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Signing a personal guarantee as part of a business loan agreement makes you personally liable for the debt if the business defaults on the loan. There are some benefits to using a personal guarantee, including potentially better interest rates. But it also means you’re putting your personal assets at risk if your business experiences a downturn and can’t make its loan repayments on time.

Learn what a personal guarantee entails, what risks it involves, and what to know before you sign one for your next business loan.

Personal Guarantees Explained

A personal guarantee is a legal obligation that an individual will be financially responsible for a business debt if the business itself can’t repay the financing. If a business owner signs a personal guarantee as part of a loan agreement, he or she must cover the debt with personal assets in the event of the business defaulting. If you apply for a loan with this type of agreement, your personal credit history will be reviewed as part of the loan application process (and in addition to your business’s financials).

As part of a personal guarantee, you may need to pledge assets. Typically, assets could include your checking and savings accounts, vehicles, and real estate (like your home). It’s important to know what’s included in the guarantee because it should name the assets at risk if the loan goes into default.

Despite the risks to your personal assets, you may decide that it’s worth signing a personal guarantee. It can help strengthen your application for small business financing, especially if your company has poor credit or no credit history.

Limited vs Unlimited Personal Guarantees

There are two primary types of personal guarantees: limited and unlimited personal guarantees. It’s important to understand the differences because your responsibility varies significantly depending on which type the lender requires.

Limited guarantee. This option is usually designed when there are multiple business owners making the guarantee. Each owner is responsible for up to a certain percentage or amount of the outstanding balance if the loan goes into default. Five partners, for instance, might each have a limited guarantee of 20% of the loan balance.

Unlimited guarantee. This type of guarantee requires one principal personal guarantor who is responsible for the full amount of the small business loan. In addition to liquid assets, the creditor may also seize physical assets like cars or real estate in order to recoup a defaulted loan.

Why Do Lenders Ask for Personal Guarantees?

A lender may require a personal guarantee as an extra layer of financial protection in case the business is not able or willing to repay the loan. Personal guarantees both mitigate lender risk and demonstrate borrower commitment.

Mitigate Lender Risk

Without a personal guarantee, there aren’t many ways for the lender to be reimbursed for the outstanding balance, particularly if the business doesn’t have significant assets to liquidate. Having the option of this legal recourse through an individual reduces the lender’s risk of losing money on the loan.

Some forms of financing (like heavy equipment financing or merchant cash advances) are inherently tied to some type of asset or receivable. That may give the lender more confidence that the borrowed funds will be repaid or could easily be recouped in some way.

Demonstrate Borrower Commitment

Personal guarantees also demonstrate borrower commitment. If the borrower fails to repay the loan, they are at risk of losing their assets. The lender knows the borrower is serious if they’re willing to put their assets on the line, and may be more likely to lend to them with favorable rates and terms.

Types of Business Financing That Require a Personal Guarantee

A personal guarantee is generally required for small businesses and startups. These businesses may not be fully established yet, so using an owner’s or partner’s credit can strengthen the application. And using debt financing secured with a personal guarantee can allow you to retain ownership of your company rather than hand over a chunk of equity to external investors in exchange for funding.

The following types of business financing typically need a personal guarantee:

SBA loans

SBA loans may require an unlimited personal guarantee for any individual owning 20% or more of the business applying for a loan. That also means your personal credit score is reviewed as part of the loan application. There are multiple types of SBA loans, so you can explore all options and determine which financing solution is best suited for your needs.

Short-Term Business Loans

There are many different types of short-term business loans, some of which may require a personal guarantee. These loans are typically used to help with cash flow issues or emergency expenses. You can often apply online and get quick funding if you qualify. Term loans are likely to be secured by a guarantee, so check your offer carefully.

Long-Term Business Loans

These loans typically last anywhere between three and 10 years, or even longer if your business is making a major capital investment like real estate. Depending on the situation, you may be able to use business assets (like equipment or property) as collateral for long-term business loans. But personal credit may also be considered as part of the loan application and a personal guarantee or blanket lien on the business could be a stipulation to qualify.

Recommended: What Is a Personal Business Loan?

Benefits of Personal Guarantees

While a personal guarantee increases your financial responsibility for the success of your company, there are some benefits that come along with it. Most importantly, it can help your business qualify for financing for which it might otherwise not be eligible.

Increases Approval Chances

A personal guarantee helps increase your chances of approval for the loan. The lender views you as a less risky borrower because if you default on the loan, the lender can seize your assets. This allows them to recoup some of their losses if the business cannot repay the loan.

May Get Better Loan Terms

A personal guarantee could also improve the conditions of your loan. While there’s an increased risk for you, you might receive a lower interest rate, a larger loan amount, or a longer payoff term. In fact, some business owners use a personal guarantee even when it’s not required just so they can take advantage of these benefits. The better your personal credit, the better the business loan terms you can expect.

Risks of Personal Guarantees

Signing a personal guarantee brings with it a significant amount of risk for the borrower. If the business defaults on the loan, legal action could be taken against you to repay the loan balance. You could lose your personal assets. But note that some states have homestead laws, which prohibit creditors from seizing your primary residence and retirement savings accounts.

If things go badly for your business, the repercussions from signing a personal guarantee can harm both your business and personal credit scores. Plus, you may be responsible for the lender’s legal fees if it must take legal action in order to collect the debt. That amount is added to whatever balance you have on the business loan, as well as your own legal fees.

It’s difficult to get out of a personal guarantee before the loan is paid off. Filing for small business bankruptcy typically doesn’t get you out of a personal guarantee — only personal bankruptcy can do that. The personal guarantee may also stay in place even if you sell your business. That’s one more reason that it’s vital to understand the conditions of the guarantee in all possible situations. It’s a good idea to have an attorney review your loan agreement so you fully understand your responsibilities before you commit to the financing.

