Mortgage Rates vs. Fed Announcements

Posted on March 3rd, 2020

File this one under “no correlation,” despite a flood of news articles claiming the Fed’s rate cut directly impacts mortgage rates.

Today, the Fed cut the federal funds rate by half a percentage point to a range of 1-1.25% due to the uncertainty surrounding the coronavirus, this despite a strong U.S. economy.

That sent mortgage rates trending and the media into overdrive, searching for possible angles.

You can’t blame them (the media) – it makes for a good headline, but much of what is thrown out there usually isn’t true or anything to worry about.

In most cases, it’s excitement-inducing or fear mongering, or simply something to fill the page.

It tends to be a regurgitated article that comes out around the time the Fed meets, which is every six weeks throughout the year (eight times annually).

Whenever a Fed announcement comes along, you’ll start to see an uptick in articles about what mortgage rates will do when the Fed speaks, with the most common ones being “rates expected to rise” or “rates could move even lower thanks to Fed rate cut.”

Or you’ll get straight up definitive articles warning you about the impending rate rise and what you should/can do to mitigate the damage.

The problem is it’s simply not accurate and these tend to do more harm than good.

The Fed Doesn’t Announce Mortgage Rates

  • The Fed doesn’t set or announce consumer mortgage rates
  • Regardless of the misinformation you’ll find out there
  • When they announce a Fed rate change
  • Mortgage rates may go up or down (or do nothing!)

When the Fed gets together to set the target rate for the Federal Funds Rate, financial markets (stocks, bonds, etc.) pay attention and react.

As does the media because it’s generally a big deal. But Jerome Powell and co. don’t sit down and decide which way mortgage rates will go.

Rather, they discuss the state of the broader economy, inflation, monetary policy, and so on.

They almost never mention mortgages explicitly, except for in recent years thanks to the remnants of the quantitative easing program known as QE3.

No Correlation Between Fed Funds Rate and Mortgage Rates

fed funds vs mortgage rates

Additionally, there’s no clear correlation between the Federal Funds Rate and mortgages.

In other words, one can go up while the other goes down. Or one can do nothing while the other does something. Or they can move in the same direction for a while.

But the spread between the two won’t remain in a certain range over time like mortgage rates and the 10-year bond yield do.

You can’t say the 30-year fixed should be X% higher or lower than the Fed Funds Rate at any given time.

As you can see from the St. Louis Fed chart above, the 10-year yield and the 30-year fixed (based on Freddie Mac data) move in relative lockstep.

You can see the blue line and red line move in a very similar fashion over the years with a pretty steady spread. Then there’s the green line (Fed Funds Rate), which is all over the place.

Sometimes you see a long-term trend, but other times you see no apparent correlation.

Check out the second graph below, from 2000-2010, which shows some similar movement between the FFF and mortgage rates, but at times no obvious relationship.

decade compare

In short, mortgage rates don’t necessarily follow the Fed, whether that’s up, down, or nowhere at all.

The Fed Indirectly Influences Mortgage Rates

  • A more accurate way of defining the relationship
  • Is that it might be an indirect, long-term one
  • If the Fed is raising rates over time
  • Long-term mortgage rates may eventually follow

Some may argue that the Fed indirectly influences mortgage rates. Really, the Fed is just trying to control inflation via short-term rates. This in turn dictates how longer-term rates may play out.

Essentially, the market for longer-term rates such as 30-year mortgages (and mortgage-backed securities) might seek direction from Fed cues.

The Fed tends to telegraph its moves well in advance, so it’s pretty rare for anyone to get too surprised the day they release their FOMC statement.

Today was a little different since it was an “emergency rate cut,” but it still wasn’t totally unexpected. Again, the Fed is pretty conservative.

Anyway, they do give an indication as to which way we’re (the economy is) headed and what kind of monetary policy is in store, which can be important to longer-term rates, such as 30-year fixed mortgages.

That means the Fed statement can have an immediate impact on mortgage rates on the day it’s released, to the point where lenders may need to reprice ratesheets from morning to afternoon.

But that reprice can completely counter the Fed’s move. For example, the Fed can lower its key rate while mortgage lenders reprice rates higher. Or do absolutely nothing.

Mortgage Rates Can Go Either Way…

  • Pay attention to Fed announcements when they’re released
  • But don’t give them too much weight or worry about them
  • Or think you can predict what will happen to mortgage rates
  • Since there’s no clear short-term correlation

So, Fed announcements can affect mortgage rates, but how they’ll affect mortgage rates is mostly a crapshoot.

