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Small Business

18 Options for the Best Small Business Loans in 2019

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Historically, business lending involved a massive time commitment, high costs and a high risk that a business wouldn’t get all the funding it needs. Online lenders have completely changed the business lending landscape, making it possible to get funding in as little as a few days in some cases. That being said, borrowing from one of these newer online lenders means working with a company you may not be familiar with, which may pose some challenges.

If you’re a small business owner looking for a loan, this guide can help you decide which type of loan best suits your needs. It will also help you compare some of the best lenders and small business loan marketplaces, so you can apply with confidence.

18 options for online small business lenders

Start with LendingTree*

LendingTree is an online marketplace for business loans. It has one of the largest networks of lenders in the U.S. Business owners can submit one simple form for business financing, and LendingTree will match the owner with real offers from several lenders. This gives business owners the power to pick the best deal for their business.

  • Financing options include: Term loans, SBA loans, working capital loans, equipment financing, business lines of credit, accounts receivable financing and business credit cards.

*LendingTree is MagnifyMoney’s parent company.

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National Funding

National Funding is a non-traditional lender that’s been in business since 1999. The company specializes in lending smaller dollar loans (less than $100,000) to businesses that are underserved by banks. National Funding often takes less than a day to underwrite loans. Loans from National Funding are fixed-interest loans, but the company offers discounts of up to 7% to customers that pay off their loans early.

  • Financing options: Short-term loans, equipment financing, merchant cash advances
  • Short-term loans:
    • Four to 24 months
    • daily or weekly payments
    • $5,000 to $500,000
  • Equipment financing:
    • Two to five years
    • Monthly payments
    • Up to $150,000
  • Funding in under 24 hours

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Rapid Finance

Rapid Finance is an alternative business lender that’s been issuing loans for more than a decade. The company has an A+ rating with the Better Business Bureau, and most customers appreciate the company’s quick and thorough customer service. Rapid Finance helps business owners get funding fast, but its loans tend to carry very high-interest rates.

  • Financing options: Short-term loans, unsecured lines of credit
  • Must be in business two years, with at least $5,000 per month in revenue
  • $5,000-$1,000,000 (lines of credit up to $500,000)
  • Loan terms up to 18 months
  • Interest rates starting from 11.00%` APR (fixed simple interest rates)
  • Funding in three days or less

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OnDeck

OnDeck is an online business lender and a leader in transparent pricing. It is a member of the Innovative Lending Platform Association, which is an industry coalition that has adopted the SMART Box™ to increase transparency in pricing. OnDeck offers both term loans and lines of credit. Most OnDeck customers will have fair or better personal credit scores (above 600 FICO scores).

  • Financing options: Short-term loans, unsecured Business lines of credit
  • Short-term loans:
    • Three to 12 months
    • Fixed simple interest (you pay all the interest, even if you pay off the loan early)
    • Daily or weekly payments
  • Longer term loans
    • 15 to 36 months
    • Compounding interest rate (you pay less when you pay off the loan early)
    • Daily or weekly payments
  • Lines of credit:
    • Up to $100,000
    • Fixed weekly payments
    • Only pay interest on what you draw
  • Funding in under 24 hours

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Credibly

Started in 2010, Credibly (originally RetailCapital) is a small business lender with a focus on using technology and customer service to make business underwriting easier and better. Credibly focuses on short-term lending, and it differentiates itself by having reasonable interest rates of 6 to 18* month loans.

  • Financing options: Working capital loans and “business expansion loans” (short-term loans with weekly repayment options)
  • Working capital loans
    • 6 to 18  months*
    • $5,000–$400,000
    • Interest expressed as interest rates (not expressed as an APR*)
    • Daily repayments
  • Business expansion loans
    • 6 to 24 months
    • Up to $250,000
    • Interest rates set as a factor fee. Paying off the loan early will not reduce interest payments.
    • Weekly repayments
  • Funding in 48 hours on average

*Excludes the Business Expansion Loans which are 6 to 24 months).

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All loans through Credibly are originated by WebBank, member FDIC.

Finance Factory

The Finance Factory is a one-stop shop for all things related to business financing. It is an online lending marketplace that matches small business lenders to small business borrowers. Because it is a network, it offers a huge range of business loan products including start-up loans, SBA loans, lines of credit, unsecured business loans and more. Some of the products have very low-interest rate loans (however, the underwriting times aren’t as fast as other lenders).

  • Financing options: Start-up funding, SBA loans, business express loans, revenue-based loans, equipment financing, franchise financing
  • Most loans range from $5,000 – $500,000 (revenue-based advances from $10,000 to $1 million)
  • Up to 25 years
  • Funding time varies based on loan type. Some loans can be funded in less than 48 hours, but other loans, like SBA loans, may take a month or two.

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Seek Capital

Seek Business Capital is a business lending broker that helps business owners navigate the complex business funding world. Seek Capital will use information that you provide to create a funding estimate which is a range of funding amounts, rates, and payback terms that a business owner can expect to procure. Business owners who are happy with the estimate can apply for loans, and Seek Capital will have the loans funded in one to three business weeks. Seek Capital does charge broker fees, so businesses should be careful to compare Seek’s offers and fees with other competitors.

  • Unsecured business loans
  • $5,000-$500,000
  • Same-day loan estimates, three weeks to funding

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The Business Backer

Despite major innovations in the world of online business lending, The Business Backer believes that financing is still all about relationships. To help businesses qualify for better interest rates, The Business Backer gives business owners the opportunity to share the story of their business and the circumstances leading them to apply for a loan.

The Business Backer funds some of its own loans, but they also have a network of lending partners. The network means that borrowers can use a single application to apply for multiple types of financing.

