One of the most challenging decisions for all small business owners is figuring out the best option for funding. So it pays for single moms to be fully informed about the options before signing on the dotted line for a loan.
Where to Start if You’re a Single Mom in Need of a Business Loan.
No matter what type of financing you choose, there are three things you should do as a single mom in need of a small business loan: 1) check your credit score, 2) find a reputable lender, and 3) draw up a business plan.
Check your credit score. You should know your credit score by checking with the three major credit agencies (Experian, TransUnion, and Equifax). Financial institutions will use your credit score to assess your ability to repay a loan, and your score will ultimately determine your eligibility for specific types of loans.
Find a reputable lender. You also need to ensure that your business loan lender is reputable. While there are thousands of options listed on the internet, beware that not all are legitimate. One way to verify that a lender is reputable is to check its Better Business Bureau (BBB) rating.
Draw up a business plan
Many lending institutions require a detailed business plan as part of the loan application. Even if you decide to apply to a lender that doesn’t require one, you should know exactly how you will spend the money to help determine the amount you need and your ability to pay back the loan, given your estimates for future revenue and earnings. The Small Business Administration’s (SBA) template is a universal model recommended by many experts.
Government Business Resources
All single mothers seeking business-related financing should use the SBA’s Women’s Business Center, which provides resources specifically for women entrepreneurs launching and growing businesses. These centers, which have local offices throughout the U.S., offer online resources and financing opportunities, including SBA loans, loan guarantees, contracts, counseling sessions and other assistance.
Another federal government program that may be of interest to you if you’re a single mom in need of a business loan is the Community Development Financial Institution Program (CFDI), which is an initiative of the U.S. Treasury Department that works with the SBA. CFDI helps develop small businesses in under-served communities that lack access to traditional financing. It offers tailored resources and innovative programs that invest federal dollars alongside private sector capital. For low-income single mothers who live in communities not well served by large banks and lenders, this may be a good option to obtain financing and other help.
Financing Options for Your Single Mom-Owned Business
Traditional banks, both large and small, typically have very strict standards for making loans to small businesses, including a credit score of at least 700, financial records for three years, very detailed business plans and other documents. In recent years, the approval rates for small business loans from these institutions average about 25%.
While banks can offer lower interest rates, compared with other institutions, it can be quite difficult to find a bank willing to offer a loan. That’s why some single moms in search of business loans have chosen to take a slightly different financing route.
Alternative lenders offer small business owners various options with traditional business loans and merchant cash advances. These lenders have more flexible requirements, which requires a minimum personal credit score of 550 and significantly less documentation than major banks.
This can be especially helpful for single moms who are looking to start, build, or grow their own small businesses but have damaged credit or limited time to compile all of the necessary paperwork.
Before You Sign on the Dotted Line
Even before you apply, you should read the terms of a business loan from the institution because there may be conditions which could place you and subsequently your family at risk if you are unable to repay the loan. What you want to avoid is applying for too many loans, as each application can impact your credit score.
Also, if you’re thinking of taking the alternative lender route, be aware that the interest rates will be higher than the big banks, given the higher risk. Be careful when making your pick as well. Make sure their BBB rating is solid before you sign on the dotted line.
Don’t Get Discouraged as a Mom-preneur
Finally, don’t let the business loan process discourage you because many moms have become successful entrepreneurs despite having to face situations like these. Small Business Trends shares some of them, such as Jakki Liberman, founder of Bumkins Finer Baby Products, and Lisa Greenwald, founder of Chewbeads. As long as you keep moving forward, you’ll be fine.
And if you’re currently struggling, the key to overcoming these types of obstacles as a mom-preneur, according to one Huffington Post article, is to:
- Avoid toxic people who can bring you down.
- Be proud of the fact that you’re a single mom and look at it as an advantage versus a disadvantage.
- Never let funding obstacles stop you from living your dream; financing options exist, you may just have to look a little harder to find them.
- Let go of the traditional concept of work/life balance; it simply doesn’t exist for single moms.
- Have your kids take part in your small business venture so you’re not trying to always divvy up your time.
- Pick your dates cautiously (or, “don’t date jerks” as the article says); instead, look for someone who is secure, supportive, and willing to be a part of your dream.