• Entrepreneurship

by mcclurek

June 28, 2024

An Up Close Look At The Ins And Outs Of Startup Loans

African American business owners have many options for securing startup business loans, such as SBA loan programs and bank loans. Find the best fit for your business.

---

Originally Published Sep. 13, 2019. 

Whether you’re looking for a bank loan or asking for funds on Kickstarter, financing a startup is half the battle of being an entrepreneur. Luckily, there are many options for financing your business, such as startup business loans. There are also financing and loan options geared toward African Americans and other minorities, that cater to a community’s specific needs.

In this guide to startup business loans, you’ll learn what they are, what types of business funding are available, and how to apply.

What is a Startup Business Loan?

A startup business loan is a type of financing for a new or expanding business offered by lenders (e.g., banks, credit unions, and other financing institutions) that follow the guidelines set by the Small Business Administration (SBA). Though loans are available outside of the SBA, SBA loan programs help match entrepreneurs with lenders willing to help new businesses with little financial history and greater risk.

You can find lenders partnered with SBA loan programs through the SBA’s Lender Match referral tool. If you want to secure a startup loan, follow these basic steps.

1. Use the lender referral tool and answer several survey questions so the tool can match you with appropriate, potential lenders.
2. In just a few days, you’ll receive an email from interested lenders. You can contact those lenders and set up a time to discuss financing options for your business.
3. Before submitting a loan application, you will have the opportunity to discuss rates and loan terms with the lender.
4. Put together the paperwork necessary for your loan application, complete the application, and submit.

Do I Qualify for a Small Business Loan?

The qualifications for a startup business loan aren’t as difficult as you would think. Does your business meet the following criteria?

• Businesses must be for-profit, so nonprofit organizations are disqualified.
• The startup must do business in the United States.
• The individual(s) must prove they have invested their own time and money into the company.
• The individual(s) must prove they have not been able to secure loans from other lenders.

Being able to prove this information will make it much easier to apply for a small business loan.

What Documents Will I Need to Apply for a Business Loan?

Once you’re ready to apply for your startup business loan, gather all of the necessary information required by the lender, such as:

• Business Plan – A business plan shows potential lenders your company is capable of generating enough revenue to reduce the risk on the financial investment.
• Requested Loan Amount – Calculate the amount of money your startup will need and how it will be used to ensure that funds are going to business expenses.
• Credit History – Your credit history tells the lender how reliable you are in paying back your debts. Some lenders may be less likely to give a loan to an individual(s) with bad or limited credit history.
• Financial Projections – Your financial projections give the lender an idea of how you will pay back your loan. Expect to show projections for the next five years.
• Collateral – Often, to ensure that you pay back your loan, a lender will put a lien on a tangible asset, such as a home or car.
• Industry Experience – Your industry experience demonstrates you have the appropriate knowledge to run a sound and successful business in your field.

Types of SBA Loan Programs

Depending on the amount of money you need and what the money will be used for, there are different loan programs to meet the needs of entrepreneurs. The SBA offers several loan programs, including:

• General Small Business Loans—Also known as 7(a) loans, these loans can be used to start a business, expand or acquire additional businesses, purchase equipment and materials, purchase real estate, and refinance existing debt.
• SBA Microloans—The SBA Microloan program offers loans between $5,000 and $50,000 for small businesses and some non-profit childcare centers. The SBA provides funds to intermediary lenders (typically non-profit community organizations) that have experience with lending and management assistance.
• Real Estate Loans—These are also called CDC/(504) loans. They can be used for the purchase of buildings and real estate, land, construction and repair of new or existing facilities, and long-term machinery or equipment.
• Disaster Loans—These loans are open to businesses of all sizes for the repairs to certain assets that have been damaged or destroyed.

Microloans can be an excellent option for very small companies, especially due to the willingness of these lenders to provide funding to women of color and other minorities.

Small Business Startup Loans for Minorities

Many African Americans turn to family, friends, and their own bank accounts to start a business. Loans are not always easy to secure, and the process can be intimidating. But, there are resources and loan programs available to African American businesses, as well as businesses in underserved communities.

SBA Community Advantage loans and 8(a) loans make funding more accessible to communities that lack the resources necessary to start small businesses, including minorities.

Community Advantage loans typically grant between $20,000 and $250,000 to small businesses. Whether it includes African American communities or not, these loans are provided to small businesses by certified community lenders (no need for a bank loan). The applicant must have:

• Reasonable credit history or a cosigner with good credit
• Some collateral, though not as much as a typical small business loan
• 30% invested capital
• At least two years of experience in the industry
• Proof their business will be able to generate enough revenue to provide for their own living expenses

Outside of SBA programs, there are a number of specific loan funds for minorities and African Americans that small business owners can take advantage of, including:

• Union Bank’s Business Diversity Lending Program—Minority and women entrepreneurs who own at least a 51% stake in a company can secure up to $2.5 million. The company must be at least two years old and generate less than $20 million in annual sales.
• The Business Center for New Americans—People of color who are immigrants or refugees in New York City can secure up to $50,000. New businesses may apply, and no minimum credit score is required.
• The National African American Small Business Loan Fund—African American-owned small businesses in New York City, Los Angeles, and Chicago can secure loans from $35,000 to $250,000. Financial consulting is also available.
• Accion—This is a nonprofit, community organization that offers loans between $300 and $1 million for mature and startup businesses. More than half of its borrowers are from minority communities. Startup business loan interest rates will depend on the applicant’s credit score.

Additional Funding Options:

If you don’t want to rely solely on startup business loans, there are still plenty of other funding options for your business. Let’s take a look at several of those options and why they may be a good or bad idea for your startup.

Bank Loans

It’s easier to get a general bank loan (rather than an SBA loan) if your business has been around for a few years. If you’re looking for a startup business loan, then you will need good credit and enough collateral to nearly match the amount on the loan. This level of collateral, as well as the credit score requirements, can make bank loans much more difficult to secure than SBA loans.

On the other hand, establishing a relationship with a bank can be good for building your business credit and managing your money. Banks often offer important financial assistance and consultation.

Small Business Grants

Grants are a great way to secure funding without having to pay back a debt. Unfortunately, grants tend to be allocated to nonprofits (e.g., educational or arts nonprofits) and federal or government institutions. Therefore, grants should probably not be your first option for financing a for-profit business.

With that said, there are opportunities to secure grants for businesses that operate within specific, niche industries. For example, businesses that improve economic development or push research initiatives may have an advantage in getting federal or local grants.

Grant programs, such as the Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer Program (STTR), provide funding to businesses that explore new technologies or use technology for research. Tech startups would be an appropriate type of business to apply for these types of grants.

Credit Cards

Credit cards can be a rather dirty word when it comes to business funding, and that may be due to high-interest rates and late payment fees.

According to the Federal Deposit Insurance Corporation, credit cards should only be used to fund “short-term cash flow problems” while you are waiting on guaranteed income. Abuse of credit cards can damage your business and personal credit, so it’s best to look at other options first.

Crowdfunding

Crowdfunding is a high-tech method for funding your business, but it’s accessible to just about anyone with an Internet connection. If lenders won’t give startup business loans, then it may be time to turn to individual investors and donors on crowdfunding platforms.

Crowdfunding can mean pulling money from anyone interested in your product or service, which is the case for platforms like Kickstarter or GoFundMe. Meanwhile, equity crowdfunding platforms are open only to accredited investors. These platforms may require a minimum investment amount, which can provide significant capital for your company. These platforms may include CircleUp or SeedInvest, for example.

Sometimes, crowdfunding also refers to the sale of shares or stock in a company. However, this would require the business owner to understand and comply with securities laws, which govern how financial information is reported to the public. If this isn’t your area of expertise, then it’s best to learn more about the online crowdfunding platforms previously mentioned.

(Photo by Stephen Coburn on stock.adobe.com)

Accredited Investors

Venture capital and “angel” investors specialize in funding startup businesses, especially tech startups. Similar to share sales, this method should not be pursued without some knowledge of investor relations and perhaps legal consultation.

Angel investors, which are usually wealthy individuals, and venture capital firms put up large amounts of capital with the expectation of high returns on investment. Unlike a loan, you will not be in debt to these investors, but your business should demonstrate the potential for serious growth and significant returns. You may also have to give up some control of your business to these investors who want to own a stake in the company.

How Do You Secure Money from Investors?

You’ll need to network and woo wealthy investors. This is perhaps one of the disadvantages of relying on investor capital. If you don’t have the connections or the resources, it can be difficult to access investors or know how to pitch to them. However, you can start by researching venture capital firms and investor listings online.

Once you find investors, the process is not dissimilar to applying for a loan. You will have to present your business plan, financial statements, business structure, board and governance structure, products/services, and financial projections to those investors. If an investor is interested, you will then decide on terms and conditions in an official term sheet.

Overall, your business will most likely benefit from multiple sources of funding rather than just one. Each funding method should take into account your company’s unique operations and financial position.

Time to Apply for a Startup Business Loan?

Now that you’ve been introduced to startup business loans and how to get them, you can begin the “shopping” process. Always look for low-interest rates, repayment terms, and other fees before agreeing on a lender. And, most importantly, consider all of the different avenues you can choose to fund your business, whether it be an SBA loan program, a bank loan, or even a wealthy investor.

RELATED CONTENT: National Mortgage Lender Extending $20B In Loans To Black Borrowers Through 2028

• Lifestyle

by mcclurek

February 27, 2020

Cigna Medicare Supplement | 2020 Plan Review

---

Cigna Medicare Supplement | 2020 Plan Coverage and Review

Designed to work alongside Medicare Part A and Part B (Original Medicare), Cigna Medicare Supplement plans (also known as Medigap plans) help to pay for certain out-of-pocket expenses such as deductibles, coinsurance, and copayments not covered under Original Medicare.

In the next few paragraphs we’ll explain:

• What Original Medicare covers
• How Medicare Supplement plans work
• How Medicare Supplement premiums are calculated
• What the benefits of a Cigna Medicare Supplement plan are
• How to enroll in a Medicare Supplement plan

What Does Original Medicare Cover?

All Medicare Supplement plans are designed to help with out-of-pocket expenses that Medicare Part A and Part B don’t cover. To fully appreciate what that means, let’s run down what Original Medicare does and does not provide.

