Where to Find Business Loans for Senior Citizens

Why Finding Financing Is Easier for Older Entrepreneurs

If you’re an older “encore entrepreneur” trying to find a business loan, know this: Recent trends are on your side.

The number of seniors running successful businesses is on the rise. In 2017, adults between ages 55 and 64 made up 26% of new entrepreneurs in 201, compared with 14.8% in 1996 and 19.1% in 2007, according to research by the Ewing Marion Kauffman Foundation.

Moreover, firms run by entrepreneurs who are 55 and older stand a better chance of survival than those run by their younger counterparts, according to a study by JPMorgan Chase Institute. For instance, a company run by a 60-year-old has only an 8.2% chance of going out of business, compared to 11.1% for a 30-year-old.

• With Age Comes Wisdom

  Seniors enjoy several advantages that give them an edge when it comes to running a business, including qualities that make it easier for them to find financing:

  • Older business owners typically have more experience managing money and paperwork, making them more conservative with spending and less likely to run into cash-flow problems.
  • Seniors have an average FICO credit score of 745, according to Experian data from the fourth quarter of 2018. That is 44 points above the national average of 701, making it easier for them to qualify for loans.
  • Older entrepreneurs have more collateral to qualify for loans than younger business owners, with adults 55 and older consistently having higher levels of homeownership than other age groups since 1989, according to an analysis of Census Bureau data by the Joint Center for Housing Studies of Harvard University. Senior business owners also have the ability to tap into resources such as retirement savings.

These factors and others help make senior business owners attractive to lenders.

Finding Business Loans for Seniors

Senior entrepreneurs can tap into several different types of loan resources:

• Conventional commercial loans
• Alternative loans
• Small Business Administration (SBA) loans
• Other loan products

Conventional Commercial Loans

Conventional loans from lenders such as banks represent a major source of loans for seniors. Typical commercial loans can offer some of the most favorable terms to borrowers.

Small business loan amounts vary by lender, loan type and borrower risk, averaging $663,000, according to data released August 2017 from the Federal Reserve. Borrowers representing lower credit risks can borrow more than those with higher risk.

Terms for business loans usually range from 1 year to 25 years. During the first quarter of 2019, average interest rates on new small business loans from small, midsize and large banks ranged from 5.04% to 6.82%, with large banks tending to charge more than smaller lenders, according to Federal Reserve data.

To qualify for a conventional commercial loan, you usually need a strong credit score and an established record of being in business. Qualifications vary by lender, but as a general rule, if you’ve been in business less than a year, lenders prefer a personal credit score of 650 or more, and many require 680, according to credit-ratings firm Experian. If you’ve been in business for more than a year, conventional lenders consider both business and personal credit, placing more weight on your business credit.

Alternative Loans

Alternative lenders, such as providers of online financing marketplaces, offer another option for senior business owners. Loans from alternative lenders typically involve lower amounts than conventional lenders, averaging about $80,000, according to the SBA. Alternative lenders often offer higher rates than traditional lenders, as a trade-off for willingness to take on the risk of borrowing to lenders with lower credit scores.

Alternative lenders tend to have more relaxed qualifications than conventional institutions, although this can vary. They typically prioritize your business income and your personal credit score when considering your loan application. Some alternative lending products place more emphasis on your business income than your credit. For instance, invoice financing uses your accounts receivable to pay for a cash advance, minimizing risk to the lender and allowing them to disregard your credit score.

SBA Loans

If you don’t qualify for other loan products, another option available to you is SBA loans, which are backed by the Small Business Administration and offered through a network of approved traditional and alternative lenders.

In return for guaranteeing loans, the SBA requires approved lenders to offer them at a rate not exceeding a set maximum. This makes SBA loans more favorable to borrowers.

The SBA’s most primary loan product, the Standard 7(a) loan program, offers amounts up to $5 million. Maximum interest rates start as low as the prime interest rate (which stood at 7% as of Dec. 15, 2022) plus 2.25% for loans exceeding $50,000 with terms less than 7 years. SBA 7(a) rates range as high as the prime rate plus 4.75% for loans of $25,000 or less with terms of 7 years or more.

To qualify for an SBA loan, you must meet certain minimum qualifications set by the SBA, plus any additional qualifications set by your lender, including:

• A credit score acceptable to your lender
• A personal financial statement dated within 90 days of submission
• 3 years of business financial statements

Other Loan Products

Standard loans are just one category of loan products available to business owners today. Other variations on loans you may wish to consider include:

• Business lines of credit, which work similarly to credit cards
• Accounts receivable financing (invoice financing), in which you receive a cash advance on the strength of unpaid invoices you are owed by your customers
• Merchant cash advances, in which you receive cash in exchange for a percentage of your future sales
• Equipment financing, where you receive funds to purchase equipment, with the equipment itself serving as collateral

A loan specialist may be able to steer you towards these and other options appropriate to your business model, revenue level and credit rating.

Small Business Grants for Senior Citizens

Grants offer seniors another financing resource. Grants receive support from institutions such as philanthropies. Unlike loans, grants do not need to be repaid.

Some grants may specifically aim to help seniors. Other grants support specific groups such as seniors, women or minorities. Here are some grant resources you may wish to consider:

Grants.gov

Grants.gov is the U.S. government’s main resource for access to information about grants sponsored by federal agencies. It includes educational resources to help you learn about how grants work and where to find them, as well as a search tool where you can search for grants meeting specific criteria.

GrantWatch

GrantWatch tracks grants from a wide range of resources:

• U.S. grants, including federal, state and local grants
• Canadian grants
• International grants
• Corporate grants
• Foundation grants

The GrantWatch site’s search tool allows you to filter grants by selecting basic criteria. The tool also features advanced search filters.

FedEx Small Business Grant Contest

Each year, FedEx sponsors a grant contest for 10 small business winners. The grand prize winner gets $50,000, plus $7,500 in FedEx Office print and business services. One silver prize winner gets $30,000 plus $5,000 in FedEx services, while 8 bronze prize winners get $15,000 plus $1,000 in services.

To qualify, you must be a U.S.-based for-profit business with less than 99 employees. You must also have been in business selling a product or service for at least 6 months at the time the contest begins for that year.

Other Financing Options

In addition to grants and loans, there are other ways for senior entrepreneurs to fund business enterprises, including financing options that are not available to younger entrepreneurs:

• Apply for a personal loan
• Get a business credit card or line of credit
• Borrow money from family and friends
• Seek investors
• Crowdfund your business
• Take out a mortgage loan, home-equity loan or reverse mortgage loan
• Borrow against your 401(k) plan (best done in consultation with a financial professional after exploring other options)

How to Improve Your Chances of Securing Financing

In order to improve your odds of successfully applying for a loan or grant, you can take a number of steps to make your application more appealing:

• Write a sound business plan, following the SBA’s guidelines and hiring an experienced writer to assist you
• Get input from an experienced business mentor, such as those available through the SCORE network
• Develop a financial plan to support your business plan, in consultation with an experienced accountant
• Take steps to improve your personal and business credit scores, such as keeping your balances low, paying bills on time and monitoring your score
• Research lender requirements to find loan products you qualify for before submitting an application
• Create a video telling the story of your business to give your application a personal touch

Find Financing for Your Business

Senior business owners seeking financing have a wide range of options available, including loans, grants and other resources. If you’re interested in exploring your funding options, Fast Capital 360 specializes in providing business term loans, SBA loans and other forms of financing such as business lines of credit.