Frequently asked questions for small business owners seeking to learn more about how to successfully apply for credit.
1. How many years do I need to be in business to be eligible for credit from Wells Fargo?
Wells Fargo business credit cards don't require that a business be established for a specified period of time. Business credit cards are also a great tool for new businesses to begin establishing business credit.
Wells Fargo has line of credit options for all business types, whether new/young (less than 2 years in business) or established (over 2 years).
For most conventional loans, Wells Fargo prefers that businesses be at least 2 years old. However, the FastFlexSM Small Business Loan is an unsecured loan product that is suitable for young businesses and requires a business to have owned a Wells Fargo business deposit account for at least one year.
Another option for a startup business may be a loan from Wells Fargo that's guaranteed by the U.S. Small Business Administration, commonly called an "SBA loan." While there is no business age requirement, Wells Fargo does require strong business plans, detailed business projections and a minimum equity injection in the form of a down payment from the business.
For all types of business loans, good personal credit is a must.
2. What kinds of information do lenders typically ask for during the credit application process?
For conventional loans and lines of credit, borrowers will need to complete a loan application. Documentation requirements vary depending on the specific credit product and whether it's secured (backed by collateral) or unsecured.
For an SBA loan, borrowers will need to complete a loan application and may have to provide business financial statements, cash flow projections, and tax returns, as well as a business license or certificate of doing business ("Fictitious Name Statement"). Borrowers will also need to provide organizational documents, such as articles of incorporation and EIN numbers. A Wells Fargo SBA Lending representative will provide you a complete checklist when you start the process.
Please note when applying for a business line of credit, Wells Fargo will offer the product that is a better fit for your business and your credit needs. The two main lines of credit are: Wells Fargo BusinessLine® Line of Credit and Wells Fargo Small Business Advantage® Line of Credit. The latter is an unsecured line of credit, partially guaranteed by the Small Business Administration.
3. How important is my personal credit history?
Your personal credit history is very important. Lenders will want to know what kind of borrower you'll be, and will check both your personal credit history and that of your business to see how well you've managed your debt in the past. A strong credit history lets lenders know you have the discipline to repay debts. Lenders will also want to understand your business experience and work history.
4. Do I need to have a business plan?
A business plan is not required when applying for a Wells Fargo business credit card, or for many types of conventional loans, such as lines of credit and term loans. However, a business plan may be required when applying for an SBA loan.
It's important to understand that while a business plan may not be required for some types of credit, it's a critical management tool for growing any successful business. For information on how to write a business plan, see the article, "Writing a business plan: Your step-by-step guide."
The SBA website also can help you identify organizations (such as SCORE) that can provide assistance in writing your business plan.
5. Does my business need to be profitable?
Yes, your business must be profitable before you apply for business credit. Achieving profitability when starting and growing a business depends on numerous factors, from the quality of your product or service, to your marketing ability, to how well you manage cash flow. For more information on steps you can take to monitor cash flow, see the article, "Creating a cash flow projection."
6. Are there benefits to separate personal and business expenses?
Yes, separating business and personal expenses will provide insight into the operation of your business as well as numerous advantages for operational, tax, and credit purposes.
7. Will I have to provide collateral in order to receive a loan?
Wells Fargo offers both secured and unsecured credit products. Secured credit products are repaid out of the general assets of the business but may be repaid out of collateral (assets) pledged to the lender to secure the loan if necessary. While, unsecured credit loans and lines are repaid only out of the general assets of the business available at the time of collection.
Credit cards, term loans, and lines of credit are typically unsecured. However, Wells Fargo does offer secured cards and lines of credit — secured by personal or business liquid assets (e.g., CDs and savings accounts).
Equipment loans are secured by the equipment or vehicles being purchased with loan proceeds.
Commercial real estate loans and lines of credit are secured by the equity in the property being purchased or financed.
SBA loans are secured by business assets and, in some cases, personal assets, as well.
Please note when applying for a business line of credit, Wells Fargo will determine which product will be presented — whether it be a Wells Fargo BusinessLine Line of Credit or a Wells Fargo Small Business Advantage Line of Credit. The latter is an unsecured line of credit guaranteed by the Small Business Administration.
8. I once had to declare bankruptcy. Does this mean I will be turned down?
A bankruptcy filing at some point in your past does not necessarily preclude you from obtaining credit. It all depends on how long ago you filed, and how well you've managed your credit since then. It normally takes 10 years before a personal bankruptcy is removed from your record. During this period, it's important to show that you're taking all the steps necessary to rebuild your credit. For example, after you file for bankruptcy you should:
Develop a realistic budget
Pay your bills promptly
Contact your creditors right away if you're having trouble making payments on time
If you miss a payment, develop a repayment plan and do what you can to get current
Consider automatic payment from your bank account to ensure timely payments
Take advantage of available resources to learn more about how to improve your credit
Pay more than the minimum payment
The Federal Trade Commission (FTC) website provides free consumer information about managing credit, including fact sheets on how to repair your credit, deal with credit-related scams, dispute errors on your credit report, and more.
9. If I'm turned down by a bank, what alternatives are there?
SBA Community Advantage loans and small business microloans from nonprofit lenders may be an option. These loans are typically available for younger businesses that don't have established credit as well as established businesses that are unable to obtain conventional credit. However, these lenders still want creditworthy customers.
The SBA Community Advantage program is designed to expand access to lower dollar loans and lending in traditionally underserved communities. For more information, visit http://www.sba.gov/advantage.
Nonprofit small business lenders may have slightly different loan requirements and/or criteria than traditional lenders — depending on the requested loan amount — and may be able to serve as the first step for obtaining financing. They may also provide hands-on training for cash flow budgeting, or writing a business plan. In general, these nonprofit lenders are seeking clients who have some experience, good cash flow, and intend to use the microloan to grow their business.
Opportunity Finance Network, a national network of mission-driven financial institutions investing in low-income communities, has created Venturize, a free online resource that includes a directory of mission-driven lenders for small business owners.
Wells Fargo is dedicated to helping you achieve your financial goals. The more you know about how to obtain and build business credit, the better your chances of securing the financing you need for your business. For more details, please visit a Wells Fargo branch near you.