You can’t say oh, the Fed lowered rates so my 30-year mortgage will be lower too. And you can’t say oh no, the Fed raised rates, I should have locked my mortgage!

The mortgage rate trend lately has without a doubt been lower, but we’ve reached a point where rates are at/near all-time lows, making it increasingly difficult for them to get any better.

Ultimately, lenders don’t even have the capacity (staff, etc.) or the desire to lower rates because they’re probably already swamped.

Then there are the MBS investors to worry about, who won’t be thrilled about all the prepayments happening.

In summary, it can be a mystery as to how things will go post Fed statement, and you can always get hung out to dry. That’s why floating a mortgage rate isn’t for the faint of heart.

But again, the Fed’s move may have no bearing on your mortgage rate, at least not today, or tomorrow. Or even next week.

The Fed might just be good at telling us which direction mortgage rates are headed (eventually) based on policy and broader economic conditions.

If you’re wondering why mortgage rates haven’t improved after the announcement today, perhaps it was already baked in. And as noted, it’s getting really hard to move even lower.

I don’t know if lenders want to give you a 2% 30-year fixed.

You could argue that mortgage lenders were ahead of the Fed on this one, with rates marching lower for weeks on end lately.

Just remember this; lenders will use any excuse to raise mortgage rates, but take their sweet old time lowering them.

That means we could even see more improvement in coming days and weeks, but not because of the Fed. More so due to economic unknowns globally.

Tip: The only direct mortgage impact you’ll see from a Fed announcement is an increase or decrease in the prime rate, which affects the pricing of HELOCs, among other consumer loans. Everything else is indirect and not necessarily correlated.

(photo: Federalreserve)

Lock in a lower rate.


When to Refinance a Home Mortgage: Now, Later, or Never?

Posted on October 28th, 2020

Mortgage Q&A: “When to refinance a home mortgage.”

With mortgage rates at or near record lows, you may be wondering if now is a good time to refinance. Heck, your neighbors just did and now they’re bragging about their shiny new low rate.

The popular 30-year fixed-rate mortgage slipped to 2.80% last week, per Freddie Mac, well below the 3.75% average seen a year ago, and much better than the 4-6% range seen years earlier.

Historically, mortgage interest rates have never been lower, making a mortgage refinance a veritable no-brainer for many homeowners out there.

In other words, there’s a good chance you won’t be holding off from refinancing because interest rates are too high (unless you just recently refinanced).

But even if you did, there’s a possibility it could make sense to refinance a second time.

Should I Refinance My Mortgage Now?

should i refinance

  • Consider your current interest rate relative to today’s available rates
  • Along with required closing costs and how long it will take to break even
  • Think about how long you plan to keep the mortgage/property
  • And any other factors like removing mortgage insurance or shortening your loan term

Well, the answer to that question depends on a number of factors that will be unique to you and only you.

First, what is the interest rate on your existing mortgage(s)? Is it higher or lower than current mortgage rates?

If it’s higher, how much higher? If it’s lower, is your current loan adjustable? Or do you want to refinance for another reason, perhaps to tap equity?

Once you’ve got those basic questions answered, let’s talk about the new loan. What will the rate and closing costs be on the new mortgage?

Have you started shopping rates yet? Do you even know if you qualify?

How long do you plan to keep this new mortgage? What about the house? Are you sticking around for a while?

Assuming you’re still here, it might be a good time to take a look at a common scenario to illustrate the potential savings of a refinance.

Let’s look at a quick home refinance example:

Loan amount: $200,000
Current mortgage rate: 4.25% 30-year fixed
Refinance rate: 2.75% 30-year fixed
Closing costs: $2,500

The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $984, while the refinanced rate of 2.75% would carry a monthly P&I payment of about $816.

That equates to savings of roughly $168 a month if you were to refinance. Not bad. But we aren’t done yet.

Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 14 months of payments, give or take, before you broke even and started saving yourself some money.

Yes, you need to consider the cost of the refinance too…

So if you happened to refinance again or sold your home during that window, refinancing wouldn’t make a lot of sense.

In fact, you’d actually lose money and any time you spent refinancing your mortgage would be wasted as well.

But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial. Just imagine saving $168 for 200 months or longer.

This “break-even” point is key to making your decision, at least financially speaking.

You also need to consider whether it makes sense to buy down your interest rate by paying points, which will increase the time to this break-even point.

For example, those who paid upfront points on their refinance a year ago might be kicking themselves, knowing they’ll benefit from a subsequent refinance thanks to today’s even lower rates.