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How Does a Personal Guarantee Affect Your Finances?

Signing a personal guarantee can affect your finances, but usually only if the loan goes into default. If your business is up-to-date on its loan payments, it usually doesn’t show up on your individual credit report. However, future personal loan applications may ask if you have a personal guarantee elsewhere. In this instance, you could limit your ability to qualify for other financing because of your increased debt-to-income ratio.

Impact on Personal Credit

If your business defaults on the loan, that could show up on your credit report, as would any collections or judgment issued. Negative or derogatory marks on your credit report typically last between seven and 10 years. The more severe the default, the lower your score will drop. This can impact your ability to qualify for financing for years to come. And if you do qualify, you’ll likely be subject to extremely high interest rates.

Seizure of Personal Assets

A personal guarantee can also affect your finances if you go into default and the lender seizes your personal assets. If you put up a savings account as collateral, for example, the lender could take this. Before taking out any type of small business loan with a personal guarantee, it’s important you have a plan in place to pay it back.

Finally, a personal guarantee that goes into collections could impact your spouse, too, if you don’t explicitly have joint assets excluded from the guarantee.

Alternatives to a Personal Guarantee

Lenders are likely to want some form of security to lower their risk when they extend loans to businesses with less-than-stellar credit or no track record. There may be options that can take the place of a personal guarantee in terms of allowing you to obtain better credit terms.

Collateral. One way a business may be able to get better terms on a loan is by offering collateral. Collateral is an asset or set of assets that helps secure the loan and lowers the risk for the lender if the company defaults on the loan. In the event of default, a lender can claim your pledged collateral for the debt owed.

Blanket business lien. This is similar to a personal guarantee, except that it offers up not your personal assets but the business’s assets as security. If your business fails to repay and defaults on the loan, the lender is entitled to possess and/or liquidate your business’s assets to fulfill your debt. Note that some lenders may require a personal guarantee in addition to a blanket lien, meaning that if your business assets aren’t enough to pay back what your business owes them, they can go after your personal assets, too. There’s another argument for reading the fine print carefully.

The Takeaway

A personal guarantee is commonplace in the world of small business loans. But it’s still important to understand the full scope of your responsibility so that you’re aware of the risks and certain that you’re willing to take them.

Although agreeing to a personal guarantee is likely to improve the terms of the loans you qualify for, it’s good to know what’s on offer without a personal guarantee as well as with one.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is a personal guarantee?

A personal guarantee is a legal commitment by an individual, usually a business owner or partner, to repay a business loan if the business itself is unable to do so. It makes the guarantor personally liable for the loan, meaning that their personal assets can be pursued by the lender in the event of default.

How does providing a personal guarantee impact my personal credit score and financial standing?

Providing a personal guarantee can impact your personal credit score if the business defaults on the loan and the lender reports the default to credit agencies. It’s important to make sure you pay your loan on time each and every month.

What are the consequences if my business defaults on a loan that I have personally guaranteed?

If the business defaults on a loan with a personal guarantee, the lender can pursue the guarantor’s personal assets, such as bank accounts, real estate, and other property, to recover the owed amount. This can lead to significant financial strain and potentially impact the guarantor’s personal financial stability.

Photo credit: iStock/supersizer

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q324-016

Annual business revenue refers to the income generated by a business over the course of one year before any expenses are deducted. This is a key number for business owners to know because it tells you how well your company is doing.

Knowing your annual revenue also allows you to track your company’s performance against itself in previous years, as well as against competitors.

Read on to learn how to quickly calculate your business’s annual revenue, plus how you can use this metric to monitor and grow your small business.

What Is Annual Business Revenue?

Annual revenue for a business refers to the amount a business made in sales over 12 months, whether that’s for products, services, or both. This number is also often referred to as the “top line,” since it’s added to the top of a business’s income statement. Annual revenue does not account for any of your expenses, such as payroll, operating costs, and rent.

How does annual business revenue differ from profits? Profit is the amount you have after you subtract annual expenses from annual revenue.

How Does Annual Business Revenue Work?

When calculating business revenue, you’ll include money you earn from your main business activities, such as sales of your products or services, as well as revenue you earn from activities not directly related to your business, such as interest from investments or renting a floor of your building to another company.

There are also two different ways to calculate annual revenue: It can be over a fiscal year, which is from whatever point in the year you start calculating, like July 1, to the same date the following year. Or, it can be a calendar year, which would start on January 1. Some businesses prefer to use one method over the other.

Either way, it’s important to calculate and track your annual revenue. Doing so helps you determine if your business is making a profit and growing. It can also assist you in preparing to pitch to investors, applying for small business loans, and planning and strategizing for future growth.

How to Calculate Annual Business Revenue

To calculate annual business revenue, you’ll need to determine your firm’s different revenue streams. To start, compile information on the selling price and quantity the company sold for each product or service. To calculate the total revenue of each product or service, use this simple formula:

Annual Revenue of Product or Service = Number of Units Sold x Sale Price

If you sell different products and services at different prices, you would use the above formula to calculate the revenue for each product or service, and then add each total together to get your total revenue from your business’s operations.

Next, you’ll want to add any other income (including investment income or sales of any assets) your business earned over the year to get your total annual business revenue.

Annual Business Revenue Example

For this example, let’s say you sell jewelry. For simplicity’s sake, let’s say you only have three products:

•  Necklaces: $200

•  Rings: $100

•  Bracelets: $75

Last year, you sold 500 necklaces, 750 rings, and 1,000 bracelets. We start our calculations by figuring out your revenue for each.

