Posting to vent and maybe get some encouragement.
I boot-strapped my business 2 years ago today, and I've spent the last year positioning myself for a much-needed equipment upgrade in tandem with this highly-recommended "industry guru loan officer". I had an abysmal credit score prior to opening my business and got super lucky to land a 55k loan about 1 year in at 4.9% interest by networking with the local bank's VP. Per a previous thread I had hoped that my 55k commercial loan, which has been paid on time for its duration thus far, was helping my credit… it was not. A stupid oversight, but I took it in stride and continued to bust my ass to improve my credit score in other ways. I was able to bring it up 70 points to 619 as of last month. Aside from my two credit cards – I don't have much actively improving my credit. I'm limited to disputing items and trying to arrange settlement deals.
I received the following email this morning from the loan officer:
"I am happy to tell you I was able to secure an approval for you. I have listed out the term and payment options for you below, based on $20,000.00 max. You can choose whichever term fits your budget the best. Below the term and payment options is a list of items I will need prior to drawing up your documentation, be sure to call me if you have any questions.
$20,000.00: "2" payments in advance (considered your last two payments) as well as, the one time documentation fee of $300.00 due upon signing.
36 months = $966.24 + tax (required by your State at your local tax rate) 48 months = $844.14 + tax 60 months = $780.56 + tax
I understand this will be a dilemma for you…
The rates are more in line with 35%… You have less than two years "Time In Business", which is very unusual for any bank to lend to a business with less than 2 years TIB. Second your personal score falls below the 620 they usually require for an approval. The underwriter is the only one I have out of 45 that would approve our request.
The positive side is your business will get a 100% tax write off on the payment and this transaction will not show up on your personal credit report.
-Loan Officer Guru Woman"
So by my math…
-a 36 month term on 20k is a total of $34784 paid over the lifetime of the loan – 42.5% interest -a 48 month term on 20k is a total of $40518 paid over the lifetime of the loan – 50.6% interest -a 60 month term on 20k is a total of $46833.60 paid over the lifetime of the loan – 57.29% interest
I replied with this:
I was under the impression we were going to wait until after June 1 to request financing for the very reason that my business didn’t hit the 2-year mark until then.
Also, exclusion from reporting to a credit agency is not to my advantage. I have the same situation with my 100% on-time business loan payments not showing up on any of my credit reports; non-reporting loans are not helpful to my business or me personally as a consumer trying to build credit for the future.
To accept those terms means I’d be taking on nearly twice or more than twice the amount of the cost of the equipment itself (assuming an approximate ~35% annual interest; a total interest over the lifetime of the loan between 42 and 57%) with no credit advantage, business or personal, when on-time payments are made.
Therefore its not a dilemma – I simply cannot responsibly commit to those terms when they offer me no advantage expect to secure a few additional pieces of equipment.
Perhaps an inquiry again in a few months is more worth while. To be clear I am looking for a loan that does report monthly to the three personal credit bureaus (and business if possible) and an annual percentage yield in the 20-29% range. If that’s possible with some continued improvement to my personal credit score and a few months into my 2nd year in business perhaps we can try again.
I know I'm making the best decision I can right now to not take on this crappy loan and continue to repair and rebuild my credit over time… any encouragement is appreciated.