Medicare Part A

Part A provides coverage for inpatient hospital care, along with:

• Skilled nursing care
• Home health care
• Hospice care

Medicare Part B

 Part B covers medically necessary and preventative services, such as:

• Physician visits
• Outpatient surgery
• Physical and occupational therapy
• Some durable medical devices
• Certain cancer treatments including chemotherapy

Original Medicare Expenses

Original Medicare doesn’t pick up all of your healthcare costs. You are responsible for the following premiums, deductibles, and coinsurance fees:

1. Part A hospitalization deductible. Each time you are admitted to a hospital there is a deductible before any benefits kick in. In 2020, that deductible will be $1,408. This deductible covers your share of costs for the first 60 days of your hospital stay.
2. Part A hospitalization coinsurance. Beginning on day 61 of your hospital stay, you will have a $352 per day coinsurance cost. After your 90th day of hospitalization, your coinsurance is $704 per day.
3. Part B premium. In 2020, the average monthly premium for Part B will be $144.60.
4. Part B deductible. The 2020 Part B annual deductible is $198.
5. Part B coinsurance. Once Your Part B deductible has been met, you will be responsible for 20% of the Medicare-approved amount for covered services. 
6. Excess charges. Some healthcare providers don’t accept Medicare assignment. Assignment is the amount Medicare is willing to pay for a service. Providers who don’t accept assignment are allowed to charge up to 15% more than the Medicare-approved amount. For example, if the Medicare-approved cost for a service is $1,000, but your provider doesn’t accept Medicare Assignment, they can charge you another $150 (15%). You then would be responsible for $200 (20% coinsurance) and $150 for the excess for a total of $350.

As you might imagine, these costs can add up quickly, particularly if you have or develop a chronic disease like high blood pressure, arthritis, or diabetes.

How Do Medicare Supplement Plans Work?

Medicare Supplement insurance plans are offered through private insurance companies such as Cigna. There are elven standard Medicare Supplement plans approved by the federal government. These standardized plans are lettered A, B, C*, D, F*, F-High Deductible*, G, K, L, M, and N. (*Beginning in 2020, Plans C, F, and F-High Deductible are only available to individuals first eligible for Medicare before 2020.)

The federal government requires that all private insurance companies offer the same basic benefits. In other words, a Medicare Supplement Plan G will offer the same benefits whether you purchase it from Cigna or another insurance company.

While plan benefits are the same across all insurance companies, premiums will vary. In addition, some companies may offer extra benefits.

How Much Do Medicare Supplement Plans Cost?

Pricing for monthly Medigap premiums is set by the insurance companies issuing the policies. There are three methods used to determine premiums:

Community-Rating

This method charges the same premium for all eligible applicants in a state without regard to age or gender.

Issue-Age-Rating

This method of calculation uses your age when you first enroll to determine the premium. With this method premiums will not go due to increases in your age, provided that your policy is renewed.

Attained-Age-Rating

This method is likely the most common calculation method. Your premium is based on your age at enrollment. Premiums start out low, then increase as you age.

In addition to these rating methods, plan premiums can be influenced by the plan letter you select, where you live, extra benefits offered by the insurance company, discounts, and medical underwriting.

Why Choose a Cigna Medicare Supplement Plan?

Cigna offers a variety of Medicare Supplement plans with competitive monthly premiums. In most states, Cigna also offers a Household Premium Discount for households with more than one individual enrolled in a Cigna Medicare Supplement plan. Cigna provides free plan quotes for Medicare-eligible individuals. Cigna customers have access to dedicated customer service representatives through a toll-free number (1-866-459-4272).

Eligibility for Cigna Medicare Supplement Plans

If you are enrolled in Medicare Part A and Part B, then you are eligible to apply for a Cigna Medigap plan. The best time to enroll is when you first enroll in Part B. Enrolling and paying premiums for Part B marks the beginning of your Initial Open Enrollment Period when you can purchase a Medigap plan without any underwriting concerns. During your Initial Open Enrollment, you have guaranteed issue rights which means you cannot be declined coverage for any medical reason.

If you opt for a Medicare Advantage plan rather than a Medigap plan, and your Medicare Advantage plan loses its contract with Medicare, or you permanently leave the plan’s service area, you can apply for a Medicare Supplement plan with guaranteed issue rights.

Otherwise, you will have to wait for the annual Medicare Open Enrollment Period, and you will be subject to medical underwriting.

How to Enroll in a Cigna Medicare Supplement Plan

To continue evaluating your Medigap plan options, consider obtaining a free, personalized Medigap quote from a licensed Medicare insurance agent. With a personalized quote you’ll have access to plan and premium information, tailored to fit your needs.

CNBC reports that the average American has $38,000 in personal debt, not including home mortgages. Taking out loans can be extremely beneficial, and sometimes necessary, depending on your financial needs. Common purchases using loans include new homes, cars, weddings, home projects, or medical bills.

“A personal loan can be a good way to consolidate existing debt, such as credit cards,” says Kathryn Bossler, a financial counselor at the nonprofit GreenPath Debt Solutions.

When applying for an unsecured loan, it helps to have a good credit score to get approval, but it is not completely necessary. We explain the difference between unsecured and secured loans, the pros and cons to unsecured loans, and why you might consider applying for one.

How to Choose a Personal Loan

Shopping for a personal loan isn’t like shopping for a couch. You have to take multiple factors into account. Here are questions to ask yourself, when it comes to personal loans:

• How much money do you need? Before you apply for a personal loan, evaluate your financial standing and know how much money you really need. If you want a loan for debt consolidation, for instance, take both the debt and the expected interest into account. Make sure the loan amount is reflective of your financial situation. You want to be certain that you can pay it off in time.
• How quickly do you plan on paying the loan back? Know how long it will take to pay back. If you’re planning to pay it back in six months, you’ll want to calculate how much you’ll have to pay in total.
• Are you putting down collateral? When you buy a home, the home is the collateral. If you don’t pay your bills, the lender can take back the home. If you need money for a wedding, in contrast, you’ll need a personal loan that doesn’t require collateral.
• What is your credit score? Lenders will consider your credit history, when you apply for a loan. The better the score, the better chances you’ll have of getting a low-interest loan.

Pros and Cons

There are many benefits to applying for and accepting an unsecured loan, especially when you’re in need of immediate funds. For starters, you get the benefit of consolidating all of your debts and paying one lender. There are other benefits, too. Here are a few:

• You don’t have to put down collateral. If you can’t pay off your mortgage or your auto loan, eventually you could lose your home or car to the lender. However, with unsecured loans, you get the benefit of not having to put any of your assets on the line.
• You can get approval within 24 hours. Some loans take weeks to procure, but with unsecured personal loans there are many lenders who offer immediate responses.
• These loans are more flexible. A lot of factors impact your approval, but unsecured loans have some flexibility. You might need a set amount for a wedding or a business and lenders will take this into account.

If you need funds fast, unsecured personal loans are a good option. However, it’s important to know the cons of committing to an unsecured loan:

• Unsecured loans typically have high interest rates. This isn’t usually the case for secured loans. For example, the average auto loan rate for someone with a 650 credit score is 7.65% on a new car. Want to know what interest rate to expect? Consider using a personal loan calculator.
• Personal loans without collateral are smaller. If you’re trying to get a large amount of funds, an unsecured loan isn’t the best option. Because lenders take a bigger risk when they approve them, they typically commit to smaller loan amounts.

Types of Unsecured Loans to Consider

There are two different types of unsecured loans: (1) revolving loans and (2) term loans. Revolving loans are loans that come with a credit limit that can be spent and repaid over and over again. Personal lines of credit and credit cards are the best examples of revolving loans.

A term loan is a loan that establishes a set timeframe and a set amount that needs to be paid off. The most common term loans are student loans, peer-to-peer loans, business loans, and personal loans.

Banks, credit unions, and online lenders offer unsecured loans. The biggest difference between banks and credit unions is that credit unions are not-for-profit and sometimes offer better interest rates than banks.

If you are already a bank customer, however, you might receive benefits from your bank, which may include: access to free credit scores, no extra fees, or easy access to debt consolidation loans. You can also consider online lenders who will be more likely to offer unsecured loans to individuals with bad credit. With online lenders, you can apply online.

Is an Unsecured Loan Right for You?

Secured loans are pretty straightforward. The most common secured loans are car loans and home mortgages. Less common secured loans include savings-secured loans, and title loans. If you’re buying a car, a home, or if you are in need of borrowed money for a vehicle maintenance or repair, you might want to consider a secured loan.

If you’re in need of funds for personal reasons, like a wedding, unexpected business expenses, or medical expenses, you should consider an unsecured loan. Here’s what you should ask yourself when considering if an unsecured loan is right for you:

• Do you expect to make a large purchase in the foreseeable future? If you have extra savings, then you might not need a loan. Consider how much money you really need. Lenders apply for various reasons: a funeral expense, a cross-country move, a hefty medical bill, or a home remodel.
• Do you have a lot of debt to pay off? Achieving a debt-free life is a great goal and consolidating can help you reach it. If you have outstanding balances on multiple credit cards, or various loan balances, you might want to consider one lender so you can combine all of your debt. Unsecured personal loan lenders often offer lower interest rates than credit card companies. However, if you are dealing with an exuberant amount of debt (debt that you can’t imagine paying off at any point in the next five years), you might have to consider other options like bankruptcy.
• Do you have to pay unexpected bills? Life happens. Maybe you broke your back. Maybe you and your partner are choosing to pay for fertility treatments. Maybe you have to have a root canal. For many reasons, you could end up with unexpected bills that you can’t afford to pay off right away. This is a good reason to consider unsecured loans.
• Do you have to pay business expenses right away? When you start a business, you often take out loans to get the business up and running. Sometimes, there are unexpected costs that require quick funds. An unsecured business loan can be obtained much quicker than a secured business loan.

Whatever you decide, make sure that you ask yourself the right questions before you start shopping and applying for a loan. According to Aaron W. Smith, RFC, AIF, “When looking to obtain a [business] loan, look for the following: the right lender, the lowest interest rate, an institution that has an interest in a business of your type and size with an interest in servicing the various credit and non-credit needs of your company, and financial stability.”

How to Qualify for an Unsecured Loan

Most unsecured loan applications are approved based on an applicant’s creditworthiness. Since lenders take a bigger risk on unsecured loans, they typically come with higher interest rates. Some lenders require a minimum credit score so check their terms and conditions before applying.

If you have bad or poor credit, you can still get approved for a loan. Lenders like LendingClub will offer loans to those with bad credit. Bad credit is considered 300 to 620, according to FICO. The best score is 800. Not sure of your credit score? You are entitled to one free copy of your credit report every year. You can go through Experian, FICO, Equifax, or a free credit scoring service.

