Starting a new business is always risky, as there are many uncertainties and an urgent need for funds. On top of that, most big banks are unwilling to lend loans to small and upcoming businesses. Even with large and established businesses, there comes a time when they require large amounts of funds.
According to Morgan Stanley, small businesses need to think out-of-the-box or be creative to get a loan. Small businesses can use some financial gaining methods: unsecured credit, commercial loans, and borrowing against securities portfolios.
Commercial Loans for Small Businesses
This type of loan is a line of credit or a business loan offered by the bank, online funder, or credit union.
Pros
- A commercial loan Is usually more widely available than other forms of loans.
- Commercial loans come with low-interest rates, and the payment of interest is also tax-deductible.
- Taking a commercial loan is often beneficial for a small business as it helps build a healthy and attractive credit score, making it easier to get a loan from the banks.
Cons
- The paperwork needed to apply for a loan is burdensome, especially for small businesses. They might have to fulfill several obligations of the lender and submit reports of their business.
- The small business also needs to prove that its owners have adequate collateral, and the business might need appraisals for equipment, inventory, and real estate.
Borrow Against your Portfolio
This loan is security-based and uses the securities as collateral for a line of credit or a business loan.
Pros
- If the business qualifies for SBL, then it will benefit from cheaper interest rates.
- Usually, credit decisions are approved in a few days, and there is little paperwork. This is good news for businesses that are looking for an immediate response.
- Businesses do not need inventory to get the SBL, as the portfolio of stocks protects them.
Cons
- The paperwork needed to apply for a loan is burdensome, especially for small businesses. They might have to fulfill several obligations of the lender and submit reports of their business.
- The small business also needs to prove that its owners have adequate collateral, and the business might need appraisals for equipment, inventory, and real estate.
Types of Loans Offered by Morgan Stanley
Morgan Stanley usually offers Business loans in the range of 50,000 to 10 million dollars and Account Receivable/Inventory loans of 50,000 to 2 million dollars. In addition, the bank partners with Newtek small businesses to offer these loans. These loans help small businesses increase their capital and meet the objectives of their business.
General Parameters of Loans
- Lower monthly payments
- Pre-qualifications for the loan are quick
- Interest rates are competitive
- Few payment penalties
- Straightforward application process
- Credit and collateral flexibility
Use of the Loan
- Refinance Credit
- Expand the business or takeover another business
- Enhance working capital
- Purchase inventory and equipment
- Purchase a franchise
- Improve leaseholds
- Refinance debts
Terms of the Loan
- Depends on the proceeds
- Ten years for general business purposes
- Fifteen years for purchasing equipment and inventory
- 25 years for business expansion or takeover of another business
Type of Industry
- Any business type that is 'For Profit.'
- Wholesale, industrial, and manufacturing
- Retail and restaurants
Morgan Stanley Interests, Fees, and Loan Options
We have identified two types of loans that Morgan Stanley offers:
- Business loans: 50,000 to 10 million dollars
- Inventory and Account Receivable loans: 50,000 to 20 million dollars
The fees and interest rates vary depending on the type of loan and its total amount. However, the interest rate will depend on the business's credit score; if the credit score is good, the rates will be low; if it's bad, then the rates will be high.
What Lending Criteria does Morgan Stanley Have?
The Lending criteria of most banks is almost the same, and below we have discussed some important details:
1. Credit
When small businesses file a request for a loan, the first thing lenders analyze is the credit of the business and its owners. This is why both the business and the owners need to have a healthy credit score. Unfortunately, the only way a good credit score can be built is if businesses pay their dues on time.
2. Income and Cashflow
Lenders, such as banks, will also analyze the income and cash flows of the business, and they always review the debt-to-income ratio, as this tells them whether it is risky to lend a loan to the business or not. The higher the cash flow, the more likely the business is to get a loan from the bank.
3. Age of Business
Banks are usually reluctant to lend loans to startups or newly-established businesses. Lenders will most likely invest in a business that has been active for two years or more. In addition, lenders cannot trust new businesses because they lack the necessary funds to pay the loan.
4. Debt
There are two components of the debt-to-income ratio:
- Debt
- Income
While we have briefly discussed income, we will now touch upon debt. If businesses have a lot of debt and cannot pay them, then no bank will lend them a loan as it will be too risky.
5. Collateral
Banks and other lenders will always ask for collateral before they lend you a loan. Collateral can be a fixed asset, inventory, piece of equipment, or real estate property. The bank will ask for the collateral to sell it to pay off the loan if the business fails to pay the loan on time.
Morgan Stanley’s Application
The process of loan application is straightforward but not easy, as banks require several documents. On most occasions, the loan officer will work directly with the business and offer valuable guidance. The officer will also discuss different loan plans and recommend the best one.
There are two very important questions that the loan officer might ask:
- First, is the business borrowing the loan to finance a debt?
- Does the business wish to expand or overtake another business?
If you are looking to buy the business, then you should have details regarding the purchase price. However, before the loan is approved, you will need to submit a business plan or proposal, which will be reviewed by the lender. In addition, the lender will be interested in knowing if you can pay back the loan or not.
Before applying for a loan, make sure you meet the following requirements:
- Describe your existing business, submit details such as date of establishment and have a thorough understanding of your competitors. The lender will also ask for information on the staff.
- Businesses need to prepare all the necessary documents such as tax returns, bank statements, credit history, and accounts payable and receivable. Ensure that all the documents are up to date. The lenders will only lend a loan to the business if it has been profitable for at least two years.
- The business owners will need to submit all their necessary details such as ID, Date of Birth, Current Address, Place of Birth, and Social security number. Sometimes lenders may also ask for proof such as resumes of the staff to know if they are experienced or not.
- Once all the necessary documentation is submitted, you will probably receive an update in 24 hours.
Note of Caution
Owners need to understand the following:
- There must be sufficient collateral to support the loan
- Owners might need to deposit additional securities or cash on short notice.
- Without any prior notice, the bank might sell part or all of the securities of the business.
- The owners of the business will not have the luxury to choose the securities. Moreover, this step can be dangerous for the business as it might have an adverse tax effect.
- Morgan Stanley, Barney LLC, Morgan Stanley Smith, N.A., and Morgan Stanley Private Bank reserve the right not to approve the loan based on the lack of collateral or for any other reason.
- Morgan Stanley bank also reserves the right to increase the maintenance of the collateral without any prior notice.
- Morgan Stanley bank also reserves the right to call securities-based loans any time without any prior reasoning and notice.
- To be eligible for a loan, the business owners should have a brokerage account with Barney LLC or Morgan Stanley Smith.
- Securities-based loans are provided by Barney LLC, Morgan Stanley Smith, Morgan Stanley, N.A., and Morgan Stanley Private Bank.
For more information, please log on to morganstanley.com
Summary of Morgan Stanley Loan Options
We have primarily discussed two types of business loans offered by Morgan Stanley, and those are:
- Business Loans (50,000 to 10 million dollars)
- Inventory and Accounts Receivable loans (50,000 to 20 million dollars)
However, there is a lot of variation in these loans as their terms, interest rates, and fees vary. Morgan Stanley also has strict criteria that businesses need to meet to be eligible for a loan. Before applying for a loan from Morgan Stanley, please read the note of caution.
On the other hand, Morgan Stanley has experienced financial advisors willing to help small businesses get on their feet. In addition, the bank is more than 85 years old, so it has been in the industry for a while, and it can be a trustworthy partner of your business.