  • Financing options include: SBA loans, business line of credit, long-term loans, short-term loans, equipment financing, commercial real estate loans, start-up loans
  • Start-up loans
    • Up to $150,000
  • Short-term loans
    • Up to $200,000
    • Four to 18 months
    • Daily, weekly or monthly payback
    • Fixed interest with early payment discounts available
  • Business line of credit
    • $5,000-$150,000
    • 1- to 3-year terms
  • Funding in as little as 48 hours (though this can vary by loan type)

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LoanMe

LoanMe is a business lender that specializes in lending to businesses that don’t qualify for loans from banks, and businesses with urgent cash needs. Interest rates on loans from LoanMe are higher than those from traditional banks, but terms range from two to ten years. Also, unlike many other lenders, LoanMe uses traditional interest formulas. That means the faster you pay off the loan, the less interest you’ll pay.

  • Funding options: Term loans
  • $3,500 – $250,000
  • Loans from 6 to 120 months with monthly repayments
  • Interest rates from 19.37% – 168.00%
  • Same-day funding available

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Elevation Capital

Elevation Capital is a lender that offers alternative loan products (especially unsecured short-term loans) to business with as little as three months of revenue history. Elevation’s unique underwriting style means that business owners with poor credit may be able to qualify for a loan.

  • Financing options: Not available
  • Payback terms: Not available
  • Interest Terms: Not available
  • Up to $500,000 in loans
  • Funding in as little as 24 hours.

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Reliant Funding

Reliant Funding was founded in 2008, in the midst of the financial crisis. It boasts of over $1 billion in lending to small businesses, and an A+ rating with the Better Business Bureau. Reliant focuses on speed of funding, and underwrites using current business performance rather than personal or business credit history.

  • Term loans ranging from six to 18 months
  • Loans up to $250,000
  • Fixed simple interest rates- (you’ll pay the same amount of interest, no matter how quickly you pay off the loan)
  • Daily payment schedules
  • Same day loan approvals and funding

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SmartBiz

smartbiz is an online marketplace for SBA-guaranteed loans. SBA-guaranteed loans are known for slow turnaround times (with an average of 45 days to funding), but SmartBiz streamlines the process. Their computer algorithm can help determine whether you’re SBA loan-eligible before you complete the complex application. Businesses that qualify can complete their application through the SmartBiz website and may receive funding within seven days of completing their loan application.

  • Funding options: Commercial real estate loans, SBA-guaranteed working capital loans
  • Commercial real estate loans
    • $500,000 – $350,000
    • Terms up to 25 years
    • Interest rates ranging from 6.75%–9.99%
  • Debt refinance and working capital loans
    • $30,000 to $350,000
    • Terms up to 60 months
    • Interest rates ranging from 6.75% – 9.99%
  • Funding as fast as seven days after application is complete (but it may take longer)

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Funding Circle

FundingCircle is one of the nation’s first peer-to-peer (P2P) business lending companies. It specializes in low interest-rate term loans for established businesses. Applications for the loans can take as little as 10 minutes if you have all the required financial documentation ready. Funding Circle is a signatory of the Small Business Borrowers’ Bill of Rights which means that business owners can expect clear and transparent terms from Funding Circle.

  • Funding options: Term business loans
  • Loans from $25,000 – $500,000
  • Terms ranging from 6 to 60 months
  • Interest rates from 4.99%–22.99%
  • No prepayment penalties
  • Funding in five days or less

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Fora Financial

If your business grosses at least $12,000 per month, and you need cash fast, Fora Financial could provide a viable loan solution for you. The company provides unsecured short-term loans with funding in as little as 72 hours. Business owners who are looking into these loans should read the fine print carefully. Fora offers partial discounts for early repayment. Early repayment discounts are not equivalent to the interest savings you would receive if you paid off a traditional loan early. This means that loans from Fora may be substantially more expensive than traditional loans if you pay the loan early.

  • Financing options: Unsecured short-term loans
  • $5,000-$500,000
  • Terms up to 15 months
  • Fixed simple interest with partial discounts for early repayment.
  • Funding in as little as 72 hours

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LendingClub

Lending Club is a P2P lender that specializes in affordable term business loans for business owners that have fair credit (or better). Businesses must have been in business at least 12 months and have revenue in excess of $50,000 annually.

  • Financing options: unsecured term loans, secured term loans
  • Loans above $100,00 require a blanket lien on all business assets
  • Loans from $5,000–$300,000
  • Payback terms from 6 to 60 months
  • Interest rates ranging from 9.77% – 35.98%
  • Funding takes an average of 7 days

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Headway Capital

Headway Capital is a lender that specializes in small business lines of credit with fixed simple interest rates. This means that Headway charges interest as soon as the funds are drawn, and businesses pay the funds back through weekly or monthly payments.

The Headway Line of Credit may be a good solution for businesses that cannot qualify for traditional credit lines, but need the flexibility that a line offers. To qualify for a Headway line of credit your business must have been operating for at least 12 months with at least $50,000 in annual revenue.

  • Financing options: Line of credit
  • Credit limits: Up to $50,000
  • Repayment periods: 12 to 24 months
  • Fixed simple interest (interest charged when you withdraw and does not compound over time).
  • Weekly or monthly repayments

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BlueVine Capital

BlueVine Capital is a company that’s creating innovative working capital solutions for small businesses. They currently offer business lines of credit and invoice factoring options that allow businesses to only pay for financing when they need it. Business owners need a 600 credit score and above to qualify for a business line of credit and a 530 credit score and above to qualify for an invoice factoring option. Businesses also need at least $10,000 in monthly revenue to qualify for either option.

  • Financing options: Line of credit, invoice factoring
  • Line of credit
    • Weekly payments
    • $5,000-$5 million
    • Interest rates from 6.9%
  • Invoice factoring
    • $20,000- $5 million
    • Invoice due date must be less than 13 weeks
  • Funding within 24 hours for first advance, and faster afterward

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StreetShares

StreetShares is a newcomer in the P2P lending space. It specializes in moderate interest rates and fast lending. Military members and veterans are especially valued customers, and StreetShares makes sure to give veterans special treatment.