When you apply for an unsecured loan, you should expect to provide the following information:

• Personal information
• Background check
• Credit history
• Income level
• Debt amount

Approval will mostly be based on your creditworthiness, which is proof that you are capable of paying back a loan. If you have a higher score, you have a better chance of (a) getting approved and (b) getting a lower interest rate. However, it is possible to get a loan with bad credit. You might have to put up collateral (such as home equity or your car) or use a co-signer who is willing to take a risk on you.

Just know that if you don’t pay your monthly payments to the lender, this could greatly impact your credit score so only apply if you are confident that you can pay it off. Even one late payment can cause your credit score to decrease significantly so make sure you are choosing the right lender. Go to Better Business Bureau to read reviews of potential lenders before you apply.

How to Manage Unsecured Loans

If you aren’t sure if you can pay off the unsecured loan quickly enough, consider taking the time to build up your credit score. This isn’t always possible. If you are preparing for a funeral, you have to pay sudden, upfront costs, but if you are preparing for a wedding, you have many months to build credit before applying for a loan.

Once you get approved for an unsecured loan and know your unsecured loan rates, here are the best practices for managing it:

• Schedule monthly payments. Most lenders offer online payment methods. To ensure that you don’t miss a single payment, schedule them as soon as you get approved. If you can, set up automatic payments. The monthly fee might be higher than you expected, but it is a set number.
• Avoid defaulting. Defaulting means you are admitting to your lender that you can’t pay back your loan. If this happens, the lender can put your account into collections and take legal action against you. You would also hurt your credit score so it is best to simply avoid this.
• Remember why you applied for the loan. Maintaining financial goals is important for obtaining overall financial health.

When you eventually pay off your loan, Matt Frankel, certified financial planner and personal finance expert at The Ascent says, “Continue using just as much money as you had been using to pay down debt — but instead of putting it toward credit card and loan bills, put it into savings or investments.” The goal, ultimately, is to be satisfied with your financial wellbeing.

Preparing to Pay off Your Unsecured Loan

Before you get approved for a loan, start to consider the unsecured debt that you are about to owe. Loaned money is not free money. Loaned money is borrowed, meaning it has to be returned. Add that monthly payment into your budget. If you don’t have a budget yet, get started right away.

Do you need quick cash? Loans can be extremely beneficial, especially if you have debt in various places. Reasons to consider a personal loan include debt consolidation, big purchases, and unexpected financial costs.

You can use a loan to pay for wedding expenses, big moves, house repairs, or medical bills. Most loans are approved based on creditworthiness. If you don’t have time to improve your credit score, you can apply for a personal loan without getting your credit history checked. It may not be a wise idea, but it is possible.

Various online loan providers will approve your loan application without viewing your credit score. Some require collateral to minimize the lender’s risk. Many include high interest rates. We breakdown the reasons for choosing personal loans with no credit checks and offer alternatives to ensure that you are getting what you need while protecting your financial health.

Pros and Cons to Personal Loans with No Credit Checks

The only benefit to a personal loan with no credit check is that they are fast. If you are a borrower living paycheck to paycheck, with bad credit, and in need of fast money, this type of loan seems ideal. Personal loans without credit checks are essentially a form of short-term bridge financing. The problem is that these loans are very expensive and can be a long-term problem.

Here are some of the many cons to personal loans that don’t require credit checks:

• Lenders raise their rates to account for all applicants. A lender may approve your application without viewing your credit history, but to ensure that they aren’t putting themselves at risk, they often provide very high interest rates, making it almost impossible for borrowers to pay them off. You could end up paying more than 100% APR.
• The loans often require a minimum loan amount. If you are in need of a smaller dollar amount to secure your monthly rent fee, you might want to consider alternative options to personal loans. Loans from providers like Capital Good Fund offer anywhere from $300 to $20,000 in loans.

Comparable loans include payday loans and auto title loans. According to the Pew Charitable Trusts, over 80% of payday loan borrowers don’t have enough money to pay their payday loan payments. Payday loans are quick, small amount loans that are due quickly. Typically, these loans are $500 or less and they come with high interest rates and additional fees. Auto title loans, in contrast, use your vehicle as security or leverage in order to get fast cash. Make sure you read all terms and conditions before you secure a loan.

If you can afford to wait and apply for a personal loan that checks your credit even if it’s bad credit then you will likely get a better loan. Even individuals with low credit can get approved for alternative loans.

Alternative Types of Personal Loans

Consider what type of loan you really need. Alternative types of loans include home equity loans, student loans, and secured and unsecured loans. Secured and unsecured personal loans are better than personal loans with no credit checks. Here are the major differences:

• Secured personal loans require collateral. Secured loans include auto loans and mortgages. One of the benefits of secured personal loans is that when you put an asset up for collateral, you have a better chance of getting a lower-interest rate. Even though the lender could take away your assets if you don’t make your payments, these are great loan options for anyone in need of significant funds, who are sure they can repay the loan to avoid asset forfeiture. Car title loans and payday loans are both considered secured personal loans and we recommend avoiding them.
• Unsecured personal loans don’t require collateral. When you don’t offer collateral, lenders typically raise interest rates on loans that get approved. A few perks to unsecured personal loans is that the process is quick and you can get a loan without risking a personal asset.

Personal loans can be used for various reasons, including debt consolidation. A loan provider can approve your application, combine all of your debt into one account, and charge one monthly payment. Often, loan interest rates are lower than credit card interest rates which is why you would typically rather pay off a personal lender than a credit card company.

Installment Loans

Unlike revolving lines of credit, which come with credit cards, installment loans require predictable payments. When you take out an installment loan, you know how much you owe and when it is due. Auto loans, personal loans, mortgage loans, and student loans are all considered installment loans.

The perk of an installment loan is that it is easy to pay off in a set amount of time. The negative is that you can’t change the amount you’ve asked for once you’ve been approved so you have to make sure you ask for the right amount at the beginning. This can be difficult to calculate when you are considering a personal loan. What if your wedding expenses increase? What if the home remodel costs more than you expect?

If you take out more than you need, you could end up paying more in the long run. Make sure you are conservative when you apply, and do your best to calculate the exact fee as best as you can. If, for instance, you already plan to spend extra on a DJ or a weekend trip, then add that into your loan request.

What to Consider Before Applying for a Loan

Before you start shopping for a loan, think about your long-term goals. Would you like to be debt free in five years? Would you like to buy a new home for your family? Do you want to start a business? Are you prepared to pay off loan debt? Many factors should go into your decision to choose a personal loan.

As you begin shopping for personal loans and comparing lenders, consider the following:

• Your budget flexibility. If you need to add a new expense to your budget like a wedding, a new vehicle, or a medical bill, you should consider your budget. Can you afford to pay for this unexpected cost upfront? Do you have time to save up? Do you need the extra cash right now?
• How much money you really need. If you need a loan to pay for something, calculate exactly how much you need. You don’t want to ask for too much or too little.
• How quickly you need the money. If you need the money within a few days, you can get quick approval for an unsecured personal loan. Some are approved within 24 hours.
• What type of lender you prefer. For personal loans, there are three types of lenders: (1) credit unions, (2) banks, and (3) online lenders. They all have their pros and cons. Consider which one makes the most sense for you and your needs.
• What financial goals you hope to achieve. You don’t have to aim for millionaire status. A financial goal can be as simple as saving for retirement, opening a 401k, funding your passion project, or getting your child through college without student loans.

Best Loan Providers for Bad Credit

Finding the right loan provider is just as important as choosing the right personal loan. If you have good or excellent credit, you will likely get approved for a personal loan within days. If you have bad or poor credit, you can still get approval. However, your loan will likely have high interest rates, but this is better than choosing a personal loan that does not require a credit check.

Here are the best online loan companies for individuals with bad credit:

OneMain Financial
Best for repayment options

You can borrow an unsecured loan for $1,500 to $20,000 with various repayment options, anywhere from 24 to 60 months. APR range varies depending on the borrower’s credit score. You could get as low as 18% or as high as 35.99%.

LendingClub
Best for bad credit

You can get up to $40,000 in loans with Lending Club, but make sure you pay attention to the interest rates. You could get a low interest rate or you could end up paying 35.89% APR. One of the best perks to LendingClub is that they allow you to make extra payments outside of your monthly balances, allowing you to pay your loan off early.

OppLoans
Best for optional personal loans

Borrowers with bad credit can apply for personal loans from OppLoans. Bad credit scores are considered 630 or below. Though the interest rates will be really high, you can get access to the funds you need from OppLoans. Because individuals with bad credit are considered risky borrowers, interest rates can be as high as 199%.

You can also get personal loans approved from credit unions and banks. If you already have a bank account with a national bank, you can ask about their personal loan options. Your bank might choose to offer you a signature loan which essentially relies on your signature to prove that you can pay off your loan. Perks of choosing your own bank for a loan is that you might be able to avoid extra fees and get benefits. Just make sure the loan offers fit with your needs.

How to Get a Personal Loan with No Credit History

If you are in need of funds, for whatever reason, but don’t have a credit history, you can still get approved for a starter loan. You can either use a co-signer, apply for a personal loan with no credit check required, or apply for an unsecured personal loan.

If it is your first time building your credit history, you should do your best to pay off your balances or payments every month and ensure that you are paying on time. If you keep a low or no balance and you maintain automatic payments then you can quickly build up your credit which will inevitably give you easier access to loan options.

Optional Ways to Improve Your Credit Score

According to Talaat and Tai McNeely, co-founders of His and Her Money, “Financial freedom is not going to happen overnight. You didn’t get into financial bondage overnight, and you’re not going to achieve financial freedom overnight either. But you can achieve it if you stay consistent.”

Consistency can help you build your credit history and improve your credit score. The are many ways to build credit. You can apply for a personal loan and consolidate your debt and you can have your loan provider focus on credit reporting so the three credit bureaus are updating your history.

Here are some of the easiest ways to increase your credit score:

• Pay all of your bills and payments on time. This includes your electrical bill, your cell phone payment, your credit card balance, and your personal loan payment. Schedule these payments so you never miss them.
• Keep your balances low or eliminate them completely. If you have credit cards, you want to make sure that you are paying off your balance or keeping your balances low. The best way to do this is to pay more than the minimum balance and ensure that your balance is less than 30% of your credit limit.
• Monitor your credit score. Avoid hard pulls, when possible. Hard pulls are often made by employers, credit card lenders, or loan providers. When you close a credit card account, for example, it can impact your credit score so it is better to just leave it open even if you aren’t using it. Soft pulls don’t impact your score. You have the right to a free credit report once a year but some providers offer more.
• Pay off your debt. This may seem self-explanatory but 300 million Americans have debt, according to a 2018 study. Paying it down is difficult but possible and the quicker you pay it down, the more likely your score is to rise.