•  Necklaces: $200 x 500 = $100,000

•  Rings: $100 x 750 = $75,000

•  Bracelets: $75 x 1,000 = $75,000

Now we add each of these together to calculate total revenue.

100,000 + 75,000 + 75,000 = $250,000

Assuming you didn’t have any other sources of income, your annual business revenue would be $250,000. Remember, this is before taking any expenses into account. Your profits will be what you calculate after subtracting the expenses involved in making the jewelry, as well as operating expenses, from your total revenue.

What Is Considered Good Annual Small Business Revenue?

What’s considered a good annual revenue for a small business depends on the size of the business. The average annual revenue for a small business with a single owner and no employees is $44,000 per year. As the number of employees starts to rise, so does the average revenue.

The average revenue for companies with one to four employees is $387,000, while the average revenue for businesses with up to nine employees is around $1 million.

Recommended: Business Cash Management, Explained

What Is Annual Business Revenue Used For?

Knowing your annual revenue is the first step to determining the health of your business. You’ll need to know exactly how much your business is bringing in each year to determine if your business is growing or stagnant, as well as calculate whether it has healthy profit margins. You’ll also need to know your annual business revenue when you file your taxes and if you ever apply for a business credit card, line of credit, or small business loan.

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The Importance of Annual Business Revenue

Annual revenue is one of the most important financial metrics for any business. As a business owner, knowing your annual revenue provides insight into whether your firm is generating enough earnings to not only cover its expenses but also invest in opportunities for growth.

Annual business revenue is also important to potential investors and lenders. Investors will use annual revenue (among other metrics) to assess whether or not a company is worth investing in. They will often look at a company’s revenue growth rate and compare it to their competitors to determine if it’s a good investment opportunity.

Lenders will look at a company’s annual revenue to assess its creditworthiness. A higher annual revenue indicates that the business has the ability to repay its debts and represents a low risk to the lender.

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Is Including Annual Recurring Revenue Worthwhile?

Annual recurring revenue (ARR) is a metric primarily used by businesses operating on a subscription-based model. ARR tells you the normalized annual revenue that a company expects to receive from its subscribers in return for products and services provided. In other words, it is the predictable and recurring revenue generated by customers within a one-year period.

ARR is similar to monthly recurring revenue (MRR) — the key difference is that ARR is normalized to a year rather than a month.

For some businesses, annual recurring revenue is a valuable metric that can help owners quantify a company’s growth, evaluate its subscription model, and forecast its revenue.

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Distinguishing Net Business Income From Gross Annual Revenue

While looking at your annual business revenue is helpful for understanding how your business is doing at generating sales, it’s not the full picture. If you’re spending more than you’re making, your business will struggle to stay afloat.

That’s why it’s important to determine both your annual business revenue (also known as gross revenue), as well as your net business income.

Net business income is the amount of profit your company has left over after paying all its expenses. This number lets you know how well you’re doing at keeping expenses lower than revenues so you have a decent profit margin.

You can look at your small business income statement to see both revenues and expenses to help you strategize how to increase net income.

Here’s a quick snapshot of gross annual revenue vs. net business income.

Types of Revenue

When determining your annual business revenue, you’ll want to be sure you include the two main types of business revenue.

Operating Revenue

Operating revenue includes sales from products or services you regularly sell. In other words, it is money earned from the core activities of the business. In the example above, revenue from jewelry sales falls under operating revenue. If you are a graphic designer, the logo or website design packages you sell fall into this category.

Non-Operating Revenue

Not all revenue that comes into your business is from your primary business activity or considered operating revenue. Non-operating revenue is the income your company brings in outside of its primary business activity. It tends to be sporadic and is not expected to be part of your business’s income on a regular basis.

Some common types of non-operating revenue that could still impact your business’s finances include:

•  Interest: If your company offers financing to customers or invests in the stock market, the interest you gain from these transactions falls under non-operating revenue.

•  Dividends: If your business invests in shares of another company, the profits you earn from this investment are part of your company’s annual non-operating revenue.

•  Rent income: If you rent property or equipment, the money you receive from these rentals is part of your annual non-operating revenue.

•  Asset and capital sales: If you sell a piece of equipment to another company, then the sale price is part of your annual non-operating revenue.

•  Contra revenue: Unlike the other non-operating revenue, contra revenue has a negative value. Contra revenue, which can include returned goods, unpaid invoices, and unsold inventory, is a deduction from gross revenue.

Recommended: Net Present Value: How to Calculate NPV

The Takeaway

As a small business owner, there are numerous numbers you need to track. One of the most important is your annual business revenue. This number refers to the total amount of money your company makes during a year from the sale of products and services, plus any other additional income.

Annual revenue is the starting point from which you can determine your net revenue, which tells you whether your company’s sales are indeed exceeding its costs and the business is making a profit.

Calculating your annual revenue also allows you to track your company’s growth over time and compare its performance to industry peers. You’ll also need to know your annual revenue if you’re looking to bring in an investor or apply for any type of business financing.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is business revenue vs. income vs. profit?

Revenue is the total amount of funds that a business receives from its sales and services. Income is the amount of money a company makes minus the cost of running a business. Profit is the amount of money a business receives after it accounts for the cost of goods sold (COGS). Unlike income, profit doesn’t account for other operational costs like salaries or taxes.

How can you find your annual business revenue?

Annual revenue is the total income your business generates in one year before expenses. To calculate annual revenue, you’ll need to multiply the quantity of goods and services sold by the sales price for each item. This will give you your operating revenue. Next, look at your non-operating revenue — this is how much you earn from activities not directly related to your business (such as renting your building to other companies). You’ll need to combine operating and nonoperating revenue to calculate your annual business revenue.

