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Big banks and small business lending—how do they fit together?
Ever since the recession, the two have grown further and further apart. With increasingly tight lending standards, the biggest banks don’t give out nearly enough business loans to meet small business owners’ financing needs.
Let’s take a look at the numbers:
In 2006, small business lending was thriving, with the 10 largest banks issuing $72.5 billion to small businesses. But in 2014, that number dropped by 38% to only $44.7 billion. Considering that only 20% of small business owners can qualify for bank loans these days, it makes sense why these numbers have dropped so far.
If you’re a small business owner on the hunt for business financing, though, don’t worry—there are now plenty of online lenders who can give you the capital you need when a bank won’t.
But have big banks completely closed their doors to small business owners?
Definitely not. There are still a few banks out there that are committed to meeting a small business owner’s financing needs.
And Wells Fargo is one of them.
There are many Wells Fargo small business loans out there—and here’s your guide to all of them.
When it comes to bank loans, you’re normally pretty limited in terms of the variety of loan products. Traditional banks only offer the tried-and-true financing methods: traditional term loans and lines of credit.
But Wells Fargo small business loans go beyond these traditional financing options. Wells Fargo spices up your choice by offering also SBA loans, short-term loans, and equipment financing along with the traditional medium-term loans and lines of credit.
We’ll get into the details of all the Wells Fargo small business loans available, but first, let’s go through just who can qualify for a small business loan from Wells Fargo.
First off, Wells Fargo small business loans are only options for business owners who bank with Wells Fargo—no surprises there.
If you have a business checking account with Wells Fargo, you’ve met their first business loan requirement. After that, Wells Fargo decides your eligibility for their business loans based on 5 different factors.
Here are the 5 C’s of credit that Wells Fargo will look at to determine whether you qualify for one of their small business loans:
Like most small business lenders, Wells Fargo won’t just lend to anyone. When it’s deciding whether or not you qualify for one of their small business loans, Wells Fargo needs to determine what kind of borrower you’ll be for their bank.
Wells Fargo determines your “character” as a borrower by looking at your personal credit history. If Wells Fargo is lending to your business, you might be surprised that you need to show your personal credit history.
Just think of it this way:
As the owner of a very small business, it’s hard to separate your character from your business’s. If your personal habits show that you’re reliable with your personal financials, odds are good that you’ll be trustworthy with your business’s financials, too.
But if you aren’t responsible with your own money, how can lenders be confident that you’ll be smart with your business’s?
It’s hard to quantify your character, but Wells Fargo does so with your personal credit score. (And if you don’t have a personal credit history, Wells Fargo might consider any personal references, business experience, or work history as a substitute.)
In Wells Fargo’s eyes, “character” is on the personal side and “credit” is on the business side.
Wells Fargo uses a credit reporting agency to look at your business’s payment history with trade suppliers and other business commitments. They’ll also make sure that you’ve fulfilled all your current payments to other financial institutions, just to be sure you don’t have any outstanding, un-accounted for debt.
Wells Fargo considers themselves a “cash flow lender,” which means that they’ll look to your cash flow as the primary source of repayment for the money they lend you. They’ll be looking at your business’s net profit and its non-cash expenses to determine what kind of money your business has at hand for repayment.
What cash flow do you need to prove to qualify for Wells Fargo small business loans?
In general, Wells Fargo’s rule of thumb is that for every $1 in total loan payments, your business has to generate $1.50 in cash flow.
Next, Wells Fargo will consider your “capacity” as a business.
They essentially want to be confident that they’ll be paid back even if there’s a sudden downturn in your business. They’ll want to see that you have the capacity to convert other assets to cash—so they’ll get your loan repayments no matter what. According to Wells Fargo, you can prove your “capacity” by real estate holdings, certificates of deposit, stocks, and other sources of savings that can be liquidated into cash quickly.
Wells Fargo makes both secured and unsecured business loans.
If you’re applying for one of the secured Wells Fargo small business loans, you’ll need to pledge a valuable asset as collateral for the loan. You can put up personal assets (like savings or stocks) or business assets (like real estate, inventory, equipment, or accounts receivables).
Wells Fargo’s 5 C’s of credit will give both you and the bank a general understanding of your loan eligibility.
But here are some more specific requirements you should be aware of with Wells Fargo small business loans:
There is no one type of business loan that works for every small business, and Wells Fargo recognizes that.
That’s why there are many Wells Fargo small business loans out there.
Let’s go through the details of them all.
Wells Fargo’s BusinessLoan term loan is just like the medium-term loan you know and love. With a BusinessLoan, you can get $10,000 to $100,000 in financing for your small business.