If you have the opportunity to increase your credit score before applying for a personal loan, you should. Though personal loans with no credit checks are available, the best ones check credit scores and if you have good credit, you have a better chance of getting a lower-interest loan.

Why You Should Avoid Personal Loans with No Credit Check

If you can get approved for a secured or unsecured personal loan, it is a better option than a personal loan with no credit check. The terms and rates of a personal loan with no credit check are often impractical and absurdly high, making the debt that much more difficult to pay off so make sure you do your research.

Instead of applying for a no credit check personal loan, apply for a bad credit personal loan which will have high interest rates but not as high as no credit check ones. If you have time, work on improving your credit history and paying off debts before applying for any loans.

Are you planning to start your own business? Buy a new home for your family? Transition to a new company? Or purchase that new Corvette Stingray? Your credit score will likely be taken into account by the employer, real estate agent, or dealership. Higher always seems better and even though some entrepreneurs are fighting the credit score system, credit still matters in today’s economy.

“It is one of the most important numbers that will be associated with you during your lifetime,” says Forbes advisor Kristin Stroller.

Regardless of the score number you currently have, there are ways to improve it and one of those is by opening a secured credit card. Secured credit cards are credit cards that require a refundable security deposit. The best ones help you build credit quickly, while offering low annual percentage rates (APR) and great benefits. We outline the best secured credit cards, the best tips to improving your credit history, and how to achieve better financial health.

The Seven Best Secured Credit Cards

When it comes to choosing a secured credit card, you’ll want to consider three things: (1) your current credit history, (2) how much money you want to put down for a deposit, and (3) what benefits you’d like to have.

These are the seven best secured credit cards available today:

Capital One Secured Mastercard
Best for a low security deposit

For this card, you can put down a $49.99, $99, or $200 security deposit, making it one of the best cards for a low deposit. However, what makes this card worthwhile is the 2% cash back on purchases spent at gas stations and restaurants of up to $1,000 per quarter, as well as unlimited 1% cash back on all other purchases. There is no annual fee and the lender conducts automatic reviews to determine if you qualify for an upgrade and a return on your deposit. The only con is the 24.99% APR and 10.99% APR on balance transfers for the first six months.

Discover It Secured Credit Card
Best for cash rewards

This secured credit card goes beyond just building credit. Discover offers 1-2% in cash back options, with no annual, monthly, or processing fees. You get 2% cash back on the first $1,000 spent at restaurants and gas stations per quarter. After the first year of having the card, you get double the cash back rewards, making this the best option for long-term benefits.

Citi Secured Credit Card
Best for building credit quickly

This isn’t the most glamorous credit card, but with a $200 minimum deposit, you can start to build credit. Citi reports monthly to the three major credit bureaus and offers an online management system that you can access 24/7 from any device. No annual fee is required. The card comes with a 24.49% variable APR and you only have to pay 3% APR on balance transfers. If you don’t pay off your minimum balance, you will get penalized.

OpenSky Secured Visa Credit Card
Best for individuals with bad or no credit

This card doesn’t require a credit check, which means that anyone can use it to build credit. There is a one-time account fee, a $35 annual fee and there are no cashback perks, but the regular APR is much lower than other secured credit cards, making this a worthwhile option. Your credit limit is based on your deposit which can be a minimum of $200 and a maximum of $3,000. Often, the higher your credit limit, the easier it is to build credit, but only if you pay off your balance every month.

Wells Fargo Secured Credit Card
Best for Wells Fargo customers

You need a Wells Fargo checking or savings account to apply for their secured credit card. A $300 minimum deposit is required and there is a $25 annual fee. The APR on purchases and balance transfers is 20.99%. One of the biggest draws to this credit card is the Visa benefits. You get roadside dispatch, travel and emergency assistance services, and up to $600 in cell phone protection if you pay your phone bill with your Wells Fargo credit card.

Bank of America BankAmericard® Secured Credit Card
Best for Bank of America customers

When you have an account with a bank, you are more likely to get approved for one of their credit cards. They already have access to your basic information, as well as your banking habits and this makes you a more reliable borrower. With this secured credit card, you have to put down a $300 minimum deposit, but can put down a maximum of $4,900. You don’t have to pay an annual fee. It comes with a 24.99% APR and 3% on balance transfers. Some of the perks include overdraft protection, mobile banking, and access to the FICO® Score Program which provides customers with beneficial financial information and free access to FICO scores.

American Express Secured Credit Cards
Best for rewards and those with decent credit

American Express is known for their reward benefits. From travel points to roadside assistance, this credit card company is great for travelers and business executives. Even though most of their credit cards come with an annual fee and not all merchants accept AmEx cards, the benefits more than make up for that. If you’re wondering what the perks of a good credit score are, check out the American Express reward list.

How Do Secured Credit Cards Work?

One misconception is that secured credit cards make it easier to pay off debts. This is not the case. Balance transfer credit cards are meant specifically for debt consolidation. If you have high credit card debts, you’ll want to consider transferring the balances to low interest credit cards. Secured credit cards serve a different purpose.

They aren’t prepaid cards and they aren’t debit cards. With secured credit cards, you not only get access to a credit limit, you get the opportunity to increase your credit score. If your application for an unsecured credit card was denied or if you are looking for ways to improve your credit history, consider a secured credit card. As mentioned above, some issuers don’t view your credit score before approving your application, making it easy for those with bad credit to get access.

This is how obtaining a secured credit card happens and here’s what you can expect:

• You will fill out an application. Depending on the issuer, you will include your personal information, your proof of income, and give them access to your social security number so the issuer can pull a credit history. If you are a member of a specific bank, you can ask about their secured credit cards. This gives you a higher chance of approval because the issuer already knows your banking habits. However, not all credit card companies need to know your credit score to approve your application.
• You will put down a deposit. This is your collateral, reassuring the issuer that you will pay off your balances each month. Your refundable security deposit will often be used to set your credit limit. If you put down $500, you will likely get a $500 credit limit, but this isn’t always the case. Compare issuers and if you aren’t sure what limit to expect, call a customer service representative and ask.
• You will use the secured credit card as you would any other credit card. Use the credit card for expenses. Pay it off every month. Eventually, your issuer may increase your credit limit, or will notify you of your eligibility for an unsecured credit card. Whether they do or not, keep track of your own credit score and when you feel you qualify for an unsecured credit card, start shopping for the best ones.
• You will upgrade or get access to an unsecured credit card. When you are ready for an unsecured credit card—and get approved—you can cancel your secured credit card. If you’ve paid off your full balance, the issuer will return your full security deposit.

How to Choose the Right Card

A secured credit card is a real credit card that allows you to build credit. Lenders will report your account activity to the three major credit bureaus (Experian, Equifax, TransUnion), which is why it’s so important to apply for the right secured credit card.

Here are things to consider when applying for a credit card:

• What is your current credit history? You don’t have unlimited access to your credit history. However, you can request a soft inquiry which won’t impact your score and will allow you to check your score. If your score is below 580, you should consider applying for a credit card that doesn’t require a credit score.
• How much money do you have for a safety deposit? Maybe you just secured a job and you don’t have enough money for a safety deposit yet. Maybe you have a lot of money, but not a lot of credit. The minimum deposit amount varies by credit card. Choose one that makes the most financial sense for you.
• What are your financial goals? This is important. Are you looking to buy a house, get married, grow your side hustle, buy a boat, or travel more? Improve your overall financial health by establishing long-term goals. Long-term plans require short-term actions, like opening a secured credit card so you can eventually open an unsecured credit card.

When it comes to applying for, securing, and closing a secured credit card, you need to avoid making the following mistakes:

• Putting down a higher safety deposit than you can afford. Ideally, you want a high credit limit, but if you only have $1,000, you shouldn’t put all $1,000 down.
• Carrying a high balance. If you carry a high balance for a long time, this will make it significantly harder to improve your credit score. This is why we recommend keeping your balance low and only using your credit card for small expenses.
• Forgetting to pay. This is inexcusable and even if it happens just once, that could be the same month that your issuer reports your history to the bureaus. Set up payment alerts or automatic approvals so you don’t make this mistake.
• Closing your credit card too soon. Closing any credit card can impact your credit history so make sure when you open a credit card, you are confident that you will keep it open for the immediate future.

With any credit card, you want to make sure you’re tracking your balance. Thanks to modern technology, it’s easy to set up automatic payments. However, that can also make it difficult to remember what has been paid and what has not. Charging your yearly Amazon Prime or your Squarespace payment to your credit card isn’t a bad idea, but it can be problematic if you aren’t checking your credit card account and forget to pay off the balance. This is why continuous monitoring is so important.

How to Get Approved

Opening a secured credit card makes it easy to rebuild credit and recover from any credit mishaps, but how long do you have to use a secured credit card before you can qualify for an unsecured credit card? Unsecured credit cards do not require deposits to open and some are great alternatives to unsecured credit cards. The major difference is that your credit score will impact your approval and if you do get approved it will impact your credit line and APR.

These are some of the best unsecured credit cards for those with bad or no credit:

Credit One Bank Platinum Visa for Rebuilding Credit
Best for emergency funds

The name explains it best: this credit card makes it easy to rebuild your credit without a security deposit. The annual fee is anywhere from $0 to $99, which is higher than most, but if you have bad credit and want an unsecured credit card or an emergency loan, this is a good option. Your APR will vary depending on your creditworthiness.

CapitalOne Platinum Credit Card
Best for those with no credit

If you don’t have a credit history of any kind, you might consider this unsecured credit card. There is no annual fee and your credit limit increases after the first five on-time monthly payments are made. Best of all, you can pay your balance by check, online, or with cash at a CapitalOne branch. The bank also offers online 24/7 access. The only negative is the 26.96% APR and the 3% cash advance fee.

Want access to a higher credit limit and more rewards like flight points, roadside benefits, and cash back? Increase that credit score. In addition to using a secured credit card, make sure you pay off debts, pay all bills on time, and use credit score-boosting programs, if necessary.

Utilizing Your Card

If you open a credit card of any kind, you want to carry a low balance or none at all. If you buy a $1,000 computer, for instance, you should be able to pay off the majority of it. If, instead, you pay it off in a six month period you could end up spending significantly more in interest, especially if you only pay $50 each month. You will get charged interest on each balance ($950, $900, $850).

