When it is time to expand the business, most small businesses struggle as they lack the funds. Most banks are also reluctant to lend loans to small businesses, especially those who’ve been active for less than two years. However, Wells Fargo might have the answer to all the problems faced by small businesses and startups.
Wells Fargo offers a US SBA loan (Small Business Administration):
Longer Repayment Terms: Monthly payments will be low
Lower Down Payments: Upfront costs are much more affordable
Types of SBA Loans Offered by Wells Fargo
1. SBA (7A)
- This loan is designed for small businesses looking to take over an existing business, buy real estate and equipment, and expand to other locations.
- This loan is perfect for long-term financing for a business worth 15 Million dollars and has a below 5 million dollars net income.
- The total amount of the loan is 5,000,000 dollars.
- The term for commercial real estate is 25 years, while ten years for other purposes.
- Interest rates are either fixed or variable.
2. SBA 504
- This loan is for those businesses that are looking to expand their land constructing acquisitions or buying equipment.
- This loan is perfect for long-term financing for a business worth 15 Million dollars and has a below 5 million dollars net income.
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- The total amount of the loan is 5,000,000 dollars by Wells Fargo and 5,000,000 by a certified development firm.
- Terms for commercial real estate are 25 years, whereas, for equipment and machinery, the term is ten years.
- Interest rates are either fixed or variable.
Types of Loans offered by Wells Fargo Loans
1. Line of Credit
- Offer for new customers: No annual fees are charged for the first year
- Credit line of 5000 to 10000 dollars
- Low rates of 1.75%
- Collateral not required
- Free and automatic enrollment in Rewards program
Purpose
- Cash flow supplementing
- Business expansion
- Converting of expenditure
Key Features
- Access card from Mastercard
- Easy to use
- It can be accessed online
- No charges for foreign transactions
Advantages
- Ideal for businesses who’ve been active for less than two years
- Easy to build or re-establish credit
2. Line of Credit
- Revolving credit line of 100,000 to 500,000 dollars
- Interest-only payments every month
- Secured by assets of the business
- Typically for businesses that have an annual sale of 2 to 5 million dollars
Purpose
- For short-term working capital
- Other purchases
- Bulk buying to gain a pricing advantage
Key Features
- Access card from Mastercard
- Easy to use
- It can be accessed online
- No charges for foreign transactions
Advantages
- Competitive and prime-based rates
- Up to the line limit, unlimited access during the 12-month draw period
- It can be renewed yearly
3. Wells Fargo Small Business Loan
- The total amount of 10,000 to 100,000 dollars
- Lowest interest rate of 6.25 %/week
- Competitive rates
- Term of one to five years
- No collateral requirement
- Opening fee of $0
Purpose
- Business expansion
- Buying inventory and equipment
4. Equipment Express Loan
- Interest rate as low as 4.5 %
- Competitive rates
- The total size of the loan is 10,000 to 100,000 dollars
- Term of one to five years
- Opening fee of $0
- No collateral requirement
Purpose
- Buying equipment
- Expanding the business
Lending Criteria for Wells Fargo
1. Credit History
Credit history is an important factor that banks consider before they offer businesses any loan. Therefore, the lenders will analyze your credit history, the open and close accounts, and the repayment history of the past decade. Lenders will also ask government agencies for credit history data.
Why is Credit History Important?
Good credit history, better known as credit score, shows that the business has been paying off its monthly debts before the due date. The business's credit score will also impact the interest rates offered, the amount of loan, and the term. A good credit score means you will get a higher amount of loan at a cheaper interest rate.
Why Does Your Credit Score Mean?
The credit score of a business is an overview of how well they've managed their credit. A three-digit score also referred to as a FICO score, should typically fall in the 350 to 800 range. However, credit agencies have different scores, so the score your business gets might differ.
Wells Fargo Credit Score Standard
- 760+ - EXCELLENT: This means that your company is capable of receiving lower interest rates; however, the lender will also take into account the value of the collateral and the debt-to-income ratio
- 621-629 – VERY GOOD: Your business is considered eligible for low-interest rates; again, it also depends on the debt-to-income ratio and value of the collateral.
