The small business consultants at BBVA Compass — Teresa Moore, Vice President/Manager Commercial Underwriting, and Molly Watson, Wealth & Retail Credit Risk Governance — both make it their business to help entrepreneurs mind their own businesses.
One common misconception Moore and Watson run into often is that it’s harder for a woman to obtain credit than it is for a man. Here in our Q&A, they debunk that myth, and offer advice for anyone getting ready to apply for a small business loan.
Why is access to credit different for women?
It’s not. Up until 1974’s Equal Credit Opportunity Act, women couldn’t apply for credit, and there may be some residual misconceptions about women and credit. Today, credit standards in banking are the same across the board for all business loan applicants that are U.S. citizens and gender is irrelevant. Even better, the Small Business Association (SBA), offers special finance programs specifically for women-owned businesses. Start-up businesses may face more challenges in obtaining bank financing than an existing business that reflects verifiable ability to repay any requested financing. In such cases, when an established business history has not occurred, mitigating factors can be taken into consideration such as personal financial strength, industry experience, alternative tangible collateral and outside income available for debt repayment.
We meet with small groups of women to help explain the process. It can be overwhelming and we want to make sure they have a full understanding of what’s expected. The difference between a person opening her first restaurant vs. one opening a dental practice, for example, is that the dentist is a better risk in a more stable industry than the restaurateur. Being female has nothing to do with it.
What are some things women can do to accelerate their eligibility for credit if there has been a divorce, a lapse in work history or bankruptcy?
The first, most important step to take is to obtain a copy of your credit score and look for inaccuracies or any issues that need to be addressed. If you do have damaged credit, take the necessary steps to repair it. Do watch out for companies that offer to negotiate with creditors for you: Any accounts marked “debt paid, settled for lesser amount” is only a tiny step up from not paying at all because it means to us that debt obligations weren’t met.
A co-signer can possibly help or hurt your case, and can be considered on a loan if requested.
For a divorce, the first thing to do is to re-establish credit in your own name. As long as past and current payment history is satisfactory and continues to pay as agreed, the divorce alone shouldn’t be a problem. This would include student loans and jointly-held credit. Despite divorce decree settlements, all credit you obtained together must continue to be handled as agreed by both parties. If your credit has been damaged, see if you can have your name removed from debt. If your home is in both of your names, you can ask for your spouse to refinance without your name on the deed, but that may not always be successful.
If you’ve taken time off to raise a family or for any other reasons, a letter of explanation for a lapse in work history would be beneficial for the bank to review. Sometimes a partnership with another individual(s) currently in the industry may strengthen the credit request. Also, the bank may rely on a SBA guaranty to offset any deficiencies.
If you have a past bankruptcy, this can be a challenge and the bank will address it on a case-by-case basis.You want to try and establish impeccable credit after the bankruptcy to help your chances of getting credit in the future.
What about other options like micro-financing and crowdfunding?
There are many sources where people can look online for micro-financing and crowdfunding. We consider these alternative forms of financing. They won’t necessarily hurt you, and the money you raise could be counted in your favor as additional liquidity — though, really, we don’t weigh where the additional capital has come from.
How do I begin the process of obtaining a business loan?
It helps to have something to show your local business banking officer to help describe your idea: your business plan with well-defined budgets that details your financing needs, a website, or any other existing materials that may help make your case.
Set up a meeting with your local BBVA Compass Branch business banking officer. Your business banking officer will be able to discuss different financing options as well as detail the additional documentation requirements for your specific request.
Later, as you go through the application process, you’ll need to have tax returns, financial statements and other items available. What we ask for depends on the type and size of loan you’re looking for. There’s a difference between what we require for a $10,000 loan as opposed to a $250,000 real estate loan, and how much liquidity is required for each of those.
Anything else people should know?
Don’t give up! We are here to help you make your business dreams a reality, and we’ll work with you for the best possible outcome.