  • Financing options: Term loans, lines of credit, invoice factoring
  • Term loans
    • Three to 36 months
    • $2,000- $100,000 limits
    • Weekly repayments
    • No prepayment penalties
  • Line of Credit
    • $5,000- $100,000
    • Weekly repayments
    • Three to 36-month paybacks
    • No prepayment penalties
  • Invoice factoring (contract factoring)
    • Advance rates up to 90%
    • Monthly factor fees as low as 1%
  • Funding in as little as a few days

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4 ways to use a business loan

Business financing tends to be more complex than consumer finance, so it pays to understand how business lending works.

Businesses typically look for financing during start-up or expansion phases, but businesses may need financing for more mundane reasons. These are a few common reasons businesses seek financing.

Starting a business: More than half of all start-ups use personal savings to start their business, but in many cases personal savings alone aren’t enough to pay for start-up costs. That means many companies need to consider taking out a start-up loan (or finding other means of finance). Antara Dutta, a volunteer mentor and former president of the Delaware chapter of SCORE (the nation’s largest network of volunteer expert business mentors), explained, “Start-up companies need enough money to cover at least twelve months of expenses. It usually takes at least twelve months to get to break even, and we usually say about 18 months to get to the point of earning a profit.”

Managing cash flow: Seasonal businesses may need to seek financing to pay for inventory and materials to complete a project or to stock a store. Other businesses experience a gap between when they pay their bills and when customers pay them. Business owners who cannot cover cash flow needs from personal or business savings may require financing. Invoice factoring or a line of credit may provide the right financing solution for businesses that need to pay bills.

Expanding operations: Businesses looking to expand often need a loan to cover certain costs. Although profitable businesses should consider using business savings, a loan can help a business achieve faster growth. Dutta recommended, “When you’re expanding operations you may be in a good position to refinance any existing debts. Combining debts can allow you to get better terms on all your debts.”

Refinance existing debt: A business that has debt may be able to refinance to cut back on interest or reduce monthly payments. This will strengthen their financial position, and allow for more growth, more profitability or better cash flow.

What to know before you borrow

When it comes to finding the right loan for your business, you’ll have to weigh multiple priorities to find the right loan for your business. These are a few areas business owners should consider when applying for a loan:

Know exactly how much you need to borrow: Whether you’re starting a new business or you’re expanding current operations, you need to explain how much money your business needs, how the business will use the proceeds and how the business will pay back the loan.

Understand the cost of capital: The cost of capital is how much it costs to borrow money. The most common measure for this is APR, although you may see other terms being used. Business owners may struggle to maintain profitability when the cost of capital is too high.

Ask about repayment terms: Unlike most consumer loans, business loans can have a variety of repayment schedules. You may have to make daily, weekly or monthly payments. Be sure you understand how the repayment schedule will affect your cash flow and ability to make timely payments during the repayment period.

Collateral requirements: Business loans may require you to put up certain assets as collateral against the loan. Collateral reduces the lender’s risk because the lender can automatically seize the collateral to recoup their losses. A bank’s collateral requirements aren’t limited to just business assets. Oftentimes, business owners have to use personal assets (like home equity) to guarantee the loan.

“Banks need to know that you’re going to pay them back,” Dutta told MagnifyMoney. “So they might need some collateral, especially for start-ups or high-risk businesses. A lot of times, you’ll have to take out a second mortgage to cover your collateral.”

How much funding you’ll receive: Most start-up companies (69%) who apply for a loan experience a financing shortfall, according to a 2017 small business survey by the Federal Reserve Board of New York. This means the business is approved for a smaller loan than what the company needed. When applying for a loan, it’s important to understand that you may struggle to get enough financing.

How long it will take to get the funds: According to one Harvard Business School working paper, time to funding for business loans ranged from an average of less than five days for short-term lines of credit to more than 45 days for SBA-guaranteed loans. Most online lenders focus on high speed lending, but business owners may have to make sacrifices in other areas (such as cost or repayment terms) to find fast underwriting.

Are pricing and terms transparent? Small business owners often have a tough time comparing prices and payback terms on products from nontraditional (online) lenders. To be sure you’re getting a fair deal, look for clear pricing and terms, including an estimated monthly payment, an APR calculation and whether you face prepayment penalties. If a lender has adopted the SMART Box pricing approach, you can find all this information in your schedule of fees.

Types of small business loans

Small businesses operate in every industry, with revenues ranging from less than $100,000 per year to over $100 million per year. On top of that, business have varying levels of profitability and business credit quality. With such diverse business circumstances, it’s not surprising that there are dozens of business loan options.

These are the most common loans for businesses.

#1 Term loans aka short-term, unsecured, secured and equipment loans

Term loans are an umbrella category of business loans comprised of several different types of loans. In general, a term loan is repaid over a fixed period of time, usually by making even payments on a fixed schedule.

Here are the main types of term loans available to small business owners:

Short-term loans

What they are:Short-term business loans have payback periods ranging from three months to two years. Business owners make fixed payments on the loans until they are paid off.

How they work: After approving a loan, lenders deposit funds directly in a business’s bank account. Then, business owners make regular payments to pay off the loan.

General terms offered: Short-term loans often require daily or weekly payments. Many short-term loans have fixed simple interest rates. This means that you will pay the same amount of interest and fees whether you pay off the loan early or on time. The interest rates on short-term loans can be very high.

Most of the time, short-term loans are not secured by any collateral. However, there are important exceptions to this rule. For example, invoice financing (where invoices serve as collateral) can be set up as a short-term loan arrangement.

Speed: Online lenders specialize in short-term lending, and most can fund loans within 72 hours.

Who should use them: Business owners should be careful when taking out short-term loans. The daily payment schedules may make it difficult to maintain positive cash flow while the loan is being repaid. Short-term loans offer funding fast, but they aren’t a sustainable way to fund a business.

Unsecured term loans:

What they are: Unsecured term business loans are loans that are not backed by any underlying asset like your home. Unsecured business loans may require a personal guarantee, which is a promise to repay the loan regardless of business performance.

How they work: When funding on an unsecured term loan, a lender gives a business owner a lump sum of cash to be used for the business. The lender generally doesn’t restrict how the business uses the loan. In exchange for the upfront cash, the business commits to ongoing payments until the loan is repaid.

