Small-Business Loans

The recovering economic environment has meant that small businesses have had to be more creative when looking for loans.

However, companies with sound business strategies still can borrow. Options include loans from traditional banks and institutions affiliated with the Small Business Administration, as well as financing from Internet-based lenders.

“For creditworthy, high-scoring small businesses, there is money available,” says George Cloutier, CEO of American Management Services, a consultant to small businesses.

Bank loans

The best place to get a small-business loan is still a bank, says Cloutier. Banks typically offer the lowest interest rates and many have established reputations as trustworthy lenders.

RATE SEARCH: Compare business credit card rates.

“Many small businesses try three or four banks and then stop looking,” Cloutier says. A more persistent approach has better odds of success.

Calculate business loan payment

Want to calculate your small-business loan payment? Go to Bankrate’s loan and amortization calculator.

“Take out the phone book, target 10 banks and work through that list,” he says.

That strategy worked for Michael McKean. He is founder of The Knowland Group, a company that helps hotels fill up their meeting space.

A few years ago, as the success of The Knowland Group grew, McKean began searching for a bank that would give the growing company expanded access to credit.

“We talked to every bank in our area, at least a dozen,” McKean says. “Many came back with proposals, but the terms were very onerous. Or sometimes they shifted terms.”

Finally, M&T Bank came through.

“They just wanted to get our business,” McKean says.

McKean says his company did not approach M&T any differently than it had approached the other banks. It was just a matter of being persistent until the right deal came along, he says.

“We did everything right, approaching the right person at each bank,” he says. “We’re a profitable business. I think it was just the … credit crunch that prevented us from getting a loan.”

Cloutier says the key to success with banks is to show past profitability, and to describe a well thought-out plan for future profits.

“If you aren’t making a profit now, you must be able to tell the bank how you will change that in the short term, or you really won’t be able to get a loan,” he says.

He also recommends that businesses start small in their loan requests.

“If you need money for four trucks, ask for two,” Cloutier says. “The bigger the loan request, the harder it is to get it approved.”

SBA loans

Another way to find a bank loan is through the Small Business Administration, or SBA. The SBA can direct you to banks that offer loans guaranteed by the agency. This way, you’ll have the advantage of approaching banks specifically interested in lending to small businesses.

Interested businesses should contact the SBA office nearest to them, which can be found on the agency’s website. Jeanne Hulit, the SBA’s acting administrator, urges businesses to seek a bank that is an experienced SBA lender.

Banks granting SBA loans place increased emphasis on business plans, cash flow and profit forecasts in deciding whether to lend, she says. The SBA also can refer businesses to free counseling centers to improve their performance.

Online opportunities

Another source for loans is the Internet. There are several sites where businesses can seek alternative lenders, such as individuals and small companies.

Interest rates are generally a little higher than what a bank will charge, but it’s much less than what you’ll have to pay on many credit cards.

Look around at different sites, some may charge a one-time fee to list your business, while others are free to list but might have fees reflected in loan rates.

If you’re going to list your company on one of these sites, describe your business in clear and concise language.

Lastly, make sure to investigate the company you are looking to post your business on. These kinds of companies were successful in 2008 and during the recession, but times have changed. Many have since gone out of business. Before paying for anything, make sure the company is legit.

5 Ways To Spot Student Loan Scams

Cultura RM Exclusive/Stefano Gilera/Getty Images

There is an estimated $1.5 trillion of outstanding student loan debt. The burden is taking a toll on Americans, from preventing homeownership to delaying other major life milestones, like marriage.

Still, it’s easy for Americans to want to eliminate that debt as soon as possible — and criminals are capitalizing on the growing desire to do so.

The Federal Trade Commission (FTC) has been cracking down on scammers in recent years, claiming they’ve have been charging illegal upfront fees and misleading consumers.

While it may be tempting to go after a quick fix to eliminate student loan debt, it can have numerous and costly consequences.

Here are five warning signs to watch for when looking for student debt relief.

1. The company asks you to pay upfront fees

Companies charging upfront fees to help with consolidation is illegal. According to the Federal Student Aid website, consumers should “never have to pay for help” with student loans.

In 2017, the Federal Trade Commission started a nationwide crackdown on student loan debt relief scams called “Operation Game of Loans.” The operation was a result of scammers taking over $95 million in illegal fees from consumers over a number of years.

If you call a relief company and they ask for money before helping you, the company is participating in illegal activity; hang up and file a complaint with the FTC.

2. Think twice before signing a power of attorney

Scam companies will ask consumers to sign over a power of attorney, which will give it power to make decisions on your behalf. Often, they will use the power to put your loans in forbearance, which is a major warning sign, writes Robert Farrington on The College Investor, a blog for student loan advice.

Here’s how it works: After you sign a power of attorney, the company will put your loans in forbearance, resulting in you not having monthly payments sent directly to your servicer. Instead, the company will ask you to pay it directly.

Instead of your money going toward your loans, the company will keep it for itself, instead of putting it toward your loans.

“The problem is, these scams usually involve the company taking your money, your student loans remain in forbearance for months or years, and the borrower finds out that the forbearance has expired and that nothing was done,” Farrington writes.

This strategy capitalizes on consumers who aren’t familiar with the many different repayment options for loans.

When a loan is in forbearance, payments temporarily stop or are lowered. Under forbearance, you are still responsible for any interest incurred while not making payments; under a deferment, you might not be.

According to the Federal Student Aid website, forbearance and deferment should be considered only as temporary or short-term solutions if you’re struggling to repay your loans. Long-term solutions to high payments are income-driven repayment plans, which determine your monthly payment based on your pay.

3. The provider offers ‘quick relief’

Most scams make false promises, such as fast loan forgiveness through dispute or programs that don’t exist. These scams often promise quick relief without having specific details of individual accounts and situations.