Why is annual business revenue important to know?

You need to know your annual business revenue to file taxes for your business, determine your profit, and track your company’s performance year to year. If you decide to take out business financing, you’ll need to have your revenue numbers ready for the application.

How do you calculate business revenue?

A simple way to calculate business sales revenue is to multiply the number of sales by the sales price. To calculate total business revenue, you’ll also need to add in income from other sources (such as investments or renting out equipment).

Photo credit: iStock/CentralITAlliance

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q324-013

A no-doc business loan is one that borrowers can access without substantial documentation. Rather than relying on income, lenders may approve borrowers based on credit history and collateral.

No-doc small business loans may be ideal for business owners whose revenue is not yet established but who are interested in getting access to cash quickly.

Learn more on no-doc business loans, how to qualify, and the downsides.

What Are No-Doc Business Loans?

Some specialized lenders offer unsecured business lending that requires zero documentation – that’s where “no doc” comes from – or perhaps fewer application requirements than with conventional loans.

Usually, no-doc business loans don’t require collateral. Lack of collateral can sometimes hold some business owners back from being approved for financing from traditional lenders.

An unsecured business loan could help certain business owners get financing fast — even if you don’t currently qualify for other business lending options.

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Secured vs. Unsecured Lines of Credit

Unsecured lines of credit, unlike secured lines, do not require collateral to guarantee the funds. An unsecured business line of credit for startups can help entrepreneurs get financing without pledging collateral.

Collateral for a secured BLOC may take the form of a business asset — like real estate or equipment. With secured financing, lenders can seize assets to cover what’s owed if a borrower defaults and fails to pay the lender in full.

If you’re not sure how to secure a business line of credit or loan, but you don’t own any assets a lender would consider valuable, a no doc BLOC may be one option. A BLOC is typically unsecured, meaning you generally won’t have to pledge collateral on a business line of credit.

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Types of No-Doc Business Loans

There are a few versions of the no-doc business loan. Some lenders offer lines of credit you can draw from when you need cash, while others offer you a fixed sum all at once.

Unlike many other small business loans, these financial products sometimes don’t require any documentation. You may be asked to simply state your income or demonstrate your gross sales. Depending on the lender, you may or may not need to provide bank statements or profit and loss reports.

Examples of short-term no-doc business loans or short-term business financing might include:

•  Merchant cash advances

•  Invoice factoring

•  Business credit cards

You may also consider low-doc loans. A low-doc business loan generally requires less paperwork (i.e. bank statements or merchant statements) during the application process.

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Who Offers No-Doc Business Loans?

No-doc small business loans are primarily offered by alternative lenders, including online lending platforms, private sources, and some non-bank financial institutions. These lenders are more flexible than traditional banks and cater to businesses that may not have the extensive financial documentation typically required for traditional loans. They are willing to take on the higher risk associated with no-doc loans in exchange for charging higher interest rates and fees.

Secured vs. Unsecured Lines of Credit

Unsecured lines of credit, unlike secured lines, do not require collateral to guarantee the funds. An unsecured business line of credit for startups can help entrepreneurs get financing without pledging collateral.

Collateral for a secured loan or line of credit may take the form of a business asset — like real estate or equipment. With secured financing, lenders can seize assets to cover what’s owed if a borrower defaults and fails to pay the lender in full.

If you’re not sure how to secure a business line of credit or loan, but you don’t own any assets a lender would consider valuable, a no-doc business line of credit may be one option. A BLOC is typically unsecured, meaning you generally won’t have to pledge collateral on a business line of credit.

Recommended: No Credit Check Business Loans

Pros and Cons of a No-Doc Business Loan

When it comes to unsecured business loans, no-doc options have benefits and drawbacks you might want to weigh:

How To Get a No-Doc Business Loan

To obtain a no-doc business loan, follow these steps:

1.    Assess credit score: Ensure you have a strong personal credit score, typically above 700. A high credit score is crucial as lenders heavily rely on it in the absence of detailed financial documentation.

2.    Identify collateral: Be prepared to offer substantial collateral, such as real estate, equipment, or other business assets. This collateral secures the loan and mitigates the lender’s risk.

3.    Select the right lender: Research lenders that specialize in no-doc or low-doc loans, including online lenders and alternative financing companies. These lenders are more likely to offer such loans compared to traditional banks.

4.    Prepare basic business information: While detailed financials are not required, you should provide basic information about your business, including its legal structure, industry, and length of operation.

5.    Submit a business plan: If possible, include a concise business plan that outlines your business model, market strategy, and how you intend to use the loan proceeds. This can help build lender confidence in your ability to repay the loan.

6.    Apply for the loan: Complete the loan application process with your chosen lender, providing all required information and documentation.

Recommended: 6 Step Guide to Getting a Small Business Loan

Are No Doc Business Lines of Credit a Good Idea?

No-doc business loans aren’t necessarily a bad idea, but there are less costly financing options available to those that qualify. To be considered for the most desirable rates, you’ll need a solid credit score, a few years of business history, and consistent annual revenue.

The amount you pay in interest will generally be higher with no-doc options than with traditional loans. You might even find a business credit card with a low (or no) introductory APR that could cover the purchases you need.

You could wait to get funding, focus on building your credit so that you can try to qualify for more competitive rates later and seek out more affordable financing options down the line.

Recommended: How Much Business Loan Can You Get?