To avoid this and make the most use of your secured credit card, here’s what you should do:

• Start paying for your most basic expenses using your secured credit card. Groceries and gas are good purchases because they should already be a part of your weekly budget. Ideally, you’ll only want to spend as much as you can afford to pay off each month.
• Make monthly payments on time. Most credit card issuers offer online systems and automatic payment options, making it easy to pay your bill. If you miss a payment or can’t pay off the minimum balance, you could end up paying for extra fees. Missing payments can also impact your credit score so don’t miss your payments.
• Pay more than your minimum balance. You never want to carry a balance that’s high, especially if you have a low credit limit. If you owe a minimum of $25 but your total balance is $380, you’ll want to pay that total balance, if possible. If you can’t, pay at least 3% more than the balance or $25, whichever is greater.

Know that 30% of your credit score is based on the credit card balance to credit limit ratio. Having a low balance and a high credit limit is ideal and the better your credit history, the easier it is to get approved for a high limit.

It could take anywhere from a few months to two years to build up your credit and get approved for an unsecured credit card. It depends on the lender and your activity. The best credit card issuers allow you to manage your account 24/7 with online access and get free credit reports so you can monitor your credit score in real time.

Monitor Your Credit Score and Account Activity

Financial best practices start with a budget. You want to be aware of what you’re earning, what you’re spending, and where that money is going. If you haven’t already, build yourself a budget. You can use a spreadsheet or you can download a free app like Mint or Wally which makes it easy to track what’s coming and going.

Make sure you align your priorities with your budget. If your priority is to save for a business project, a rebuild on your house, or a family vacation, then make sure you’re setting that money aside each month. If your priority is to send your kids to daycare, make sure you’re building that monthly daycare expense into your budget.

Monitoring your spending habits extends to your credit cards as well. You should know how much you’re spending with your credit card(s), how much interest you’re accruing, and how much you can afford to pay off. Most credit card companies or banks offer 24/7 online access and most secured credit cards allow users to view their credit report each quarter free of charge and without impacting their score.

An unexpected expense can be a major hurdle for many Americans. According to the Federal Reserve Bank, 40% of adults would not be able to cover an unexpected $400 expense without having to sell something or borrow money. And, over 25% of adults have skipped necessary medical care because they wouldn’t be able to afford the bill.

When it comes to relatively smaller expenses (i.e. not a mortgage, new car, or student loans), a small personal loan can make expensive surprises more manageable. Is a small personal loan the right option for you, or is there a better choice?

Who Can Benefit from Small Personal Loans?

If you don’t have emergency savings ready in the event of a car breakdown or some other costly event, then borrowing money may be the only way to cover your costs. A COUNTRY Financial® Security Index survey found a quarter of women, a quarter of African Americans, and over 35% of participants making under $30,000 per year were not confident they could pay their monthly bills within one month of losing their job. This means many people are living without emergency savings.

A small personal loan can cover a sick pet, a new washing machine, or even a major dental procedure for those without the extra cash on hand. It can also be a more cost-effective way to consolidate credit card debt.

How Much Money Can You Secure with a Small Personal Loan?

Lenders typically offer small personal loans of $5,000 or less. These loans are meant to be paid off within two or three years.

Since banks make money from interest, they would rather offer a loan to a person who wants to borrow much larger amounts of money. However, you can still find lenders willing to offer smaller loans.

Secured vs. Unsecured Personal Loans

What is the difference between a secured and unsecured personal loan? The answer is a lien. A lien is collateral, or an asset, such as a house or car, that the lender can take possession of if the loan can’t be paid. Many small personal loans are unsecured, so they don’t require collateral.

Fixed-Rate Loans

Most small personal loans have fixed interest rates, so the interest rate won’t change over the course of the loan. This keeps your payments predictable, though rates may be higher.

With variable-rate loans, you’ll only pay interest on what you borrow if you don’t borrow the full amount in your line of credit.

Where Can You Find Small Personal Loan Lenders?

You can secure small personal loans through a number of institutions and organizations.

• A national bank or “black bank” that serves African American communities
• Your local credit union
• Your employer (some employers offer employee loans)
• Online lenders
• Your local, nonprofit Community Loan Center

It’s best to use caution when searching online lenders since you’re more likely to find predatory lenders online than at your local credit union. In fact, online lenders are reported to charge higher interest rates on minorities, making 11 to 17% more in profits off minority borrowers. Companies like LendingTree or Lending Club are popular, but picking a lender requires much more due diligence.

While more banks are starting to offer small loans, a credit union is often the best option for access to small loans. Why credit unions? Unlike banks, credit unions are not-for-profit organizations owned by the members who use their services. Banks may ask for larger collateral to ensure loan repayments (e.g., your home or car), but credit unions make loans more accessible. Because they are not-for-profit, you’ll often find more reasonable interest rates. In addition, credit unions may be more likely to lend to individuals with lower credit scores.

However, not everyone is a member of a credit union, and you must be a member to qualify for a loan. Your research should include all available options to find the best loan.

Can You Get a Small Personal Loan If You Have Bad Credit? 

One of the biggest barriers to securing a loan is a bad credit score. Without good credit, a bank can’t be confident the borrower will repay the loan in full, if at all. Is it impossible to get a small personal loan with bad credit?

Not necessarily. A bank won’t be the easiest place to secure a personal loan with bad credit, but you can find online lenders who market to borrowers with a credit score of say, 550. Companies like MoneyMutual and CreditLoan.com offer short-term, small personal loans to borrowers with bad credit.

It’s important to remember the worse your credit score, the higher your interest rate may be on the loan. Before we speak to good payment habits, let’s first make sure you pick the right loan.

What to Look For in a Loan

When you shop for a loan, you should look for the following features:

• Low-interest rates
• Low origination fees (i.e., processing fees for a new loan)
• Low monthly payments or longer repayment terms
• Loans unsecured by collateral (if your credit is good)
• Warning signs of predatory behavior
• No hidden fees

What Are the Warning Signs of Predatory Lenders?

As you do a Google search for online lenders, you may find companies that guarantee a loan in return for a fee to be paid in advance. These advance fee loans are scams that should be avoided at all costs. No loan is absolutely guaranteed, and knowing this can help you avoid falling prey to bad practices.

How to Qualify for a Small Personal Loan 

Lenders will need specific information about your financial situation to determine if you are a “safe” borrower. As you apply for loans, you may be asked to provide:

• Credit score
• Employment information
• Possible collateral
• Bank account information
• Proof of income or your last pay stub
• A driver’s license or another form of identification
• Credit union membership if applying through a credit union

If you meet the criteria set by the lender, you should prepare the documentation and send an application. Once your application is sent and approved, you can begin your repayments.

Best Practices for Repaying Your Loan

Repaying your small personal loan on time will not only keep missed payments from compounding, but it will also help your credit score. Healthy financial choices will help you pay off your loan faster.

• Keep a Calendar—The best way to make sure you don’t miss a payment is to keep a calendar or set payment alerts to your phone. When life happens, it’s easy to forget about due dates.
• Pay Online—If you have a checking account, then it’s more convenient to make payments and check your balance online.
• Pay Extra—No, not more than your loan amount. Pay a bit more than your minimum payment each month (if possible) to pay off your loan faster and avoid more interest.
• Make Payments More Frequently—Instead of paying one large sum each month, use a percentage of your bi-weekly salary payments to make smaller payments more frequently.
• Ask for Help—A debt counselor can help you manage your debt and pay off your debts faster. If you need more time to pay off your loan, ask your creditor if a longer repayment term is possible. There’s always help available.

Alternatives to Small Personal Loans

The Pew Research Center reports African Americans are more likely to borrow and lend money from/to family and friends than white and Hispanic Americans. Whether it’s less access to loans or trust in community over banks, African Americans are more likely to find alternative ways to secure capital.

Though, are all alternative options reliable? Is financing in the form of a payday loan a better option than a small personal loan? Are credit cards a better option? And what other options exist?

What Are Payday Loans?

Payday loans are very small, high-interest loans that assume the borrower will repay the loan at the time of their next paycheck. Nearly anyone can get a payday loan, including borrowers with bad credit.

These loans are commonly maxed at $500, and full repayment is typically due within two to four weeks. They can be repaid using regular income or your social security or pension payments.

When you get a payday loan, you can authorize an electronic debit or write a post-dated check up front for the amount of the loan (and any fees) and give it to the creditor to be withdrawn or cashed on the loan’s due date.

However, this type of loan is not legal in every state, and there are many reasons why you shouldn’t consider one.

Payday loans generally ask for a $15 to 30 fee per $100 borrowed. In addition, if you opt for the check or electronic authorization not to go through on payday, then that amount will roll over to the next month and grow interest. It’s not hard to see why this is seen as a predatory loan, since many people who need small personal loans are already tight on cash each month. Add growing interest each month, and you could end up with an even larger amount of debt.

Small Personal Loan or Credit Card?

The two may not seem so different at first; both borrow money or credit and pay it off on a certain date with corresponding interest rates. However, there are very important differences to consider.

Credit cards are extremely convenient, and secured credit cards can help those with poor or little credit build their credit score. However, credit cards typically have higher interest rates than personal loans.

You should also consider that your credit card is still available even after you have repaid the debt. A small personal loan goes away. Depending on your financial goals and spending habits, that can be a good or bad thing. However, credit card accounts that are open and age over time help your credit score. And, many credit cards can give you helpful cash back rewards on certain purchases.

Other Ways to Secure Money

If you don’t want to borrow money and have debt in the back of your mind (especially if you already have student loan debt and other monthly payments), then you should consider finding assistance in other organizations. Nonprofits and religious organizations may be willing to help with certain finances depending on your circumstances. Speak to your employer, family, friends, and even the mechanic fixing your car to see if there is alternative financing, discounts, or flexible options for securing funds.

Shop Responsibly

If $1,000 or $3,000 is all you need to avoid a broken appliance or a worsening medical condition, then think about small personal loans you can repay in small increments over the course of a few years. While you shop, remember to look for the best rates and avoid offers that seem too good to be true.

A business credit card works just like a personal credit card but is reserved for business expenses. Getting approved for a business credit card is difficult, especially if your business is new or has less-than-perfect credit.

Secured business credit cards are an effective solution for many business owners because they usually have higher approval odds than unsecured cards. We compared popular secured cards to see which is the best fit for different business owners.