- 621-629 – FAIR: This score means that your business might not be eligible to obtain the line of credit and will be charged high-interest rates.
- 620 & Below – POOR: A business with this score will find it hard to obtain unsecured credit.
- NO CREDIT SCORE: You don’t have enough credit to have a credit score, or your credit has been largely inactive
2. Capacity
The capacity of the business is taken into account because it shows to the lender that you are capable of paying your dues and expenses on a new credit account. In addition, lenders will generally review your monthly income and financial obligations.
Why is Capacity Important?
Lenders analyze the debt-to-income ratio when they are trying to determine if the business is eligible for credit or not. Therefore, a low debt-to-income ratio or DIT is a good indicator and proves to the lenders that your business can pay the loan.
Wells Fargo Standard for Debt-to-Income Ratio
- LESS THAN 35% - GOOD: Debt is manageable and relative to your income
- 36% to 49% - NEEDS IMPROVEMENT: Even though the business is paying the managerial debt, it still needs to lower the debt-to-income ratio.
- MORE THAN 50%: The business has extremely limited funds and might not pay back the loan.
3. Collateral
Collateral is an asset that is owned by the company, such as inventory and equipment. Collateral is an important factor for lenders because it will offset their risk by lending the loan to the business. Using collateral as an asset gives the business more borrowing opportunities and access to credit accounts with lower interest rates.
4. Capital
Lenders will usually evaluate the capital the business has before approving the loan. Capital is usually an asset that can be used to pay a loan. Retirement accounts, down payments, and investments are generally considered capital. The more capital a business has, the more financially secure it is.
5. Conditions
Conditions are a variety of factors that the lenders consider:
- How the business will utilize the loan or credit
- The impact market conditions will have on interest rates and the credit or loan amount.
- Factors such as the ability of the business to repay the loan are also considered.
Wells Fargo Interests, Fees, and Loan Options
1. Wells Fargo Prime Line of Credits
Fees: An origination fee of 0.50 % is competitive and needs to be paid once the account is opened and yearly.
Interest Rates: +1.75% Primal
2. Wells Fargo Business Line of Credits
Fees: $ 95 fees for a line of credit of 10,000 to 25000 dollars. $ 175 for line of credit of 25,001 to 100,000
Interest Rates: +1.75% Primal
3. Wells Fargo Small Business Loan
Fees: Opening fee of $0 for a Credit account
Interest Rates: Fixed-rate starting at 6.25 %
4. Wells Fargo Equipment Express Loan
Fees: Opening fee of $0 for a Credit account
Interest Rates: Fixed-rate starting at 4.5 %
Wells Fargo Application
Wells Fargo Prime and Business Line of Credit
You can apply for this loan online or in person, and this is what you will need to provide:
- The legal name of the business
- Address
- Phone number
- Date the business was established on
- Type of ownership
- Number of owners
- Annual gross revenue
At least one owner of the business should provide the following information:
- Name
- Address
- Phone number
- Social security number
- Date of Birth
- Citizenship
The owner of 25 % or more of the business should provide the following information:
- Ownership percentage
- Yearly household income
Information required for Prime Line of Credit:
- Personal tax returns of the past two years
- Business Tax Returns of the past two years
- Financial statement (personal)
- Two-year financial statement of the business
Wells Fargo Small Business Loan
- Business should be active for at least three years
- No bankruptcies
- Business should be profitable for the past two years
- 1.50 dollars of revenue for every 1.25 dollars of debt
Wells Fargo Equipment Express Loan
- Business should be active for at least three years
- No bankruptcies
- Business should be profitable for the past two years
- 1.50 dollars of revenue for every 1.25 dollars of debt
For more information, please log on to the website of Well Fargo.
Summary of Wells Fargo Loan Options
We have identified four types of business loans that Wells Fargo offers:
- Wells Fargo Prime Line of Credit
- Wells Fargo Business Line of Credit
- Wells Fargo Small Business Loan
- Wells Fargo Equipment express loan
Each loan comes with its qualification criteria, and you need to fulfill certain obligations to be granted the loan. However, if you fit the criteria set for the loans, Wells Fargo is the place for you, as the loans are available at competitive and lower rates, and the fee is also reasonable.