Terms generally last for 1 to 5 years for Wells Fargo’s BusinessLoan program, with fixed monthly payments. The interest rate on these Wells Fargo small business loans will be fixed, and they depend on the term length and your credit history—but in general, expect to have at least a 6.5% interest rate. And if an account default occurs, your interest rate will bump up.
The Wells Fargo BusinessLoan will come with a documentation fee of $150. Other than that, you won’t have to worry any other fees or penalties on your loan.
Plus, Wells Fargo offers a discount for business owners with their term loan:
If you have a Wells Fargo Business Choice or Business Platinum checking account, Wells Fargo will waive the documentation fee.
Wells Fargo doesn’t specifically tell business owners what they can and can’t do with their BusinessLoan.
But here’s what they recommend you use the funds for:
In general, Wells Fargo thinks small business owners should use their BusinessLoan to fund their business’s larger investments.
As we mentioned above, Wells Fargo will evaluate your small business’s eligibility based on those 5 C’s of credit criteria.
And if you think you’ll meet their business loan requirements, you might be gearing up to apply for the BusinessLoan.
Here’s what you’ll need to gather for your Wells Fargo BusinessLoan application:
Also note that the BusinessLoan is one of Wells Fargo’s unsecured business loans. This means that you won’t have to put up any collateral in order to qualify for one of these Wells Fargo small business loans.
To keep up with fast-paced online lenders providing small business owners quick business loans, Wells Fargo recently came out with the FastFlex small business loan. A FastFlex loan isn’t all that different from your run-of-the-mill short-term loan.
With the FastFlex loan, you can anywhere between $10,000 and $35,000 for your business. Terms last for 1 year only, and you’ll pay back your loan with weekly payments automatically deducted from your eligible Wells Fargo business checking account.
Interest rates on FastFlex loans start at 13.99%, but your actual rate will depend on your credit history and the loan amount. FastFlex loans can have interest rates as high as 22.99%.
And instead of a “documentation fee,” a FastFlex loan will come with an opening fee of $195. This covers Wells Fargo’s cost of processing and servicing your loan.
Just like a short-term loan, a FastFlex loan is a good option for business owners who need to move quickly on opportunities for their business right when they come up.
A FastFlex small business loan is a great solution when your business needs to:
The FastFlex loan is a good financing solution for business owners who need quick business loans—but remember, fast cash is expensive cash.
And the Wells Fargo FastFlex loan is no exception: you’ll pay a higher rate and a higher upfront fee.
Will you qualify for a FastFlex loan from Wells Fargo?
For starters, you’ll only be eligible if you’ve been a Wells Fargo Business customer for at least 1 year. On top of that, your business checking account needs to have deposits totaling at least $50,000 a year.
After that, the FastFlex small business loan will have the same application requirements as Wells Fargo’s longer-term BusinessLoan. Note that the FastFlex small business loan is also an unsecured business loan, so you won’t have to worry about putting up any collateral.
The FastFlex loan is fast and easy. You can apply online in just a few minutes and get the funds in your Wells Fargo business checking account as soon as the next business day (once you’ve accepted the loan terms).
Or, if you’d prefer to have the funds deposited into your account later on, you can schedule your specific loan funding date up to 2 months from the time of your application.
You’ll also find SBA loans in the lineup of Wells Fargo small business loans.
Wells Fargo is actually the #1 provider of SBA-guaranteed small business loans (by dollar volume funded).
Wondering what SBA-guaranteed business loans are?
Let’s take a step back.
The Small Business Administration encourages small business lending by guaranteeing a portion of loans to small business owners. When the SBA guarantees large portions of loans—up to 85%—they incentivize big banks like Wells Fargo to lend to “riskier” small businesses. In the end, the SBA covers most of the lender’s risk, and more small business owners get access to the capital they need.
The SBA guarantees small business loans through 3 loan programs: the 7(a) Loan Program, the CDC/504 Loan Program, and the Microloan Program.
Wells Fargo participates in both the 7(a) and CDC/504 loan program, offering small business owners loans with longer repayment terms and lower interest rates.
If you secure a 7(a) loan with Wells Fargo, you’ll be able to use the capital for a variety of business needs. The 7(a) loan program is the SBA’s most common catch-all program, so what you use the funds for is pretty much up to you.
You can use a Wells Fargo 7(a) loan for:
The SBA leaves it pretty open. You can’t use your Wells Fargo 7(a) loan to pay delinquent taxes, refinance existing debt where Wells Fargo would take on a loss, or affect a change in business ownership.
And if you get a CDC/504 loan from Wells Fargo, you’ll only be able to use the loan proceeds for major fixed asset purchases. That means big real estate and equipment purchases only.