Alternative Financing Options

If you are seeking alternatives to no-doc small business loans, several financing options are available that might better suit your needs, especially if you can provide some form of documentation or collateral. Here are a few options:

1.    Traditional bank loans: These loans generally offer lower interest rates but require detailed financial documentation, including tax returns, financial statements, and proof of revenue. They are suitable for businesses with strong financial histories and good credit scores.

2.    SBA loans: Backed by the Small Business Administration, SBA loans offer favorable terms and lower interest rates. While they require comprehensive documentation, they are accessible to businesses with less-than-perfect credit through SBA’s guarantee.

3.    Business lines of credit: A line of credit provides flexible access to funds up to a certain limit. It usually requires some documentation but offers the advantage of only paying interest on the amount borrowed. It’s ideal for managing cash flow and unexpected expenses.

4.    Equipment financing: This option allows businesses to borrow money specifically to purchase equipment, using the equipment itself as collateral. This reduces the lender’s risk and often makes the loan easier to obtain.

5.    Invoice financing: Businesses can borrow against their outstanding invoices, providing immediate cash flow. This form of financing is especially useful for businesses with long payment cycles.

6.    Crowdfunding and peer-to-peer lending: Online platforms, such as crowdfunding, can connect businesses with individual investors willing to lend money. These options may require a compelling business plan and are often used for specific projects or expansions.

Each alternative comes with its own set of requirements, costs, and risks, so it’s important to carefully evaluate which option best aligns with your business’s financial situation and goals.

The Takeaway

No business owner wants to be caught without having the capital they need to run day-to-day operations or to take advantage of emerging opportunities for growth. But taking out a no-doc small business loan has some downsides to consider, as well. Proceed only after doing your research.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

What is a no-doc business loan?

A no-doc business loan is an alternative loan product that businesses may get with little or no financial documentation. It can provide businesses with a lump sum of cash and generally carries higher finance charges than traditional business loans.

How hard is it to get a no-doc business loan?

Getting a no-doc business loan is generally more difficult due to the higher risk for lenders and the stringent requirements for borrowers. Those with excellent credit, substantial assets, and the ability to provide a significant down payment or collateral have a better chance of securing such a loan. However, borrowers should carefully consider the higher costs and potential risks associated with no-doc loans.

What do you need to apply for a no-doc business loan?

To apply for a no-doc business loan, you typically need to meet several key criteria, including an excellent credit score, collateral and/or a down payment, a strong business plan, and personal and business identification.

Photo credit: iStock/miniseries

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOSMB-Q324-015

You have a business dream, but your credit rating isn’t stellar and putting up collateral is a problem. Can you still launch a small business or expand one that is on the cusp of growth?

The truth is, it won’t be easy. The Federal Reserve’s raising of interest rates to cool inflation also seems to be cooling business owners’ prospects of getting a bank loan the last couple of years.

Even with bad credit, it may be possible to secure a startup business loan with no collateral to help you launch your business without putting your personal assets on the line. However, it must be stressed that this type of financing typically comes with high rates that help compensate the lender for the risk being taken.

Learn more about your different financing options as a small business startup, as well as the pros and cons associated with these choices.

Understanding “Bad” Credit

Not only are you running your new venture and figuring out how much money it takes to start a business, you might also be wrestling with questions of credit.

Lenders use different credit scoring models to evaluate your creditworthiness. Some have minimum credit scores that they prefer to see in applicants seeking loans, as these outlays of money may present considerable risk to the lenders.

As a startup, you may not have an established business credit score. In this case, lenders generally evaluate your personal credit history. For a personal credit score, Experian® defines a “good” score as 661-780, a “fair” score as 601 to 660, and a “poor” score as 500 to 600.

Recommended: No Credit Check Business Loans

Getting Startup Business Loans With Bad Credit and No Collateral

Before you launch any applications for unsecured startup business loans, it can help to do prep work to strengthen your pitch. Even with bad credit, you can present an in-depth business plan that outlines your strategies for success and how you plan to use the funding.

A business forecast can also be helpful in giving the lender an idea of your expected cash flow in the coming months or years. As a startup, you may need to provide personal information as well, such as your tax returns.

Options for No Collateral Business Loans

With some basic financials in hand, it’s time to explore some of your options for unsecured small business startup loans, as well as some other options that may be worth considering. It is possible to find funding at this early stage, and with bad credit. But carefully review the terms of any financing agreement to understand the true cost, since these products may come with higher rates to compensate for the risk.

Recommended: How Big of a Business Loan Can You Get?

Online Business Loans

Online business lenders may offer alternative bad credit business loans with less stringent requirements compared to traditional banks. You can also explore small business loans for specific groups, such as women with bad credit. While approval and funding times can be fast, you still need to provide proof showing that you’ll be able to repay the loan.

Remember to consider the drawbacks associated with these subprime online business loans. They usually come with a very high APR and a shorter repayment term. There also may be a requirement for a personal guarantee, which means your personal credit score can be impacted for any late payments or delinquency — and your personal assets may also be at risk to pay back the loan if your business isn’t able to.

Credit Cards for Small Business

A small business credit card may be an alternative to help cover early startup costs. You could be more likely to qualify with a strong personal credit score, even if your business credit score is on the lower side of the spectrum or simply not established yet. Most of these cards come with a required personal guarantee. Many also come with an annual fee and while there may be perks or rewards, it’s wise to compare these costs before applying.

As always, your card’s APR is also an important factor, especially if you expect to carry a balance from the beginning as you get your startup off the ground.

Recommended: Can You Get a Business Credit Card Before You Open Your Business?

Merchant Cash Advance

If your business accepts credit card transactions, you may be able to qualify for a merchant cash advance. This gives you a lump sum to use as working capital, then you pay a percentage of your daily credit card transactions (known as the holdback amount) until your balance is repaid. Rather than being charged an interest rate, merchant cash advance companies use a factor rate.