1. Best Overall: Wells Fargo Business Secured Credit Card
2. Best for Building Personal Credit: Secured Mastercard® from Capital One®
3. Best for Business Owners on the Road: Discover it® Secured
4. Best for High Credit Limits: Business Edition® Secured Visa® Card

Best Overall: Wells Fargo Business Secured Credit Card

There aren’t a lot of options for secured cards specifically for business use. Luckily, one stood out among the limited choices. The Wells Fargo Business Secured Credit Card is ideal for business owners looking to build business credit and earn rewards. It’s also the only business-specific secured card available nationwide.

Credit limits are between $500 and $25,000. You’ll deposit cash of your desired credit limit into a collateral account and as you make payments and replenish credit, Wells Fargo reviews your account. If payments are consistently on time, you may become eligible for an unsecured business card.

Why We Chose It

Unlike other business credit card options, the Wells Fargo Business Secured Card offers high chances of approval while also providing a rewards program. Many other secured cards, both business and personal, don’t offer rewards or have a lackluster program.

Additionally, the Wells Fargo card reports to major credit bureaus like Experian®. This can help you build your business credit score and successfully apply for a regular business credit card in the future. Other secured cards don’t report to credit bureaus. Or worse — they only report negative impacts.

The Pros

• Wide credit limit between $500–$25,000 based on your deposit
• No foreign transaction fees for international business travel
• Rewards program to earn points or cash back on business purchases
• Reports to major credit bureaus to build business credit
• Customer support from the large Wells Fargo network via phone, email, or local branches

The Cons

• Annual fee of $25 per year per authorized card
• Reward points expire in three years
• Cash back rewards only credited each quarter
• Not covered by the federal protections of a consumer card

Interest Rates and Fees

• Annual Fee: $25 per card, up to 10 cards
• Foreign Transaction Fee: None
• Cash Advance and Balance Transfer Fees: Varied per individual card agreement
• Interest Rate for Purchases: Prime Rate + 11.90%

Rewards and Perks

• Cash Back: Earn 1.5% on every $1 spent, credited automatically each quarter.
• Rewards Points: Earn one point for every $1 spent, plus 1,000 bonus points if your company spends $1,000 or more in a monthly billing cycle. Redeem points for things like merchandise, airline tickets, and gift cards.
• No Foreign Transaction Fee: You won’t be charged an additional fee when making purchases internationally.
• Zero Liability Protection: You won’t have to pay for any fraudulent purchases made on your card when reported promptly.

Apply Online

Best for Building Personal Credit: Secured Mastercard® from Capital One®

Unlike the Wells Fargo secured business credit card, the Secured Mastercard from Capital One is a personal secured credit card. You won’t get positive impacts on your business credit with this card, but you can increase your personal credit score. Many business credit lines and loans take your personal score into account if you don’t have business credit. Improving your personal score could help you get business financing in the future.

Even though the Secured Mastercard from Capital One is a personal card, it’s a good idea to keep business and personal expenses separate. Don’t use your Capital One card for personal purchases, or you risk complicating your finances at tax time.

Why We Chose It

The Capital One card is great for sole proprietors and newly formed small businesses. It allows you to build your personal credit, which can then be used to secure funds for your business. The card also comes with a unique initial deposit and credit limit system. You’ll get three different options for minimum initial deposit based on creditworthiness.

Depending on your current credit score, you may be able to deposit only $49, $99, or $200 and get a credit limit of $200. Most secured cards require you to deposit at least your desired credit limit and may require more.

The Pros

• No annual fee
• No foreign transaction fee
• Potential to have a higher credit limit than your initial deposit
• Receive access to a higher credit line after making on-time payments for five months
• Protected from certain rate changes and other changes because it’s a personal card

The Cons

• Won’t build business credit.
• Has a high variable interest rate for purchases
• Low starting credit limit may not cover all business expenses

Interest Rates and Fees

• Annual Fee: $0
• Foreign Transaction Fee: None
• Cash Advance and Balance Transfer Fees: $10 or 3% per cash advance, no balance transfer fees
• Interest Rate for Purchases: 26.99% variable APR

Rewards and Perks

• No Foreign Transaction Fee: Don’t worry about extra fees to make international purchases.
• Personalized Payments: Set your own due date and make payments online, via check, or at a branch.
• $0 Fraud Liability: You’re not responsible for any fraudulent charges on your card.

Apply Online

Best for Business Owners on the Road: Discover it® Secured

Another personal card that could be a good option for business owners is the Discover it Secured card. It offers a cash back rewards program with increased rewards at gas stations and restaurants up to a quarterly limit. All other purchases earn 1% cash back. At the end of your first year, Discover will match the cash back you’ve earned.

As a personal card, you won’t build business credit with the Discover it Secured card. However, you can build your personal credit. This could lead to increased opportunities to use your personal credit to secure business funding through loans.

Why We Chose It

Other secured cards rarely offer a rewards program, so the Discover it Secured card is a good choice to maximize business spending. Although it’s a personal credit card, it can be used solely for business expenses. It’s especially ideal for business owners who frequently travel by car. With 2% cash back on your first $1,000 in purchases at gas stations or restaurants, you could quickly earn $20 cash back each quarter.

Perhaps one of the biggest benefits of the Discover it Secured card is the waived late fee on your first missed payment. Most credit card companies charge extra fees when you forget to make a payment.

The Pros

• No annual fee
• Cash back rewards on all purchases, with increased rewards at gas stations and restaurants
• Late payment fee waived on your first missed payment
• Rewards cash back matched by Discover at the end of first year
• Federal protection provided to consumer credit cards

The Cons

• Won’t build business credit, only personal credit
• Maximum credit limit of $2,500, which may not be enough to cover business expenses
• High interest rate when you carry a balance

Interest Rates and Fees

• Annual Fee: $0
• Foreign Transaction Fee: None
• Cash Advance and Balance Transfer Fees: $10 or 5% of the amount of each cash advance, 3% intro fee for balance transfers, and up to 5% fee on additional balance transfers
• Interest Rate for Purchases: 24.99% variable APR

Rewards and Perks

• Cash Back: Earn 2% on your first $1,000 of purchases at gas stations and restaurants each quarter. Earn 1% cash back on other purchases and gas station or restaurant purchases over the $1,000 limit.
• First Late Fee Waived: Don’t worry about extra fees if you forget to make one payment.
• Matched Rewards Intro Bonus: Automatically receive a match on all the cash back you’ve earned in your first 12 months.

Apply Online

Best for High Credit Limits: Business Edition® Secured Visa® Card

Local banks and credit unions offer the Business Edition Secured Visa Card. The card is issued by First Bankcard, which partners with hundreds of financial institutions across the country. You’ll need to check online or with your local bank to learn if it’s offered in your area. Business owners with accounts at a local bank may be able to easily apply for the Business Edition Secured Visa Card from a local branch.

The Business Edition Secured Visa card is excellent for business owners who need a larger credit limit than many secured cards offer. Based on your security deposit, you could potentially receive a credit limit from $2,000 up to $100,000 for your business. The Business Edition Secured Visa Card requires a security deposit of 110% of your requested credit limit, subject to approval.

Why We Chose It

This secured business credit card is great for businesses that need a higher credit limit, as other cards offer much lower limits. The extra credit helps businesses that work in more expensive industries meet their purchasing needs. You’ll also earn interest on your security deposit. If you deposit the max $110,000 into the collateral account, interest earnings could quickly add up.

The Business Edition Secured Visa Card is also a good choice if you’re a loyal customer at your local bank. Having all of your business accounts, including credit cards, in one place makes managing business finances easier.

The Pros

• Up to $100,000 credit limit, based on your creditworthiness and initial deposit
• Earn interest on your security deposit
• Eligibility to join Visa’s business rewards program, SavingsEdge® to save money on business purchases

The Cons

• $39 annual fee.
• Charges a 3% foreign transaction fee
• Higher card fees than other secured cards
• Not nationally available and may not be available in your area
• Doesn’t provide the same protection as a consumer credit card

Interest Rates and Fees

• Annual Fee: $39
• Foreign Transaction Fee: 3% per transaction
• Cash Advance and Balance Transfer Fees: $15 or 5% of the amount of each cash advance, $10 or 5% of balance transfers
• Interest Rate for Purchases: 20.24% variable APR

Rewards and Perks

• Higher Credit Limits: Request up to $100,000 credit limit based on your creditworthiness.
• Earn Interest: Your refundable security deposit earns interest in the collateral account.
• Visa SavingsEdge: Get discounts on select business purchases when you use your card.

Apply Online

What’s a Secured Credit Card?

Secured credit cards require a cash deposit from the cardholder as collateral. This security deposit ensures you have the money to pay your balance if you were to miss payments. In the event you can’t pay off your card balance, your credit card issuer could use your initial deposit to cover the amount.

Unlike secured credit cards, unsecured cards don’t require a deposit cash to get a card. However, unsecured cards usually require a fair or higher credit score. Secured cards can help subprime borrowers, such as those with no credit history or bad credit, get a credit card. Secured cards report payment activity to the major credit bureaus, so on-time payments can improve or build your credit score.

Do I Need a Secured Business Credit Card?

Generally speaking, it’s not in your best interest to get a secured credit card if you’re approved for an unsecured card. Secured cards come with the same risks as unsecured cards, but they usually also have fewer rewards options or benefits for cardholders.

Not everyone gets approved for unsecured cards, however. A secured business credit card might be a good option if you need to build business credit or improve your credit score.

Shopping Tips to Find the Best Secured Business Credit Card

Few credit card companies offer secured cards for business, and some don’t offer secured cards at all. American Express, for example, doesn’t currently offer a secured credit card for personal or business use. On the other hand, Bank of America offers a secured personal credit card but not a business secured credit card.

Finding the right business secured card will depend on your business needs, credit history, and cash available for the security deposit.

If You Have No Credit History or Poor Credit

Business owners with no business credit history should look for a card that provides reporting to the major credit bureaus. This builds your business credit, so you’ll qualify for unsecured business cards and loans. Likewise, you’ll need to make on-time payments on a card that reports to the credit bureaus.

Business owners with no personal credit history or poor credit may need to look for a personal secured credit card before getting a business-specific card. Use the personal secured card for business expenses only. Over time, you’ll establish a good personal credit history and be in a better position for business financing.

If You Have Fair Credit

Before choosing a secured card, see if you’re approved for an unsecured card first. Some credit card issuers offer unsecured cards for people with fair credit or low credit history. These cards are often labeled as student cards or cards for young adults.

What You Need to Know About Business Credit Reporting

Building both your business and personal credit scores is essential to securing future financing for your business. Both scores show lenders your likelihood of repaying credit accounts on time. However, most other aspects are different.

