When you are applying for a business loan, your personal credit will be factored into the lender’s decision to approve you or not. Business loans have subtle differences compared to traditional personal loans. They are more competitive than personal loans, and the requirements tend to be more stringent.
Even though the work-life balance is important, your personal life will be used when you apply for a loan for your business, especially if you have a small business. If you struggle with finances personally, you will struggle to get a business loan. And, vice-versa if your business finances struggle, your personal credit could be affected.
Making Decisions with Credit Scores
Stated by a credit repair Chicago expert, your personal credit score matters significantly. Many small business owners assume that when they apply for a business loan, they leave their personal financial situation at the door. This could not be farther from the truth. Before awarding you with a business loan, lenders will look closely at your personal credit situation.
They start with your credit score. This number shows whether or not you pay your bills. If you are not dependable on your personal finances, lenders will expect you to have the same behavior with your business finances. If you are a new business owner, your business credit history is minimal or non-existent. So, the only way a lender can judge you is through your personal credit history.
Other Factors That Affect Loan Decisions
Fortunately, lenders will look at other personal information before they make a final decision. Most lenders will use credit scores as one factor in their decision. And the value of the credit score varies between lenders.If your credit score is high, you might be able to qualify for a loan with a low-interest rate and longer-term. The opposite is usually true for people with low credit scores, simply because the risk needs more reward for the lender.
Lenders also look at your business history and its financial health. If your personal credit score is low, you should look for a lender that values it the least. You may be asked to put up some collateral before the lender offers you a loan.
Different Lenders and Their Typical Loans
There are several types of loans that small businesses can get. These loans have varying requirements for their small business customers.
This type of loan requires business owners to use unpaid invoices as collateral for their loans. An accounts receivable loan places little value on credit scores, and looks more closely at the value of the business and its financial health.
These are loans that rely on credit scores that are at least 680. These are backed by the Small Business Administration and given by traditional lenders like banks and credit unions. They have low-interest rates and lengthy terms. Because the requirements are so strict, they are difficult to get. Most lenders have a limited amount of SBA funds to give to small businesses each year.
If you agree with high-interest loans and quick repayment requirements, then is a loan you might like. These look more closely at your business’s revenue, and less on your personal credit score. As long as you have cash flow, you will most likely qualify for a short-term loan.
A term loan is a lot like the SBA product. These are long-term loans that provide a small business owner with a large sum of money. Because so much money is often given in these loans, lenders usually require their customers to have at least a credit score of 680. They usually have fixed interest rates, but they are often higher than the SBA offerings.
Being the Borrower and Co-Signer
As a business owner, lenders might require you to guarantee your loan. As the sole proprietor, you sign the paper and your name is immediately tied to the loan. The same is true if you are a partner, too. So, if your business can no longer pay the debt, the lender will expect you to cover the balance with your own finances.
The agreement you make is almost like being a co-signer on a car loan. If the main borrower fails to pay, the lender will come to you. Only in the business sense, you are both the borrower and the co-signer. With your name on the loan, you can expect that it will show up on your personal credit report, too.
Being an Authorized User on a Business Credit Card
If you use a business credit card, you might be able to avoid putting it on your personal credit report. Business credit cards can be set up without a credit score. Instead of using it as you would a traditional credit card, you become an authorized user which is different from being a primary account holder. Despite being an authorized user, the main account might still be attached to your personal financial interests.
It is tough for small business owners to separate their personal and business finances. The best thing to do, with both your business and personal loans, is to make payments and not borrow more than you can afford.
ENLISTING TECHNOLOGY TO HELP FIGHT FINANCIAL CRIME
By Rachel Woolley, Director of Financial Crime Fenergo
Million-dollar properties, private jets and parties on luxury yachts with celebrity friends. Although it might sound like the plot for a new reality series, this is what corruption, illicit funds and political connections can buy at the expense of ordinary citizens.
Following an investigation by the International Consortium of Investigative Journalists (ICIJ), thousands of leaked documents, known as the Luanda Leaks, suggest that the daughter of Angola’s former president, Isabel Dos Santos, acquired her enormous wealth through favourable access to lucrative deals. These activities were often to the detriment of Angola’s poorest citizens.
We’ve also started to see the application of unexplained wealth orders (UWO) in the UK, with the first UWO issued in 2018. The latest UWOs relate to the grandson of Kazakhstan’s former president, Nurali Aliyev, is currently being investigated by Britain’s National Crime Agency (NCA) to explain where he got the money to buy a £80 million house in one of London’s most expensive neighbourhoods. It is thought that the funds used to buy the property have criminal origins.
But these aren’t isolated stories. There have been countless examples in recent years of how corruption, fraud and political connections has resulted in billions of dollars being stolen worldwide in countries such as Brazil, Malaysia, Gabon, Russia and many more.
A recent report by Fenergo found that regulators have issued over $36 billion in AML/KYC and sanctions-related fines (and rising) since the financial crisis. This staggering number shows that related financial institutions had inadequate policy, processes, procedures and systems, in addition to poor governance and oversight in many cases. Interestingly, a similar report found that the vast majority of these regulatory costs were associated with an AML/KYC-specific labour force.
Not surprisingly, the methods used to hide the illicit wealth are pretty similar; invoice fraud, suspicious transfers, offshore companies and complex ownership structures to disguise beneficial ownership of assets and property. Another commonality is the detrimental impact this has on some of the poorest citizens in these countries and the global economy.
But what can we learn from these scandals? And perhaps more importantly, what can be done?