This charge is a multiple of your borrowed amount, such as 1.5. A $25,000 cash advance, for example, multiplied by a 1.5 factor rate would bring the total balance to $37,500. In other words, the financing would cost $12,500. Merchant cash advances may have even higher factor rates and other fees which can make them a very expensive form of funding for businesses.

Additionally, because merchant cash advances aren’t considered a loan, generally their regulation is less stringent and regulatory oversight is less rigorous than more traditional loans.

Invoice Factoring

For a startup that already has some accounts receivable, you may qualify for invoice factoring to help your cash flow while you wait for customers to pay you. The factoring company charges a percentage of the invoice amount as their fee (typically around 85%), then fronts you a percentage of the funds before payment is received. They generally manage the payment process with your customers. Once the invoice is repaid, you’ll receive the remaining balance.

Equipment Financing

Equipment financing is a type of business loan that is used to purchase equipment for business purposes. The equipment you are purchasing acts as the collateral for the loan. Needs will vary based on the nature of the business, but some types of equipment that may be purchased with this type of loan include agricultural equipment, office equipment, printers, vehicles, restaurant ovens, and more.

Typically, when the loan is repaid, you are the owner of the equipment. In some cases, the lender may require additional assurances, such as a personal guarantee.

Crowdfunding Platforms

Crowdfunding is a unique form of financing, but it can help launch your startup without you having to worry about credit scores as much. You can create a campaign to garner interest in your business and get financial backing in one of four forms: equity, donation, rewards, or loans.

While crowdfunding allows you to raise money and test the market at the same time, it can be a much more intensive marketing process. Plus, there’s no guarantee you’ll reach your funding goals.

SBA Loans

Many lenders offer Small Business Administration (SBA) loans to startups because they come with a guarantee as long as certain underwriting guidelines are met. In some cases, even startups with credit challenges may be able to qualify for an SBA loan. One option for new businesses is the SBA Microloan program, which lets you borrow up to $50,000.

Peer-to-Peer Lending

Peer-to-peer lending services are another alternative to more traditional lending options like bank loans. With this type of lending, online platforms match potential borrowers with potential investors. Eligibility requirements will generally vary from platform to platform.

Some services have minimum credit score requirements, which can potentially make it more challenging for businesses or individuals with lower credit scores to qualify. The process to funding is generally quick, but borrowers with less-than-stellar credit may find that interest rates are higher than a traditional loan.

Recommended: No Doc Business Loans

Alternative Options for Startups With Bad Credit

Startups with bad credit often face significant challenges in securing traditional loans, but several alternative options can provide the necessary capital to get their businesses off the ground.

1.   Small Business Grants: One viable option is seeking small business grants, which are essentially free money provided by government agencies, non-profits, and private organizations. Unlike loans, grants do not require repayment and are typically awarded based on merit, need, or the potential impact of the business. Startups can explore local, state, and federal grant programs tailored to their industry or demographic.

2.   Business Line of Credit: Another option is establishing a business line of credit. While this may seem similar to a loan, a business line of credit offers more flexibility and often has less stringent credit requirements. It allows startups to draw funds as needed, paying interest only on the amount used, which can be particularly useful for managing cash flow.

3.   Borrowing from Family and Friends: This approach requires transparent communication and clear terms to ensure personal relationships are maintained.

4.   Personal Savings: Funding a business from one’s own savings eliminates the need for external approval and interest payments, though it does come with personal financial risk.

5.   Bartering Services or Equity: This is where startups exchange their products or services with other businesses instead of cash, or offer a percentage of the business in return for investment.

By leveraging these alternative funding sources, startups with bad credit can find creative and practical ways to secure the necessary resources to grow and succeed.

Building Business Credit

When you’re starting your business, you can help set yourself up for success by properly establishing your business credit. Here are a few steps to get started:

1.    Officially incorporating your company

2.    Getting a federal employer identification number (EIN) from the IRS

3.    Opening a business bank account.

It can be difficult to find no credit check financing options, so it’s generally worth building your business credit score as early as possible. When working on building your credit score, it may be helpful to establish relationships with vendors that report to the business credit bureaus. Also, pay your bills on time. Taking these steps contributes to a stronger credit profile that could help open the door to more favorable financing opportunities.

The Takeaway

When you start a business, you’ll need to weigh the pros and cons of risk. Unsecured business loans for owners with challenged credit can come with high interest and demanding terms. Exploring multiple options can help you make the best choices for your startup.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Is it possible to get a startup business loan with bad credit and no collateral?

It is possible to get a business loan with bad credit, but the interest rate might be very high. Some lenders may require a personal guarantee. That means your personal assets could be used to cover the loan if the business doesn’t succeed and that personal credit would also be impacted by the health of your startup loan.

Could I start a business with bad credit and no money?

It’s possible to start a business despite obstacles like a bad credit score and little to no startup funds. In addition to startup loans, other options to explore include things like a business credit card, merchant cash advance, invoice factoring, crowdfunding platforms, and SBA loans. Remember that when looking for financing with bad credit, you may be subject to less favorable terms, such as higher interest rates and lower loan amounts.

Can I get a business loan with a 500 credit score?

Yes, you may be able to get a small business loan with a 500 credit score, but it will be challenging and typically involves higher interest rates and less favorable terms. Traditional banks and credit unions usually require higher credit scores, so you may need to explore alternative lenders such as online lenders, microlenders, or nonprofit organizations that specialize in working with borrowers with poor credit.

Can you get a business loan with your EIN number?