Personal Credit Scores

• Linked to your Social Security Number
• Reported to Equifax, Experian, and TransUnion
• Commonly reported using FICO score

Business Credit Scores

• Linked to an Employer Identification Number (EIN) or Tax ID Number
• Reported to Equifax, Experian, and Dun & Bradstreet (D&B)
• No common reporting scale or system, though many business credit scores are reported out of 100

Do Secured Business Credit Cards Report to Credit Bureaus?

One of the main reasons you’d get a secured business credit card is to build a business credit history. Cards that don’t report your payments aren’t going to help you build credit. Make sure you ask your credit card issuer if their secured business card reports to any of the major business credit bureaus. Any secured business card that doesn’t offer credit reporting may be a poor fit.

Whether you’re looking for a bank loan or asking for funds on Kickstarter, financing a startup is half the battle of being an entrepreneur. Luckily, there are many options for financing your business, such as startup business loans. There are also financing and loan options geared toward African Americans and other minorities that cater to a community’s specific needs.

In this guide to startup business loans, you’ll learn what they are, what types of business funding are available, and how to apply.

What is a Startup Business Loan?

A startup business loan is a type of financing for a new or expanding business offered by lenders (e.g., banks, credit unions, and other financing institutions) that follow the guidelines set by the Small Business Administration (SBA). Though loans are available outside of the SBA, SBA loan programs help match entrepreneurs with lenders willing to help new businesses with little financial history and greater risk.

You can find lenders partnered with SBA loan programs through the SBA’s Lender Match referral tool. If you want to secure a startup loan, follow these basic steps.

1. Use the lender referral tool and answer several survey questions so the tool can match you with appropriate, potential lenders.
2. In just a few days, you’ll receive an email from interested lenders. You can contact those lenders and set up a time to discuss financing options for your business.
3. Before submitting a loan application, you will have the opportunity to discuss rates and loan terms with the lender.
4. Put together the paperwork necessary for your loan application, complete the application, and submit.

Do I Qualify for a Small Business Loan?

The qualifications for a startup business loan aren’t as difficult as you would think. Does your business meet the following criteria?

• Businesses must be for-profit, so nonprofit organizations are disqualified.
• The startup must do business in the United States.
• The individual(s) must prove they have invested their own time and money into the company.
• The individual(s) must prove they have not been able to secure loans from other lenders.

Being able to prove this information will make it much easier to apply for a small business loan.

What Documents Will I Need to Apply for a Business Loan?

Once you’re ready to apply for your startup business loan, gather all of the necessary information required by the lender, such as:

• Business Plan—A business plan shows potential lenders your company is capable of generating enough revenue to reduce the risk on the financial investment.
• Requested Loan Amount—Calculate the amount of money your startup will need and how it will be used to ensure that funds are going to business expenses.
• Credit History—Your credit history tells the lender how reliable you are in paying back your debts. Some lenders may be less likely to give a loan to an individual(s) with bad or limited credit history.
• Financial Projections—Your financial projections give the lender an idea of how you will pay back your loan. Expect to show projections for the next five years.
• Collateral—Often, to ensure that you pay back your loan, a lender will put a lien on a tangible asset, such as a home or car.
• Industry Experience—Your industry experience demonstrates you have the appropriate knowledge to run a sound and successful business in your field.

Types of SBA Loan Programs

Depending on the amount of money you need and what the money will be used for, there are different loan programs to meet the needs of entrepreneurs. The SBA offers several loan programs, including:

• General Small Business Loans—Also known as 7(a) loans, these loans can be used to start a business, expand or acquire additional businesses, purchase equipment and materials, purchase real estate, and refinance existing debt.
• SBA Microloans—The SBA Microloan program offers loans between $5,000 and $50,000 for small businesses and some non-profit childcare centers. The SBA provides funds to intermediary lenders (typically non-profit community organizations) that have experience with lending and management assistance.
• Real Estate Loans—These are also called CDC/(504) loans. They can be used for the purchase of buildings and real estate, land, construction and repair of new or existing facilities, and long-term machinery or equipment.
• Disaster Loans—These loans are open to businesses of all sizes for the repairs to certain assets that have been damaged or destroyed.

Microloans can be an excellent option for very small companies, especially due to the willingness of these lenders to provide funding to women of color and other minorities.

Small Business Startup Loans for Minorities

Roughly 70% of African Americans turn to family, friends, and their own bank accounts to start a business. Loans are not always easy to secure, and the process can be intimidating. But, there are resources and loan programs available to African American businesses, as well as businesses in underserved communities.

SBA Community Advantage loans and 8(a) loans make funding more accessible to communities that lack the resources necessary to start small businesses, including minorities.

Community Advantage loans typically grant between $20,000 and $250,000 to small businesses. Whether it includes African American communities or not, these loans are provided to small businesses by certified community lenders (no need for a bank loan). The applicant must have:

• Reasonable credit history or a cosigner with good credit
• Some collateral, though not as much as a typical small business loan
• 30% invested capital
• At least two years of experience in the industry
• Proof their business will be able to generate enough revenue to provide for their own living expenses

Outside of SBA programs, there are a number of specific loan funds for minorities and African Americans that small business owners can take advantage of, including:

• Union Bank’s Business Diversity Lending Program—Minority and women entrepreneurs who own at least a 51% stake in a company can secure up to $2.5 million. The company must be at least two years old and generate less than $20 million in annual sales.
• The Business Center for New Americans—People of color who are immigrants or refugees in New York City can secure up to $50,000. New businesses may apply, and no minimum credit score is required.
• The National African American Small Business Loan Fund—African American-owned small businesses in New York City, Los Angeles, and Chicago can secure loans from $35,000 to $250,000. Financial consulting is also available.
• Accion—This is a nonprofit, community organization that offers loans between $300 and $1 million for mature and startup businesses. More than half of its borrowers are from minority communities. Startup business loan interest rates will depend on the applicant’s credit score.

Additional Funding Options

If you don’t want to rely solely on startup business loans, there are still plenty of other funding options for your business. Let’s take a look at several of those options and why they may be a good or bad idea for your startup.

Bank Loans

It’s easier to get a general bank loan (rather than an SBA loan) if your business has been around for a few years. If you’re looking for a startup business loan, then you will need good credit and enough collateral to nearly match the amount on the loan. This level of collateral, as well as the credit score requirements, can make bank loans much more difficult to secure than SBA loans.

On the other hand, establishing a relationship with a bank can be good for building your business credit and managing your money. Banks often offer important financial assistance and consultation.

Small Business Grants

Grants are a great way to secure funding without having to pay back a debt. Unfortunately, grants tend to be allocated to nonprofits (e.g., educational or arts nonprofits) and federal or government institutions. Therefore, grants should probably not be your first option for financing a for-profit business.

With that said, there are opportunities to secure grants for businesses that operate within specific, niche industries. For example, businesses that improve economic development or push research initiatives may have an advantage in getting federal or local grants.

Grant programs, such as the Small Business Innovation Research Program (SBIR) and Small Business Technology Transfer Program (STTR), provide funding to businesses that explore new technologies or use technology for research. Tech startups would be an appropriate type of business to apply for these types of grants.

Credit Cards

Credit cards can be a rather dirty word when it comes to business funding, and that may be due to high-interest rates and late payment fees.

According to the Federal Deposit Insurance Corporation, credit cards should only be used to fund “short-term cash flow problems” while you are waiting on guaranteed income. Abuse of credit cards can damage your business and personal credit, so it’s best to look at other options first.

Crowdfunding

Crowdfunding is a high-tech method for funding your business, but it’s accessible to just about anyone with an Internet connection. If lenders won’t give startup business loans, then it may be time to turn to individual investors and donors on crowdfunding platforms.

Crowdfunding can mean pulling money from anyone interested in your product or service, which is the case for platforms like Kickstarter or GoFundMe. Meanwhile, equity crowdfunding platforms are open only to accredited investors. These platforms may require a minimum investment amount, which can provide significant capital for your company. These platforms may include CircleUp or SeedInvest, for example.

Sometimes, crowdfunding also refers to the sale of shares or stock in a company. However, this would require the business owner to understand and comply with securities laws, which govern how financial information is reported to the public. If this isn’t your area of expertise, then it’s best to learn more about the online crowdfunding platforms previously mentioned.

Accredited Investors

Venture capital and “angel” investors specialize in funding startup businesses, especially tech startups. Similar to share sales, this method should not be pursued without some knowledge of investor relations and perhaps legal consultation.

Angel investors, which are usually wealthy individuals, and venture capital firms put up large amounts of capital with the expectation of high returns on investment. Unlike a loan, you will not be in debt to these investors, but your business should demonstrate the potential for serious growth and significant returns. You may also have to give up some control of your business to these investors who want to own a stake in the company.

How Do You Secure Money from Investors?

You’ll need to network and woo wealthy investors. This is perhaps one of the disadvantages of relying on investor capital. If you don’t have the connections or the resources, it can be difficult to access investors or know how to pitch to them. However, you can start by researching venture capital firms and investor listings online.

Once you find investors, the process is not dissimilar to applying for a loan. You will have to present your business plan, financial statements, business structure, board and governance structure, products/services, and financial projections to those investors. If an investor is interested, you will then decide on terms and conditions in an official term sheet.

Overall, your business will most likely benefit from multiple sources of funding rather than just one. Each funding method should take into account your company’s unique operations and financial position.

Time to Apply for a Startup Business Loan?

Now that you’ve been introduced to startup business loans and how to get them, you can begin the “shopping” process. Always look for low-interest rates, repayment terms, and other fees before agreeing on a lender. And, most importantly, consider all of the different avenues you can choose to fund your business, whether it be an SBA loan program, a bank loan, or even a wealthy investor.

Is your credit score holding you back? The National Fair Housing Alliance (NFHA) cites a study by the Consumer Financial Protection Bureau (CFPB) in which the CFPB examined credit scores among 200,000 consumers. The agency found geographic locations with higher concentrations of people of color also had lower median credit scores. According to the NFHA, credit damage is the result of subpar lenders and disproportionate impact from the foreclosure crisis, both of which have plagued African American communities.

If your credit score is below 649, then the chances of being approved for a credit card lessen. One of the easiest ways to improve a bad credit score is rebuilding your credit with a credit card that has high approval ratings and a quick approval response. With a more forgiving credit card, you can gradually repair your credit and strengthen your financial health.

Learn how to improve your credit score with five of the top instant approval credit cards in 2019.