General terms offered: Unsecured business loans range from short-term loans (such as the loans explained above), to loans lasting up to several years. They may require business owners to make fixed daily, weekly or monthly payments. Except in the case of short-term loans, business owners will generally save money by paying off unsecured term loans early.

Speed: The time it takes to receive funds depends on the type of lender you work with. Online lenders offer funding in as little as three days, but larger lenders may take a week or more.

Who they are best for: Unsecured loans offer excellent protections for borrowers and are ideal to fund riskier ventures. If the business defaults on payments, the lender will have to go through proper collection channels before collecting any assets from the business owner. However, this protection comes at the cost of higher interest rates.

Secured term business loans

What they are:Secured term business loans are term loans that are directly secured by some collateral. That means if the business fails to pay its loan, the lender can immediately seize the underlying asset. Two in five (42%) business loans are secured by business assets (such as equipment, inventory, buildings or land), but an almost equal number (39%) are secured by personal assets, such as a personal vehicle, cash reserves or home equity, according to the Federal Reserve small business credit survey.

How they work: When business owners take on a secured loan, they receive an upfront sum of cash. The lender may limit how the business can use the cash (for example to purchase equipment). The business will make fixed monthly payments until the loan is paid off.

General terms offered: Most of the time, secured business loans have terms longer than two years. The interest rates on secured loans tend to be lower than rates on unsecured loans.

Speed: Like unsecured term loans, midterm loans tend to take several weeks to fund, but the time for funding will vary by lender.

Who should use them: Secured term loans are riskier for business owners since defaulting could lead to the loss of personal assets. However, they are a good choice for a stable business that has the cash flow to support the new loans.

Equipment loans

What they are: An equipment loan is a loan that’s backed by the equipment you purchase for the business. Business equipment would generally include heavy machinery, vehicles, computer servers, farm equipment and more.

How they work: In general, business owners put 10%-20% down on an equipment purchase, and finance the rest using the equipment loan. The business owner will make monthly payments on the loan (in most cases). If the business defaults on the loan, the lender may repossess the equipment and sell it to recoup its losses.

General terms offered: Down payment requirements generally range from 10% (on an SBA 504 loan) to 20% or more. Payback periods usually range from five to 10 years).

Speed: Business owners who complete an equipment loan application should expect to receive funding in under one week.

Who should use them: Businesses with good credit history are approved for equipment financing more than 90% of the time. If your company needs new equipment, an equipment loan is likely the best way to finance it.

#2 SBA-guaranteed business loans:

What they are:SBA-guaranteed business loans are loans that are partially guaranteed by the Small Business Administration. In most cases, the SBA will reimburse banks up to 85% of the loan value if a business owner defaults on the loan. The SBA limits the interest rate that can be charged on these loans, so SBA loans tend to have low-interest rates relative to other forms of business financing.

How they work: To qualify for an SBA loan, business owners must put up personal or business assets as collateral for the loan. In general, the collateral must cover at least 20%-25% of the loan value.

General terms offered: SBA loans are term loans with monthly payments. The interest rates on SBA loans vary by product, but SBA 7a loans (with terms less than seven years) have maximum interest rates ranging from 7%-9% depending on loan size.

Equipment and inventory loans have terms ranging from seven to ten years. Real estate loans may have terms up to 25 years.

Speed: Compared with other loans, SBA loans tend to have slow funding times. The fastest turnaround time is likely from SmartBiz, which claims it can fund loans as fast as seven days after the application is complete. However, the average time to funding for SBA loans tends to be much longer. Industry experts estimate that most SBA loans take at least a month to fund, and could be much longer.

Who should use them: With great interest rates and limited collateral requirements, an SBA loan makes a great choice for any business owner who has the time to wait for funding. These can be especially helpful for starting or expanding a business.

#3 Business lines of credit

Business lines of credit allow business owners to draw from a predetermined credit limit to meet business needs. After drawing down on the line of credit, business owners will make regular payments to pay it off. Business owners only pay for money they borrow, which makes lines of credit a cost-effective financing option for seasonal businesses.

These are a few lines of credit your business might consider:

Unsecured lines of credit

What they are: Unsecured lines of credit are business lines of credit that don’t require any specific form of collateral.

How they work: An unsecured line of credit allows business owners to draw on a line of credit to meet business needs. The business can continue to draw up to the credit limit. When the business repays the line, the credit limit is replenished.

General terms offered: Unsecured lines of credit have a drawdown period (where the business owner can draw from the credit limit). The drawdown period is usually a year long. After that, businesses must renew their line of credit or begin repayment. Generally, the business owner has to make minimum monthly payments during the drawdown period. The interest rates on unsecured lines of credit can be as low as 6.25%, but can be far higher.

Speed: Time to access funding will vary by lender. Large lenders may be able to approve your loan within a week and have funding to your business shortly thereafter.

Who should use them: Unsecured lines of credit are a low-cost, short-term financing solution for mature businesses. Business owners must have a plan to repay the credit line, or they may end up defaulting.

Asset-based lines of credit:

What they are: An asset-based line of credit is a line of credit that’s backed by an asset. The assets are usually outstanding invoices and equipment or real estate.

How they work: Some businesses have a long gap between when they produce work and when they receive payment for it. These businesses may need access to cash to bridge the gap between the time they spend money and when they receive payments. An asset-based line of credit allows businesses to draw on a line of credit that is secured by outstanding receivables and equipment. The business is free to draw on the line up to the credit limit. Once the business repays the loan, the credit limit is restored.

General terms offered: Most lenders will extend asset-based lines of credit for short terms (under a year). Having short terms on the line of credit gives the lender repeated opportunities to evaluate the strength of the line of credit. To qualify for an asset-based line of credit, you generally have to work in the B2B space, and have large receivables.

Speed: Establishing an asset-based line of credit generally takes a week or more.

Who should use them: Asset-based lines of credit are ideal for businesses with long collection cycles such as custom manufacturers and other businesses that sell on terms.

#4 CAPLines

What they are: CAPLines are SBA-guaranteed lines of credit designed to meet cyclical or short-term working capital needs. Businesses may need to show the expected costs of their projects or contracts to qualify for a CAPline.