You cannot get a business loan with just your Employer Identification Number (EIN). Lenders will also consider other factors such as your personal credit score, business credit history, revenue, and overall financial health.

Photo credit: iStock/JLco – Julia Amaral

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOSMB-Q324-002

Texas has about 3.1 million small business owners who can apply for small business grants. Submitting an application and competing for Texas small business grants can help you grow your small or medium-sized enterprise in the Lone Star State.

The Texas economy has a gross domestic product of $2.5 trillion as of 2023, growing at a rate of 7.7%. That’s the second largest GDP in the United States out of the 50 states and the District of Columbia.

Small and medium-size firms exported about $147.8 billion worth of goods from Texas in the most recent year studied, making it the largest small business exporting state nationwide, according to the most recent U.S. Census Bureau export data.

Below we highlight some of the top small business grants in Texas that you can explore.

Texas Small Business Grants

If you’re looking for small business grants in Texas, here are some potential options to consider:

Texas Workforce Commission (TWC) Skills for Small Business Grant

Program description: This program provides small business owners with workforce training funds that can help employees learn new skills.

•   Incentive: Small businesses can receive workforce training funds covering up to $1,800 of eligible tuition costs in a 12-month period for a new employee and up to $900 in a 12-month period for an existing employee who learns new skills in a continuing education course.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be a small business owner based in Texas

◦   Employ at least one full-time employee and not more than 99

◦   Pay the prevailing wage in your local labor market

◦   Use the funding to train at least one full-time employee

◦   All training must be provided by a public community or technical college

◦   Self-employed individuals are not eligible for this grant program

•   How to apply: Visit the TWC website to apply.

Texas Department of Agriculture (TDA) State Trade Expansion Program (STEP) Grant

•   Program description: The Texas Department of Agriculture offers STEP grants that can help you export your goods and services from the Lone Star State to foreign markets.

•   Incentive: Receive reimbursement for eligible business expenses, including your expenses of advertising overseas, attending international trade shows, and covering interpreter fees, among other export-related expenses.

•   General requirements: Here are some of the general requirements for this grant:

◦   Operate a Texas-based small company with a for-profit business structure

◦   Be in good standing with the Texas Comptroller of Public Accounts

◦   Have at least one year of business experience

◦   Understand how exporting works and the cost of doing business with foreign buyers

◦   Have a Federal Identification Number tied to a Texas address

◦   Have a product or service that’s manufactured, produced, processed, or value-added in Texas

◦   Be new to export or expand your exports to new markets abroad

•   How to apply: Check the TDA website for details when the application period opens.

San Antonio Façade Improvement Grant Program

•   Program description: Eligible commercial property owners in San Antonio can receive partial reimbursement for enhancing the general aesthetics of a building exterior or façade.

•   Incentive: Receive up to $50,000 in reimbursements for making façade improvements to an eligible property in San Antonio.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be a small business owner (or nonprofit organization) occupying an eligible San Antonio commercial property

◦   Have been in business at the location prior to Jan. 1, 2021

◦   Propose a façade improvement project

◦   Be in compliance with all zoning and Unified Development Code requirements

◦   Be current on all property taxes

◦   Have no city liens against you

◦   Have the ability to meet program insurance requirements

◦   The following businesses are not eligible:

◼   Franchisors (local or nonlocal)

◼   Gambling businesses

◼   Sexually oriented businesses

◼   Payday loan lenders

◼   Liquor stores

◼   Tobacco, cannabis, and vape stores

◼   Any business in which a City of San Antonio local government employee or officer has a financial interest

•   How to apply: Apply online if and when the San Antonio Façade Improvement Grant Program reopens.

City of Austin’s Zero Waste Business Rebate

•   Program description: The City of Austin offers rebates for eligible businesses that improve their waste reduction and diversion practices.

•   Incentive: Receive up to $3,000 reimbursement for reducing waste beyond the minimum requirements of Austin’s Universal Recycling Ordinance.

•   General requirements: Here are some of the general requirements for this rebate program:

◦   Business is based within the City of Austin’s full purpose jurisdiction

◦   Business owner provides on-site recycling services to tenants and employees on company premises as required by City of Austin Code of Ordinances

◦   You’re in compliance with municipal Austin City Codes

◦   All tax accounts are in good standing

•   How to apply: Access the rebate application via the City of Austin website .

City of Rosenberg Business Improvement Grant Program

•   Program description: The Rosenberg Development Corporation (RDC) offers partial reimbursements to eligible businesses that make capital improvements to their Rosenberg commercial properties.

•   Incentive: Receive up to $10K reimbursement for implementing a qualifying project, including façade improvements, landscaping, and demolition of abandoned signs and structures.

•   General requirements: Here are some of the general requirements for this grant program:

◦   Business is based within Rosenberg city limits in Fort Bend County, Texas

◦   Entity structured as a for-profit business

◦   Have no outstanding financial obligations to the City of Rosenberg

◦   Have no active lawsuits against the City of Rosenberg

◦   Business facilities not used for residential purposes

•   How to apply: You can obtain an application via the City of Rosenberg website .

Recommended: Business vs Personal Loans: What’s the Difference?

National Grant Options for Texas Businesses

Texas businesses have a wealth of national grant options available to support their growth, innovation, and operational needs. These grants, offered by federal agencies, non-profits, and private organizations, provide crucial funding without the burden of repayment.

1.   National Institute of Standards and Technology (NIST) Grants:

•  Description: NIST provides grants to support small businesses in developing and commercializing innovative technologies.

•  Benefits: Funding for research and development, technology transfer, and commercialization efforts.

•  Eligibility: Open to U.S. small businesses engaged in technology innovation.