Our Picks:

1. Discover it® Secured: Best Secured Credit Card
2. Capital One® Spark® Classic for Business: Best Card for Small Business/Entrepreneurs with Average Credit
3. Discover it® Student Cash Back: Best Card for Students with No Credit History
4. Fingerhut Credit Account: Easiest Approval Process for Poor Credit
5. OpenSky® Secured Visa® Credit Card: Best for Low APR

1. Discover it® Secured: Best Secured Credit Card

Some secured cards—such as the OpenSky® Secured Visa® Credit Card—may not offer the option to switch to an unsecured card once credit has improved. However, the Discover it® Secured Credit Card allows you to upgrade, so you can continue building credit.

The Breakdown

• $0 annual fee
• 24.99% Standard Variable APR
• Minimum $200 security deposit, maximum $2,500
• 10.99% balance transfer for six months
• 2% cash back and cash back match at the end of the year
• Credit reporting to credit bureaus

The Pros:

With this “instant approval” credit card from Discover, you have the ability to upgrade to an unsecured card in as little as eight months. Discover will automatically review your account to determine eligibility, so customers with good credit habits are rewarded faster.

The card also allows for a more generous deposit, so you can increase your credit limit and improve your credit score.

The Cons:

There is a 10.99% balance transfer rate, similar to the student card, but overall, there are very few disadvantages when it comes to this specific secured card.

Apply Online

2. Capital One® Spark® Classic for Business: Best Card for Small Business/Entrepreneurs with Average Credit

This card is the best option for entrepreneurs and small business owners with less-than-perfect or average credit. Strengthen credit for your business and open up more financial opportunities.

The Breakdown

• $0 annual fee
• 25.24% variable APR
• No foreign transaction fees
• Unlimited 1% cash back rewards
• Credit reporting to credit bureaus
• Easy online accounting options
• Travel and emergency assistance services

The Pros:

Aside from its $0 annual fee and lack of foreign transaction fees, this card really caters to businesses. It offers free employee cards, fraud coverage, the ability to purchase your QuickBooks™ records, and more.

This credit card is also a good option for new entrepreneurs who have limited business credit and want to continue building their business credit.

The Cons:

For those with very bad credit, this is not the “guaranteed approval” you may be looking for. This card is designed to help businessmen and businesswomen with fair or limited credit to build their existing business credit.

Apply Online

3. Discover it® Student Cash Back: Best Card for Students with No Credit History

If you’re a student, then you probably don’t have a long credit history. The longer your credit history, the better your credit score may be, and in turn, the more likely you are to be approved for a credit card. It can be a catch-22. But this credit card from Discover can be the key to building credit history for individuals still in school.

The Breakdown

• $0 annual fee
• No late fee on first late payment
• 0% initial APR for first six months, then 14.99–23.99% Standard Variable Purchase APR
• 5% cash back at specific retailers, 1% cash back for all other purchases
• Rewards for good students
• Credit reporting to credit bureaus

The Pros:

The Discover it® Student Cash Back Credit Card has a low APR and no annual fee, which makes it an affordable option for students. Students not used to paying monthly credit card bills will also have some flexibility if they miss their first payment.

In addition, the card offers excellent cash back rewards and a $20 statement credit each school year (up to five years) for students who maintain a 3.0 GPA or higher.

The Cons:

Be aware of a 10.99% balance transfer fee for six months, which may be overlooked in comparison to the low APR and $0 annual fee.

Apply Online

4. Fingerhut Credit Account: Easiest Approval Process for Poor Credit

Have a credit score closer to 500? If you’re in the fair to poor credit range (or you have little credit history at all), then this card may be your first step in improving your credit.

What’s interesting is that there isn’t a physical card for this credit account. Rather, you purchase Fingerhut goods from their catalog online and increase your credit through payment.

The Breakdown

• $0 annual fee
• 29.99% APR
• $39 late payment fee
• Good for qualified purchases with Fingerhut retailers
• Provides credit reporting to credit bureaus
• No deposit required

The Pros:

If you have trouble getting approved for a credit card, this card may be your foot in the door to building credit. And, you’ll have the added advantage of low monthly payments and no annual fee.

If you don’t qualify for the credit account, you can also apply for a WebBank/Fingerhut FreshStart Installment Loan, which can help you finance purchases over $50. This can be an advantage for consumers who need to purchase more expensive items, but can’t get a credit card.

The Cons:

Unfortunately, the Fingerhut Credit Account has a higher annual interest rate than other “guaranteed approval” cards, reaching nearly 30%. And, those with an account are limited to retailers in the Fingerhut catalog, which doesn’t allow you to find more competitive prices on certain items. However, if you make your payments on time each month, then purchases from Fingerhut’s extensive catalog will still improve your credit and build your credit history.

Apply Online

5. OpenSky® Secured Visa® Credit Card: Best for Low APR

With the OpenSky® Secured Visa®, you’ll get all of the benefits of a Visa card but with the ease of an instant approval credit card. According to OpenSky®, 99% of its customers were able to improve their credit score in as little as six months. But the biggest advantage is its low annual interest rate.

The Breakdown

• $35 annual fee
• 19.64% variable APR
• 3% foreign transaction fee
• No monthly fee
• Minimum deposit $200, maximum $3,000
• Credit reporting to credit bureaus

The Pros:

With a variable APR of only 19.64%, this credit card ranks much better in low interest rates than other secured or instant approval credit cards. It also offers a relatively high credit limit (in the form of a deposit) than other secured cards.

In addition, there is no required credit check for this credit card, so those with bad credit have a higher chance of approval.

The Cons:

Unlike other cards in this list, the OpenSky® Secured Visa® Credit Card has a (reasonable) annual fee and a few other overlooked fees.

Apply Online

Do “Instant Approval” Credit Cards Guarantee Your Approval?

You have probably heard the phrase “instant approval card” or “guaranteed approval” while searching for a credit card for bad credit. Instant approval for any credit card requires an excellent credit score, but the cards marketed as “instant approval cards” or “guaranteed approval” are more lenient in their requirements. That way, you may be able to build your credit even if your score is subpar or if you have no credit history. However, these cards may require that you only make purchases from a specific catalog of items.

While good credit can give you an approval right away (within 60 seconds for some cards), an instant approval is never guaranteed. And, it can take up to a week to actually receive your credit card if you are approved.

The following are factors that can affect how quickly you are approved for a credit card:

• Some cards may give an instant pre-approval, but an official approval can take longer.
• Your application may need further review or additional details for an approval, delaying the approval by a week or more.
• If your application information was incorrect or incomplete, the response will be delayed.
• A denied application may not prompt an instant approval.
• Secured credit cards are more likely to give a faster approval response, especially if there is no credit check required and you have the money for an initial deposit.

What to Look for in an Instant Approval Credit Card

As you shop for a credit card, look for the following features to help build your credit:

• High Credit Limit—Your credit score looks at the amount of available credit you’re using. If you have more available credit, and you’re using a smaller percentage of it, your credit score will improve.
• Credit Reporting—Any credit card should report to one of the three major credit bureaus: Equifax, TransUnion, and Experian. These bureaus update your credit score based on payments, history, account age, and other factors.
• Low Fees and Interest Rates—You should always pay your bills on time to avoid late fees and interest, but it’s best to find a credit card with low annual fees, application fees, and annual percentage rates (APR), which is the yearly stated interest rate.

Credit Card Best Practices and What to Avoid

According to the Better Business Bureau, there are a few things to watch out for when shopping for an instant approval credit card.

• Be wary of credit card companies that absolutely guarantee approval. Approval is never guaranteed. Even after a bankruptcy, most secured credit card issuers require two years to pass before you are eligible for their card.
• Avoid credit cards that do not disclose all fees or the initial deposit (if it’s a secured credit card).
• Cards that require you to call a “900” number charge a toll for each call.
• Credit card companies should not charge you setup fees or require you take out an insurance policy.
• Avoid credit cards from credit repair companies. Stick to traditional credit card companies.

How Can I Get Additional Help in Repairing My Credit?

There are plenty of resources that explain the process of credit repair and help you learn how to dispute errors in your credit report. Most importantly, a credit card with easy approval for bad credit should be used responsibly in order to build your credit. There are many things you can do to improve your credit score:

• Do not use too much of your available credit. Generally, you should stay under 30% of your available credit to remain in good standing with your credit.
• Pay off your card balance on time each month to avoid interest and increased debt. This is especially true if you want your secured account to transition to an unsecured account.
• If you have bad credit due to a lack of credit history, you can ask for permission to be an authorized user on a relative or friend’s credit card. If this person has good credit, their credit history will become part of your credit report.
• Depending on how many credit cards you have, it’s a good idea to pay off the smaller debts first. This is commonly known as the “Snowball Method” and can work well in eliminating large amounts of debt.
• Dispute errors on your credit report and check for accuracy when possible.
• Do not cancel the card immediately after it’s paid off. Canceling cards in this manner can lessen your available credit and lower your credit score. Allow your accounts to age.

If you maintain good credit habits, then an instant approval credit card will be just a stepping stone toward a credit card with more flexible options, higher credit limits, and even lower interest rates.

What Is Considered Bad Credit?

Poor credit and bad credit usually fall below a credit score of 649. The minimum FICO credit score is 300. Secured credit cards tend to be the easiest credit cards to get with bad credit. You have a greater chance of “instant approval” for a secured credit card if you have bad credit.

A Closer Look at Secured Credit Cards for Repairing Credit

Not only are secured cards good for people with little to no credit history, but they are also the strongest option for those with bad credit.

What exactly is a secured credit card? It’s a credit card that requires an initial security deposit. The security deposit works two ways: a safety net for the lender and a credit limit for the spender. Your credit limit won’t always equal your security deposit, but in many cases, it will. These credit cards often do not require credit checks and allow you to open up a credit account almost instantly.

In many ways, a secured credit card may seem like a debit card, except a secured card reports information to credit agencies that can improve your credit score. This is why secured credit cards can be so beneficial to those with bad credit. They won’t discriminate against your score, and you can gradually increase your credit limit after making consistent payments.

Here are a few more things you should know about secured credit cards:

• They are not the same as a prepaid credit card. These cards work more like a gift card and do not have late fees and other credit card characteristics.
• Secured cards tend to have higher fees and interest rates than unsecured credit cards. That is why you should try your best to pay your balance in full each month.
• Your secured credit card issuer should report to one of the three main agencies. Otherwise, your efforts may not be noticed.

Can I Get Instant Approval for an Unsecured Credit Card?

You can be given a quick approval for an unsecured credit card if you have decent credit. However, these cards will perform a credit check, unlike many secured credit cards that don’t require one. It’s not necessarily as easy as it may be with a secured card, but Visas and other standard credit cards are available for people looking to repair their credit.