How they work: Businesses apply for a CAPLine based on the projected costs of an expansion or larger product. When approved, a business can draw on the line up to the credit limit. When the business repays the credit line, the credit limit is restored.

General terms offered: Maturities on these lines of credit top out at 10 years. Currently CAPLines have interest rates ranging from 7%-9% APR.

Speed: Speed will vary by lender.

Who should use them: CAPLines are an appealing option for established businesses with short-term or seasonal borrowing needs.

Frequently asked questions

Lenders consider a variety of factors when underwriting business loans. More than nine in 10 start-ups (92%) rely on the owner’s personal credit score to obtain business financing, according to the Federal Reserve.

On top of business and personal credit, lenders also need to evaluate your business’s financial prospects during underwriting. Banks lean heavily on the information in your last two years of tax returns. “Banks need to see that you have revenue in excess of your expenses, or you’re not likely to be approved,” Dutta told MagnifyMoney. “Some business owners show losses year after year to minimize their taxes, but that means they won’t be able to get a loan when they need it.”

Start-up companies may need to submit a business plan and a detailed sales model to show how they will earn the revenues to pay back a loan. The plan will show the bank that you have a plan to fix problems should they arise.

The application process for business loans varies by lender.

Most online lenders have simple applications that take just minutes to complete. You’ll provide basic information about yourself and your company. On top of that, you’ll upload documentation to show the financial state of your company (for example, three months of bank statements or two years of tax returns).

Local banks, some of the biggest providers of loans to small business owners may have a more complicated lending process. It’s common for banks to require a detailed business plan with an application. Dutta recommended, “Before taking out a loan, you’ll want to get help from an industry-specific accountant who can help you make a business plan. Don’t be afraid to spend a little money if you’re taking on a big amount of debt. If you can’t afford [an industry-specific accountant], of course, get free help from SCORE. Just be sure to customize any templates you use to meet your needs.”

Following the 2008 financial crisis, small business lending took a dive, and it hasn’t fully recovered. Finding business funding remains a challenge for many business owners.

Small businesses tend to have the hardest time getting financing. In 2015, just 54% of businesses with less than $100,000 in annual revenue were approved for loans. By comparison, businesses earning between $1 million – $10 million in annual revenue saw an approval rate of 81%.

Approval rates for business funding also depend on your firm’s credit quality and where you apply. Firms with good credit (low credit risk) that applied at small banks were approved for business loans 78% of the time in 2016. Firms with medium or high credit risks had the best odds of being approved by an online lender. However, even with online lenders, just 45% of high-risk businesses managed to gain approval.

As of 2014, the average business owner who needed a loan, spent 33 hours looking for financing options, but the actual time to get a funding depends on the loan you’re considering. For example, SBA-guaranteed loans take up to several months to underwrite. On the other hand, online lenders in the business space can often underwrite and fund loans in a matter of days.

The cost of a loan varies based on the type of loan, the collateral required and who issued the loan. For example, loans from prominent online lender OnDeck had an average interest rate of 42.5% annualized, but borrowers often faced even worse interest rates when they took on financing from online lenders.

On the other hand, some forms of business financing can be very cost effective. Interest rates on most SBA loans are under 10% APR, and some lenders boast rates as low as 4.99% on fixed-term loans.

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How You Could Win an SBA Small Business Week Award

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Each year in May, the U.S. Small Business Administration hosts National Small Business Week, and the federal agency honors outstanding small business owners across the country as part of the event. Past winners of SBA Small Business Week Awards include the owners of Ben and Jerry’s, Chobani, Callaway Golf, Dogfish Head and Tom’s of Maine.

Mubarakah Ibrahim was named the 2019 Connecticut Home-Based Business of the Year. Ibrahim is the owner of Mmm Pies and Gourmet Dessert in New Haven, Connecticut where she sells homemade bean pies to local retailers, including a nearby Whole Foods. A bean pie is a traditional African-American dessert made from mashed navy beans, with a texture similar to sweet potato pie, Ibrahim said.

While the contest doesn’t come with a cash prize, it does mean major bragging rights for businesses that win in their state or at the national level. Continue reading to craft your winning nomination for your own SBA Small Business Week Award.

Ibrahim, a longtime health fitness trainer, started the business in 2016 shortly after making her first bean pie. One afternoon, Ibrahim had a craving for the treat she used to enjoy as a child in Brooklyn, New York, but realized there were no businesses in New Haven that sold bean pies. Ibrahim tweaked recipes she found online until satisfying her craving, sharing her bean pie journey with her social media followers.

“I found there was a demand for it,” she said.

Ibrahim now bakes pies in a rented commercial kitchen, but the business is officially based at her home address. She was nominated for the award by the Women’s Business Development Council in Connecticut; “it made me feel my efforts are paying off,” she said about her win.

What is National Small Business Week?

The SBA has recognized the efforts of entrepreneurs and small business owners for more than 50 years.

During National Small Business Week, the SBA hosts a free two-day virtual conference consisting of online workshops and networking. Business owners can participate in all webinars or choose topics that are of interest.

“National Small Business Week is not only an opportunity for us to recognize small business owners and those who champion the cause, but it’s also a learning opportunity,” SBA Georgia District Director Terri Denison said.

The SBA also hosts a hackathon in partnership with Visa. The event encourages entrepreneurs to spend a weekend brainstorming to solve business challenges. The theme of 2019’s hackathon was disaster relief.

To add a social media component, the SBA facilitates a Twitter chat about starting and growing small businesses. Anyone can join the conversation using the hashtag #SmallBusinessWeek.

National awards are given out at a ceremony in Washington, D.C., while SBA District Offices in each state host their own events to recognize local winners.

Next, we’ll discuss the various awards available to small business owners.