2.   National Minority Supplier Development Council (NMSDC) Business Consortium Fund:

•  Description: NMSDC offers grants and loans to minority-owned businesses to help them grow and succeed in their respective markets.

•  Benefits: Financial assistance, training programs, and access to a network of corporate partners.

•  Eligibility: Open to certified minority-owned businesses in the U.S.

3.   Patagonia Corporate Grants Program:

•  Description: Patagonia provides grants to small businesses and non-profit organizations focused on environmental conservation and sustainability.

•  Benefits: Grants typically range from $5,000 to $20,000.

•  Eligibility: Open to businesses and nonprofits in the U.S. working on environmental initiatives.

By exploring these national grant options, Texas businesses can access vital financial resources to drive innovation, support growth, and achieve long-term success.

Who Provides Small Business Grants in Texas?

Municipal, county, and state governments in Texas may offer small business grants in the Lone Star State. Corporate entities may also provide financial assistance to Texas establishments.

You can compare small business grants in Texas with similar programs in other states, such as:

•   California small business grants

•   Florida small business grants

•   New York small business grants

Do You Have to Pay Back a Small Business Grant?

A small business grant typically comes with terms and conditions, and you may be responsible for paying back the grant if you violate those terms. In general, small and midsized business owners are not required to pay back a small business grant absent any violations.

You typically have to sign a funding agreement to accept a small business grant. As mentioned above, the grant may come with certain conditions. Using the grant for an illegitimate purpose may violate the agreement and require business owners to pay back the grant.

Small business grants may require you to spend the money by a certain date. You may also have to provide proof of payment and a written statement detailing how you’ve spent the grant.

Who Is Eligible for Small Business Grants in Texas?

Local business owners or operators of an enterprise with fewer than 500 employees may be eligible for small business grants in Texas.

The U.S. Small Business Administration’s Office of Advocacy generally defines a small business as an independent business having fewer than 500 employees. A small business, including freelancers, may be eligible for small business grants.

What Industries Does Texas Support With Grants?

Texas offers a variety of grants supporting the following industries:

•   Manufacturing

•   Food services and drinking places

•   Real estate

•   Restaurants and other eating places

•   Retail trade (store and nonstore retailers)

Texas Resources for SMB Owners Looking for Funding

Here are some resources for small and medium-sized businesses looking for funding in the Lone Star State:

Texas Small Business Development Center (SBDC) Network

The Texas SBDC network can provide Texas small business owners with the following services:

•   In-person business training and webinar events

•   Access to market research reports

•   Professional business advising at no cost

SBA District Offices in Texas

The U.S. Small Business Administration (SBA) is a federal agency that provides resources and support to small business owners. The SBA has six district offices in Texas:

•   SBA Dallas / Fort Worth District Office . This SBA district serves 72 counties in northeastern Texas. It’s based in Euless.

•   SBA El Paso District Office . This SBA district serves nine counties in western Texas. It’s based in El Paso.

•   SBA Houston District Office . This SBA district serves 32 counties in southeastern Texas. It’s based in Houston.

•   SBA Lower Rio Grande Valley District Office . This SBA district serves 14 counties in southern Texas. Depending on where you’re based, you can contact the main office in Harlingen or the virtual office in Corpus Christi.

•   SBA San Antonio District Office . This SBA district serves 55 counties in south central Texas. It’s based in San Antonio.

•   SBA West Texas District Office . This SBA district serves 71 counties in western Texas. It’s based in Lubbock.

Alternative Funding Sources for Small Businesses in Texas

Here are some alternative funding sources for small businesses in Texas:

Texas Small Business Credit Initiative (TSBCI)

The Texas Small Business Credit Initiative is a federally funded program for small business owners in the Lone Star State. Federal law — the American Rescue Plan Act of 2021 — allocates more than $472 million to the TSBCI.

Here’s how Texas plans to use the funding:

•   TSBCI Loan Guarantee Program — $354 million. This program makes it easier for Texas startups to qualify for small business loans by providing guarantees of up to 80% of unpaid principal on enrolled loans.

•   TSBCI Capital Access Program — $118 million. This program uses TSBCI matching funds to support portfolio insurance on small business loans. This can make it easier for socially and economically disadvantaged individuals to access small business funding.

Texas Microloan Lenders

Community-based nonprofits may offer microloans of up to $50,000 to small business owners in Texas, including microloans for women-owned small businesses. In general, microloans can range from $500 to $50,000 and may be available to startups.

Texas Small Business Loans from Private Lenders

Banks, credit unions, and private lenders may offer different types of small business loans to Texas business owners.

Here are some of the funding products you may consider depending on your needs:

•   Commercial real estate loans

•   Equipment financing

•   Small business loans for startups

•   Working capital lines of credit

Recommended: 6 Step Guide to Getting a Small Business Loan

Find Small Business Financing With SoFi

There are many options in Texas for those seeking small business grants, ranging from state and local government programs to private options.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

How do you get a small business grant in Texas?

You can apply for Texas small business grants, but there’s no guarantee you’ll get approved for one. You may have to submit a grant application as a qualified small business owner to be considered for a small business grant in Texas.

How hard is it to get a business loan in Texas?

You may have difficulty getting a small business loan in Texas if you have bad credit or insufficient business experience. You generally have to pay back business loans with interest.

What is the easiest SBA loan to get approved for?

There’s no guarantee you’ll get approved for any SBA loan, but SBA microloans may be one of the easier ones to get if you’re a new business owner. Startups may be eligible for SBA microloans of up to $50K. If you’re looking for a streamlined application process, SBA Express working capital loans are an option you may consider.

Photo credit: iStock/supersizer

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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