @FreedomFedCU