How to win an SBA Small Business Week Award

A number of national honors are awarded to business owners and supporters each year. These include:

  • Small Business Person of the Year
  • Small Business Exporter of the Year
  • Phoenix Award for Small Business Disaster Recovery
  • Phoenix Award for Outstanding Contributions to Disaster Recovery – Public Official
  • Phoenix Award for Outstanding Contributions to Disaster Recovery – Volunteer
  • Federal Procurement Award – Small Business Prime Contractor of the Year Award
  • Federal Procurement Award – Small Business Subcontractor of the Year Award
  • Federal Procurement Award – Dwight D. Eisenhower Award for Excellence
  • 8(a) Business Development Program Graduate of the Year Award
  • Small Business Development Center Excellence and Innovation Award
  • Veterans Business Outreach Center Excellence in Service Award
  • Women’s Business Center of the Year Excellence Award
  • Jody C. Raskind Lender of the Year
  • Small Business Investment Company of the Year

Each award has its own nomination form and requirements. For example, the 8(a) Business Development Program award is given to a business that has participated in the program designed for disadvantaged businesses. You can find the downloadable forms here.

The awards vary slightly at the state level, and some states may have more or fewer categories than others. In Connecticut, where Ibrahim won Home-Based Business of the Year, the available awards are:

  • Small Business Person of the Year
  • Minority-Owned Business of the Year
  • Women-Owned Business of the Year
  • Exporter of the Year
  • Jeffrey Butland Family Owned Business
  • Manufacturer of the Year
  • Veteran Owned Business
  • Microenterprise
  • Home Based Business
  • Women’s Business Center of the Year

In Georgia, the awards are similar, with the addition of awards like Rural-Owned Small Business of the Year, Young Entrepreneur of the Year and Second-Chance Hiring Champion. There are even some given to small business supporters, like Small Business Media Advocate and Women in Business Champion.

“That’s to recognize individuals who may or may not be business owners who support and advocate on behalf of small businesses,” Denison said.

Nominations typically open during late summer or fall, Denison said, although nomination forms for the 2020 awards are not yet available. Eligibility is not limited to businesses that have received financing or other support from the SBA — any business owner could be nominated.

Winners are selected based on the nomination packet that’s submitted, Denison said. In Georgia, a three-person committee reviews each nomination and chooses who best meets the criteria for each award, she said. Small business owners may nominate themselves, but most are nominated by others. A consulting firm, chamber of commerce member, lender or Small Business Development Center that the business owner has worked with are typical nominators, she said.

The Women’s Business Development Council in Connecticut was familiar with Ibrahim’s business because she previously attended WBDC workshops and sought help managing her operation.

“I needed help with the financials more than anything,” Ibrahim said. “I got a lot of benefit from consulting with them.”

Making an impression when working with business consultants, as Ibrahim did, could boost your chances of being nominated for an SBA award, Denison said. Your community impact or personal experience could also increase your odds of winning.

“If the owners have gone through difficulties on their entrepreneurial journey and have managed to overcome them and managed to be successful, that always makes for an interesting story,” Denison said.

Whether you’re nominating yourself or another business owner, the SBA provides these tips for submitting a winning nomination form:

1. Aim to win an award that best suits your business. Rather than going for Business Person of the Year, the SBA’s signature award, you could try your luck in more niche categories, like exporting or disaster recovery.
2. Make sure the entire nomination package is complete. All packages must include a completed background form for the nominee; the nomination form, including information about the business, like address and financial history; and a photo of the nominee. Certain awards may require additional information.
3. Brag about the business. The nomination package should highlight reasons why you’re among the best in your industry and how you plan to further your success.
4. Describe contributions to the community. Explain how you give back to your community, whether it’s through monetary donations or volunteered time.

Ibrahim was aware the WBDC nominated her for an SBA award because they asked her to provide some information for the nomination form, she said. After her local SBA District Office notified her that she won, representatives visited her commercial kitchen to see the business in person, Ibrahim said.

Each SBA District Office hosts its own awards ceremony. The Connecticut SBA District Office recognized Ibrahim and the other award winners during a luncheon in May, while in Georgia, the local SBA office also organizes an annual luncheon to honor award winners, Denison said.

Other national contests

You may want to consider entering your business into additional national contests or award programs, some of which offer prize money. Here are a few to check out:

  • U.S. Chamber of Commerce Dream Big Awards: For community-focused businesses with fewer than 250 employees and less than $20 million in gross revenue; $25,000 prize available. The Chamber will name 2019 winners in October.
  • FedEx Small Business Grant Contest: Eligible small business must have fewer than 99 employees and at least six months in operation; a grand prize of $50,000 plus $7,500 in FedEx services is available. FedEx will begin accepting applications in early 2020.
  • EY Entrepreneur of the Year: Regional programs recognize top local entrepreneurs; national honorees are also named. Nominations for the 2020 Ernst & Young contest open in December.
  • Grant programs: Federal and private grant programs offer no-strings-attached funding to qualifying businesses.

Benefits of winning an SBA award

Receiving a National Small Business Week Award from the SBA could increase your company’s visibility. For example, the Georgia SBA District Office sends out a press release each year announcing the winners, which could lead to additional media opportunities, according to Denison.

Attending the awards ceremony could also be a valuable networking opportunity, noted Denison. You could connect with other award winners, as well as members of your local business community. A number of SBA lenders usually attend the luncheon in Georgia, she added.

Ibrahim made useful connections through the SBA committee that selected her for the award. During the visit to her bakery, Ibrahim told the committee about her plans to ship bean pies to customers outside New Haven. However, she couldn’t find a shipping solution that made financial sense for her and for customers.

“They would literally have to pay for $500 worth of pie to make it affordable,” she said. “That’s my biggest dilemma now.”

The SBA committee referred Ibrahim to a company that could ship smaller orders of pies for a less expensive price, Ibrahim said, which wouldn’t have happened if not for the SBA award; she currently ships throughout the state of Connecticut.

“It did connect me with resources and put me on other people’s radar,” she said.

The Home-Based Business of the Year award didn’t come with a monetary prize, but Ibrahim said she felt validated receiving the honor. Although her business has many fans in her community, it’s often challenging to get her bean pies in stores.