With these Wells Fargo small business loans, the SBA gives Wells Fargo some application guidelines and then steps aside.
You’ll have to fill out an application that almost all SBA loans are subject to, but after that, the exact requirements for your loan are up to Wells Fargo.
But in general, get ready to prepare a lot of documentation for your Wells Fargo SBA loan. Check out all the SBA loan requirements to know exactly what you’re getting yourself into.
Virtually every business owner will hit a point in the road where they need to buy new equipment for his or her company, but it’s too expensive to pay for out-of-pocket.
Wells Fargo looks to help business owners in this situation with their Equipment Express loan.
Wells Fargo offers small business owners equipment loans ranging from $10,000 to $100,000, depending on the equipment you’re purchasing.
The term on your Equipment Express loan will also depend on the kind of equipment you plan on buying, but you can expect a term of anywhere between 2 to 6 years.
Like most equipment loans, interest rates on Equipment Express loans are based on the loan’s term length, your credit history, and the type of equipment being purchased. But in general, you can expect interest rates to start at 5.75% for vehicle purchases and 6.25% for equipment purchases.
As you can probably guess, an Equipment Express loan is meant to help finance and refinance most equipment and vehicle purchases for your business.
Wells Fargo think they’re best used for:
An Equipment Express loan can help you pay for almost any type of equipment for your business.
But they can’t be used for new and used personal computer purchases—including laptops, desktops, monitors, printers, and so on.
The Equipment Express loan application process is just about the same as what you get for all other Wells Fargo small business loans.
You’ll need to provide your business’s background and financial standing, along with information about your personal finances.
And just like with any other equipment loan out there, an Equipment Express loan is collateralized by the equipment itself. This makes the application process less involved, but Wells Fargo will need to see some information about the equipment you plan on buying.
When you’re considering all the Wells Fargo small business loans available, you should make sure to put their business lines of credit on your list.
Wells Fargo offers both secured and unsecured lines of credit.
Both products work just like you’d expect: you’re given access to a pool of funds that you can draw on for your business whenever you want or need to. You’ll only pay interest on what you draw from your credit line and once you pay Wells Fargo back, your line of credit gets refilled to its original amount.
For both the secured and unsecured lines of credit, Wells Fargo grants you a pool of funds between $5,000 and $100,000.
The secured line of credit starts at an interest rate of Wells Fargo’s Prime Rate + 1%. You’ll then pay an opening fee of $150 upon approval. You’ll also have to pay a $50 annual fee for your Wells Fargo secured line of credit (waived the first year).
With the unsecured line of credit, Wells Fargo takes on a little more risk because they don’t require borrowers to put down collateral. To protect themselves against lending to riskier borrowers, they’ll charge more on interest rates for the unsecured line of credit.
Interest rates start at the Wells Fargo Prime Rate + 1.75%. You’ll then pay an opening fee of $150 for lines of credit below $25,000, and $250 for lines of credit larger than $25,000. And finally, you’ll pay an annual fee of $150 for the unsecured line of credit (waived the first year).
In the end, you’ll pay more for an unsecured line of credit—but you don’t have to worry about putting any of your assets on the line as collateral.
In general, a line of credit is one of the most flexible financing solutions out there. You have a pool of funds in your business’s back pocket for you to use when the need arises.
Both the Wells Fargo secured and unsecured line of credit work well for covering…
Wells Fargo also suggests that both products are great for new business owners who need to establish their credit or rebuild their credit rating.
The application process for both the secured and unsecured line of credit is pretty similar. You’ll absolutely need to provide the usual information about your personal and business financials for both.
But if you go the secured route, you’ll have to provide information about the collateral you’re planning on securing the credit line with.
A Wells Fargo secured line of credit is typically secured by a certificate of deposit (CD) or a Wells Fargo savings account—so you’ll need to provide the account number for whatever you choose to offer as collateral.
So there you have it: the complete guide to any and all Wells Fargo small business loans out there.
Now that you have everything there is to know about Wells Fargo small business loans, should you take the plunge and apply for one?
Well, there’s no easy answer to that question—every small business has different financing needs. But in general, the businesses that benefit most from Wells Fargo small business loans have strong financials and credit ratings.
Remember: Wells Fargo small business loans are still bank loans. They’re hard to qualify for. The best candidates are those who can prove a top-notch credit score, strong cash flows, and profitability.
On the other hand, if you have a less-than-stellar credit score or you’re struggling to pay off other debts you owe, you probably won’t qualify for most of the Wells Fargo small business loans available.
In the end, there are a lot of great financing solutions out there for every kind of small business owner—and Wells Fargo offers just a few of them!