As of now, there is no quick fix to eliminate student debt. There are loan forgiveness programs available, such as public service loan forgiveness, but even those programs require years of payments before the balance being forgiven. Additionally, student loans cannot be discharged through bankruptcy.

There is no quick fix for eliminating student debt. Those struggling with payments and can’t get relief through payment plans can consider refinancing to a lower-interest loan to make payments more manageable.

4. Think twice before paying to get on a payment plan

While it’s legal for companies to offer services to help customers navigate the student loan repayment system, the FTC says it’s an unnecessary cost.

“Consumers can apply for loan deferments, forbearance, repayment and forgiveness or discharge programs directly through the U.S. Department of Education or their loan servicer at no cost,” the FTC writes on its Game of Loans website. “These programs do not require the assistance of a third-party company or payment of application fees.”

5. Do your research

Those who are feeling unsure about a debt-relief program should do their due diligence in research before committing to or paying for any services.

Use the Better Business Bureau (BBB) search tool to determine if the business is BBB accredited. This tool will also pull up any reviews and complaints made by other consumers.

What to do if you’ve fallen victim to a debt relief scam

If you’ve given away personal information, such as your FSA ID, or have paid a company that might not be legitimate, there are steps you can take before further damage is done.

The Federal Student Aid website lists the following steps you should take:

Change your FSA ID: If you provided your FSA ID to a company, you should log in and change your username and password.

Contact your loan servicer: Be sure to revoke any power of attorney you may have signed over to the party. Review any recent changes or actions that were taken on your loans.

Block all payments: Contact your bank and block any payments to the scam company.

File a complaint: Log on to the FTC website and file a complaint. After, file a report in the FSA feedback system.

What Happens When Your Student Loan Servicer Gets Bought

Thomas Barwick/Getty Images

In August 2018, Andrew Fanno, a 28-year-old lawyer in Boston, refinanced his $200,000-plus student loan balance into Earnest, a popular fintech refinancing company. Fanno was lured by the ability to make biweekly payments through the service and the user-friendly interface.

Two months later, though, the fintech company made a few functional changes, including removing its popular biweekly payment option and changing the dashboard. After doing some research, Fanno realized the changes occurred as a result of the company being acquired by Navient Corp., one of the largest companies that manages student loan debt, in 2017.

“I had no idea the merger was coming,” Fanno says. “And, honestly, I had heard not-so-great things about Navient. It was a bummer.”

It happens more than you might think: You receive a letter in the mail, saying your student loans are being transferred to a new servicer, either from a company buy-out or federal loans being transferred.

Your loans, and those of thousands of other borrowers, will be held under a different company — and no, you don’t get a say in the matter.

What happens when your student loan servicer gets bought

Student loans get transferred from one servicer to another “as part of (the U.S. Department of Education’s) efforts to ensure that all borrowers are provided with customer service and repayment support,” according to the Federal Student Aid website.

And while loan terms often don’t change, it can lead to a confusing shuffling of funds, some of which take borrowers by complete surprise.

Earnest sold for nearly half than its 2015 valuation of $375 million, according to The Wall Street Journal. After, Fanno was notified by mail and email that his loans would be held under Navient. He read his promissory note before signing on to his new loans, which stated that they would be transferred in the future.

The buyout wasn’t shocking for Fanno. It did, however, lead to some disappointing changes.

The acquisition came with two major blows to incentives that led Fanno to Earnest in the first place: the biweekly payment feature was gone, and Fanno says the site began having frustrating glitches.

He plans on refinancing with another company within the next six months.

Important things to consider during the transfer

There are no “rights” that consumers hold when it comes to their loan servicers getting bought, says Mark Kantrowitz, student loan expert and vice president of research of SavingForCollege.com. But there are a few things that borrowers can look out for to make sure the transition goes as smooth as possible.

Kantrowitz offers the following advice.

Auto debits might not transfer to the new servicer

If you have your monthly payments automatically taken out of your bank account, you will likely need to re-enroll in the service once the transition is complete.

Doing so is crucial — most servicers don’t inherit your past authorization and require a new one. If you don’t re-enroll, you might go months without actually making a payment on your loans, which could result in them ending up in default.

Some features might disappear

If you’ve consolidated your loans with another company, like Fanno did, you might lose some enticing features, like automatic biweekly payments.

If you set up something similar with your new servicer, make sure you specify where you want your extra payment to be going. Some servicers might not automatically put it toward interest.

Just because your account says ‘$0’ doesn’t mean your loans have magically disappeared

While it would be a welcomed miracle for an entire balance to “get lost” in the transition, it’s highly unlikely that will happen.

Fanno recalls his balance being $0, as well as expected payments being $0, up until a week before his payment was due.

“I was freaking out a little,” Fanno says.

But just because the balance might be $0, Kantrowitz warns not to let it mystify you.

“Even if you don’t hear from anybody that your loans are still owing, they are,” Kantrowitz says. “You need to make the payments.”

Be proactive about any repayment or forgiveness plans you were previously on

With any data transfer, things can get lost along the way. This can be detrimental if you’re on a loan forgiveness program, like income-driven repayment, where each month’s payment counts toward your loans being erased.

Once the transfer is complete, call the new servicer to confirm your plan.

Make copies of your account balance, monthly payment and schedule

Kantrowitz stresses the importance of keeping records from before and after the transition. He recommends making printouts of your loan balances, as well as your monthly payment amounts, before and after the transition.

By keeping track of how much you owe and what your payments are, you can avoid any mixups from turning into costly interest payments.

“You need to pay attention,” Kantrowitz says. “You need to stay on top of things because if they somehow lose your paperwork during the transition, it will manifest itself in the future.”