“It can be very disappointing when you call and ask someone to carry your product and the answer is ‘no.’ Because the answer hasn’t always been ‘yes,’” she said. “Getting the award gave me the encouragement to keep going.”

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Melissa Wylie
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Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]

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Small Business

What You Need to Know to Start a Business as An Immigrant

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Immigrant entrepreneurs make a significant impact in America, often overcoming obstacles and setbacks to build businesses that contribute trillions of dollars to the national economy each year.

About 3.2 million immigrants ran their own businesses in the U.S. in 2017, according to the most recent data from bipartisan research organization New American Economy. Immigrants represent one in five entrepreneurs in America, generating $1.3 trillion in total sales and employing 8 million people in 2017. The New American Economy found that 45% of this year’s Fortune 500 companies were founded by immigrants or their children.

Yet immigrants, who comprise nearly 14% of the U.S. population, often face hurdles other business owners don’t: Language barriers, long waits for a green card or visa and difficulties finding financing at acceptable terms.

Among those business owners is Hilda Torres, executive director of My Little Best Friends Early Learning Center in Malden, Mass., a child care facility she founded with her cousin Gerardo Loza in 2012. Torres immigrated to the Boston area from Mexico in 1992 with her husband and two children, working as a beautician and volunteering at her children’s daycare.

“It was really hard for me to communicate with anybody there. I didn’t speak any English,” Torres said. “I got really attached to these kids and the director noticed I was really good at what I was doing.”

The director sent Torres to community college to learn English and Torres continued her education to become an instructor at the child care center. She eventually wanted to open her own facility to help working parents find affordable care for their children.

Her cousin had also immigrated from Mexico and offered to invest in My Little Best Friends with Torres. The business now has 33 full-time employees and 115 children from 2 months to 5 years old enrolled, Torres said, but growing the business wasn’t easy.

“It was difficult in the beginning because my English wasn’t very good, and we didn’t know anything about business,” she said. “Little by little, we started just learning on our own. But we struggled a lot.”

A lack of business knowledge is not entirely uncommon among immigrant entrepreneurs, said Edwidge Lafleur, director of the eastern Massachusetts branch of the Center for Women and Enterprise. Many immigrants who come to the center don’t understand how to write a business plan or manage their finances, or don’t understand why these elements are an important part of owning a business.

“They do have a sense of how to run a business, but don’t have any real training,” Lafleur said. “They definitely need to be able to understand the business concepts.”

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Potential hurdles for immigrant entrepreneurs

Anyone who starts a small business typically faces challenges, but immigrants usually have an additional set of hardships, said Rashed Amine, employment and training coordinator at the Arab Community Center for Economic and Social Services (ACCESS) in Dearborn, Mich. Finding child care, transportation and employment are the main concerns for immigrants who are new to America. Amine said these are obstacles that often stand in the way of starting a business.

Immigrant entrepreneurs may encounter these additional challenges:

Language barriers

If you’re unable to converse in your native language, you would need to rely on someone to translate all written and verbal communication for you, Amine said. ACCESS offers free English as a second language courses and staff members work with entrepreneurs to translate business plans and financial statements back and forth between Arabic and English, Amine said.

“We need them to understand and communicate that back to us,” Amine said. “They need to be able to have a legitimate conversation about their business.”

Immigration status

Common immigration classifications in the U.S. include:

  • Naturalized U.S. citizen: A foreign-born person granted U.S. citizenship.
  • Green card, or permanent resident: Permitted to live and work permanently in the U.S.
  • Employment Authorization Document, or EAD: Permitted to work in the U.S. for a specified period of time.
  • B-1 Visitor for Business Visa: Allows temporary status in the U.S. for business purposes.
  • Student visa: Grants entry to the U.S. for educational purposes. Some student visa holders are eligible to work.
  • Undocumented immigrant: A foreign-born person who is unauthorized to live or work in the U.S.

There’s nothing in the U.S. tax code that says you have to be a U.S. citizen or even hold a green card to start a business, but your immigration status could make the process more difficult.

Depending on your immigration status, you may not have a government-issued identification number. This could affect your ability to open a business bank account or hire employees, said Lafleur of the Center for Women and Enterprise in Massachusetts. However, there are alternative identification options, which we’ll discuss in a later section.

Although the U.S. does not provide any type of “startup visa” to bring immigrant entrepreneurs to America, there are a couple of visa classifications that could be useful in starting a business. The EB-5 visa classification grants entry to investors in commercial businesses, and the O-1 visa allows temporary status for those who demonstrate an “extraordinary ability” in business, education, athletics or the sciences. These are just a few of the many types of visas.

Business financing

When Torres opened My Little Best Friends, her cousin’s investment wasn’t enough to get started. They were approved for a loan backed by the U.S. Small Business Administration, but it took a while to find the right bank.

“Getting a loan for a startup was really difficult. We went to seven banks and nobody wanted to believe in us,” Torres said. “We felt discriminated against.”

Many entrepreneurs don’t have enough seed money to get started, Lafleur said. She’s seen immigrant entrepreneurs struggle producing the necessary financial documents when applying for financing, often because they don’t have the time or the knowledge to gather the information.

Lafleur’s experience is borne out by the research: Latino business owners, for example, struggle to find financing available at acceptable terms and tend to rely on informal financing from friends and family, according to the Stanford Latino Entrepreneurship Initiative (SLEI). Venture capital funding is also more difficult to obtain for minority and women founders.

“They need to be able to express what they think their revenues will be, what their expenses will be and what their profit margins will be,” Lafleur said. “The financial piece of it is extremely important.”

How to start a business as an immigrant

Starting a business as an immigrant entrepreneur requires a few extra considerations. Here are some steps to follow to begin.

Understand laws and regulations.

Although immigrant entrepreneurs may have had successful businesses in other countries, they may not be aware of all that’s required of business owners in the U.S., Amine said.

“They need to know the laws that are established in this country and how things work,” Amine said.

Several masonry workers who attended a recent ACCESS workshop had already begun operating a business but hadn’t registered the company and were working under their own names, Amine said. He explained that if an accident occurred and the business ended up in a legal matter, all the owners would be responsible without any protection from personal liability.