For financial institutions, the importance of leveraging technology to unwrap complex hierarchies, related parties and identifying individuals with political connections cannot be understated. Understanding the ownership and control structure when onboarding entities is critical, along with robust screening practices to enable sufficient oversight of the relationship, accounts and transaction activity. Enhanced due diligence measures must be applied to politically exposed persons (PEPs), their immediate family members and known close associates. Relationship patterns are also significant, as the same service providers are often used, as was the case with Mossack Fonseca in the Panama Papers scandal.
It’s critical that financial institutions are vigilant in the detection and prevention of financial crime before it’s too late. By automating KYC/AML compliance and leveraging rules-based technology, financial institutions can ensure that internal policies are fully in-line with constantly changing regulations across multiple jurisdictions. However, human input will still be necessary when red flags are identified by the system.
Rachel Woolley, Global AML Manager at Fenergo, has over 10 years’ experience in the Financial Services industry having worked primarily in the funds industry and retail banking. She has a strong background in regulatory compliance, particularly in the areas of anti-money laundering and counter terrorist financing (AML/CTF).
Rachel holds a BSc (Hons) Degree in Applied Accounting from the Oxford Brookes University and is an ACCA Affiliate. She currently holds three professional designations; Licentiate of the Association of Compliance: Officers in Ireland (LCOI), Certified Financial Crime Prevention Practitioner (CFCPP) and Certified Data Protection Officer (CDPO).
CONSUMERS ARE READY FOR BIOMETRIC PAYMENT CARDS
Lina Andolf-Orup, Head of Marketing at Fingerprints
We’ve come a long way in the evolution of digital payments. Magnetic stripe cards, chip & PIN and contactless technology have all played a role in dethroning cash as ‘king of payments’, with many countries well on their way to becoming cashless economies. As with all tech innovation, though, consumer readiness is always the deciding factor in the crowning of new payments royalty.
Now there’s a new technology on the block, ready to help contactless offer even more value: the biometric payment card. In recent years, biometric payment cards have been steadily gathering momentum, currently being trialled by over 20 banks across the world, with the first commercial launch announced last year. A mass-market roll-out is imminent.
But with all the noise from the payments world, it’s important to answer the de facto question that’s key to any technology’s success: are consumers ready?
Contactless is (almost) king
Contactless has achieved great success globally, and are now seeing a steep increase across the world.
In addition to consumers being frustrated with having to remember a plethora of PINs and passwords, the current pandemic has also brought to light the unhygienic nature of cash and PIN-enabled payments. Now more than ever, consumers are eager to use a secure, convenient, and hygienic payment method. And contactless almost fits the bill.
Although consumers want to use their contactless card more often, security worries, payment experience frustrations, and the limiting payment cap are all preventing the card from reaching its full potential usage.
The missing link
This is where biometrics comes into play: the missing element that can take contactless into the era of worriless and limitless payments, and provide consumers an experience they expect in the 21st century. With consumers clear about what they want, let’s take a look at what’s top of their checklist and how biometrics can fill in the gaps to realize their ideal payment experience.
- Smarter, safer contactless. Just for you.
Security is a primary concern for consumers when it comes to contactless, with 38% of consumers citing security as the main reason they are hesitant to use the payment method. For older generations, this number rises to almost 50%.Yet with hygiene concerns at an all-time high, many consumers aren’t eager to use PIN-pads to secure their payments either. By moving the authentication onto the card itself, biometrics secure payments in a way that allows consumers to never touch a PIN pad again.
With the rise of data privacy concerns, consumers can rest assured that their biometric data never leaves the card and won’t be shared with third parties or cloud-based databases. Everything remains securely stored on the payment card itself.
- Let’s talk about UX
Although every generation is keen to use contactless more, millennials are especially eager to take greater advantage of this convenient payment method. 87% of millennials that own a contactless card use it regularly and three quarters are set to use it more often.
Biometrics bring additional trust to contactless payments, while keeping the same level of convenience, allowing consumers to make a secure payment in less than a second. And with a unified experience so you know what to expect every time you pay; not PIN code sometime, contactless another time, it always works the same no matter where you are in the world.
Because a biometric payment card does not need to be charged – it’s powered from the payment terminal in the same way traditional contactless is – there is nothing standing in the way of efficiency-loving consumers embracing this technology.
- Contactless made limitless
To offset the lack of PIN security, traditional contactless payments are capped. In light of the current hygiene concerns, countries around the world have already raised contactless payment caps in a bid to reduce PIN entry and cash use. But without any additional strong authentication, the limit has not been lifted completely anywhere to date. This is not only frustrating consumers, but our recent research found this was the primary frustration banks felt regarding contactless.
With the touch of a finger, biometrics brings the robust security needed to remove contactless payment limits altogether. Across contactless cards, mobile, wearables – and even future payment options – biometrics can provide a strong and seamless authentication solution to however we choose to pay or whatever contactless form or shape. Limitless payments with a harmonized UX, wherever consumers are, however much they spend, and wherever they pay: the perfect companion in the age of convenience.
- Tech nation
A less pressing, although by no means trivial matter, is that consumers are simply ready for something new. Over a third of consumers want to use more modern and personal payment cards, and biometrics sits alongside metal cards, tailored designs and other innovations to do just that. Not to mention that the standard contactless card, the last great innovation in card payments, is now over a decade old!
Featuring the latest fingerprint sensors and an advanced algorithm with AI, biometric payment cards not only meet the criteria for a modern and next-generation payment card but offer the most personal touch imaginable. Your fingerprint.
- Ready to roll…
We’ve arrived at a crucial point in the evolution of payments. With the technology tested and accredited in line with the rigorous standards of the payments ecosystem, the mass market adoption of this technology is just around the corner. But most importantly, consumers have never been more ready to embrace limitless and worriless contactless.
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