Registering your business is not always required, but would separate you from the company, depending on the structure you choose. A business structure or entity, such as a limited liability company or corporation, would protect you and other owners from being personally liable for the business. A sole proprietorship or partnership would not offer protection and would be better suited for low-risk businesses.

Typically, corporations, partnerships and LLCs need to be registered in the state where you conduct business. Sole proprietorships do not need to be registered, which could be appealing to entrepreneurs concerned about their privacy or immigration status, Lafleur said.

Apply for a Social Security or Individual Taxpayer Identification Number.

As mentioned earlier, a government-issued ID is required for several aspects of running a business. Any immigrant who is lawfully residing in the U.S. can request a Social Security card, either at the same time that they apply for a visa or after receiving it.

If you do not have a Social Security number, you could apply for an Individual Taxpayer Identification Number from the IRS, which would be an acceptable form of ID to open a checking or savings account. Nonresidents can apply for an ITIN, regardless of immigration status.

You could also use an ITIN to apply for an Employer Identification Number, or EIN. An EIN would be necessary if you plan to hire employees, as you would use the number to report employment taxes to the IRS.

Open a business bank account.

Entrepreneurs should open a business bank account to keep personal and business finances separate. Having a business account would help you track your revenue and business costs independent of your personal income and expenses.

You may be able to open an account at a local bank or credit union that caters to immigrant business owners, such as Cooperativa Latino Credit Union in North Carolina. Those financial institutions may provide materials in multiple languages or employ bilingual staff members. They may also be a good place to turn to for financing, which we’ll discuss more in a later section.

Write a business plan.

A business plan is a road map for your company and should detail each aspect of the operation, from customer research to marketing plans. When applying for financing, expect to turn over your business plan to lenders, who will use it to gauge the potential success of your business.

Oftentimes, immigrant entrepreneurs don’t have time to spend writing a business plan, Lafleur said. However, the document is crucial when starting a business.

“There’s a lot of resistance to writing a business plan,” Lafleur said. “But that’s what the banks want to see.”

A basic business plan should include the following information:

  • Summary of product or service and company mission statement
  • Market analysis and industry outlook
  • Description of your management team
  • Marketing and sales strategy
  • Financial projections
  • Additional documents like resumes, business permits or credit histories

Presenting a business plan when you apply for financing would help you look professional as a business owner and could speed up the approval process, Torres said.

Financing options for immigrant entrepreneurs

Once you have your ID number and business plan in place, you could start your search for financing. It could be difficult to get approved for startup financing, as lenders typically prefer borrowers who have been in business for two to three years, Lafleur said. However, the financing options below may be well-suited for immigrant entrepreneurs who need funding.

Interest-free loans

A number of financial institutions offer interest-free loans for business owners with cultural restrictions on borrowing, Amine said. In the Islamic community, for instance, it is frowned upon to take out a loan that must be paid back with interest, he said.

“There’s a number of institutions that offer interest-free loans for one reason or another,” Amine said.

For example, the Jewish Free Loan Association offers interest-free small business loans to Los Angeles residents of all faiths. Eligible business owners could receive up to $75,000 to fund their venture.

Microloans

The SBA microloan program provides small amounts of capital to underserved small business owners. Borrowers could receive up to $50,000 to start or expand a business. The program targets women, low-income, veteran and minority business owners. SBA-backed loans typically have competitive interest rates and favorable repayment terms. SBA microloans are not available to undocumented immigrants. The SBA requires nonresident applicants to submit a Social Security number, a permanent resident card or green card, or other documentation of legal status from the United States Citizenship and Immigration Services.

Local organizations may also offer microloans to immigrant-owned businesses in the community. For instance, New York-based Business Center for New Americans offers microloans from $500 to $50,000 with 3-year repayment terms.

Crowdfunding

Online crowdfunding platforms allow business owners to accept financial contributions from friends, family and members of the general public. Whether you have to repay funds or offer something in return would depend on the platform. GoFundMe lets you accept donations without providing anything in return. Others, such as Kickstarter and Indiegogo, may require you to offer a product or stake in your company in exchange for funding.

Resources for foreign-born small business owners

Like the Center for Women and Enterprise in eastern Massachusetts and ACCESS in Michigan, there are organizations across the U.S. that provide resources for immigrant entrepreneurs at the startup stage and throughout the life of the business.

“Being able to educate that population, getting them to realize what the laws are, it takes a little bit longer than several weeks,” Amine said. “That’s OK. It’s not a rush to the finish line.”

Check out these few organizations and professionals you could turn to for business assistance.

Small Business Development Centers

Through a partnership with the SBA, Small Business Development Centers provide consultation and training to entrepreneurs in cities throughout the country. There are nearly 1,000 centers that are typically hosted by colleges and universities or state economic development agencies. The SBA also supports development centers for certain demographics, such as women and veteran business owners. Find your local center here.

Legal groups

Law firms or legal groups in your area may provide pro bono services to help immigrant-owned businesses for free. For example, Volunteers of Legal Service in New York offers pro bono legal work to immigrants through its immigration and microenterprise projects. The Immigrant Legal Resource Center is a national nonprofit that also provides assistance and education to immigrants.

Local entrepreneurial community

Networking with other business owners in your community can prove beneficial, especially if you connect with fellow immigrant entrepreneurs, Lafleur said. Even when operating in different industries, entrepreneurs can often be resources for one another, she said. Some cities also have minority chambers of commerce.

Torres discusses her experience opening My Little Best Friends in Malden, Mass. at the Malden Chamber of Commerce, where she is second vice president, and periodically speaks to classes at the Immigrant Learning Center, which is also in Malden. She shares lessons she’s learned while running the business, hoping to help prospective immigrant business owners find their own path to success.

“One thing I always tell them is never give up,” Torres said. “If you have a dream that you feel like you can accomplish, fight for it.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Wylie
Melissa Wylie |

Melissa Wylie is a writer at MagnifyMoney. You can email Melissa at [email protected]