So sit down and determine your future housing plans before you decide to refinance to determine if it’s the right move.

If you don’t know what your plan is for at least the next few years, you may want to hold off until you do.

[The refinance rule of thumb.]

How Long Have You Had Your Existing Mortgage?

when to refinance

  • You also have to consider how long you’ve had your current home loan
  • This can play a big role in determining whether a refinance makes sense
  • Take note of how much it has been paid down since that time
  • And how much of each payment is going toward interest

Here’s another consideration. If you’ve already paid down your mortgage substantially, it might not make sense to refinance, assuming you want to pay the thing off.

Even if rates are super low, as there’s a good chance you’ll pay more interest overall if you “reset the clock” and start your full loan term over again. But this isn’t always the case.

To determine if a refinance is still the right move, get your hands on an amortization calculator.

That way you can see what you’ll pay in interest if you keep your mortgage intact versus what you’ll pay in interest with the new mortgage, factoring in what you’ve already paid on the old mortgage.

You can also use my refinance calculator to plug in all the pertinent numbers, including what we discussed above, to get a quick answer.

If your calculations reveal that you’ll pay more interest over the entire term of the refinance mortgage, there’s an easy strategy to reduce both interest paid and the term of the new mortgage.

Simply make the same monthly mortgage payment you were making before the refinance, with the excess going toward principal each month.

This will shorten the loan term and could save you a lot of money. I explain this method on my mortgage payoff tricks page, which you can read about in more detail.

If you can afford it, you may also want to look into shortening the loan term by going with a 15-year fixed mortgage.

For example, if you’re already 10 years into your 30-year mortgage, reducing the term to a 15-year fixed will ensure you don’t extend the aggregate term.

And with mortgage rates so low, you may be able to retain your low monthly mortgage payment and pay the mortgage off even earlier than expected.

Lock in a lower rate.

Also, 15-year mortgage rates are lower than those on the 30-year fixed.

Other Mortgage Refinance Considerations…

  • Even if interest rates are comparable to what you already have
  • It could make sense to refinance out of an ARM or an interest-only loan
  • The same is true if you want to get rid of mortgage insurance
  • Or if you’d like to consolidate two mortgage loans into one

If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make a lot of sense.

Even if the monthly savings aren’t tremendous, getting out of a risky product and into a stable one could pay dividends for years to come.

Or if you have two loans, consolidating the total balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings as well.

You’ll have one less mortgage to worry about and ideally a lower combined monthly payment.

The same might be true if you have mortgage insurance and want to get rid of it. Many homeowners will execute an FHA-to-conventional refinance to drop MIP and reduce monthly payments once they’ve got some equity.

Additionally, you might be able to get your hands on a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).

In this case, if the rate is lower than your existing rate, you start saving money immediately.

As mentioned earlier, a cash-out refinance could also contribute to your decision to refinance if you are in need of money and have the necessary equity.

Heck, with mortgage interest rates this low you could even make the argument to tap equity and invest it elsewhere for a better return.

Again, you’ll want to aim for a lower rate and cash back, but there could be a scenario where borrowing from your home is the best deal, even if you don’t save much or anything mortgage payment-wise.

This is really just the tip of the iceberg. There are countless reasons to refinance your home loan, including many seemingly unconventional ones you may have never thought of.

Whatever the reason, be sure to put in the time (and the math) to ensure it’s a good decision for you and not just the bank or a loan officer pushing you to do it!

Lock in a lower rate.


Don’t Freak Out About the Recent Mortgage Rate ‘Spike’

Posted on January 15th, 2021

Queue the panic. Mortgage rates have officially spiked and the media is all over it.

Yep, the average rate on a 30-year fixed mortgage increased from 2.65% to 2.79% this week, per Freddie Mac’s weekly survey.

Freddie Mac Chief Economist Sam Khater noted in the weekly news release that mortgage rates have been under pressure as Treasury yields have risen.

But he did stress that “while mortgage rates are expected to increase modestly in 2021, they will remain inarguably low.”

So he’s not panicking, even though the Washington Post and other news outlets are leading with articles about “mortgage rates spiking.”

When it comes down to it, a 14-basis point move isn’t what I’d refer to as a “spike,” but yes, mortgage rates are higher than they were last week.

But they are still well below the 3.65% average seen at this time a year ago.

Why Have Mortgage Rates Increased Lately?


  • 30-year fixed mortgage rates have fallen to and hovered close to record lows for months
  • It’s inevitable to see some upward pressure after such a long period of record-breaking movement
  • One driver could be the bond selloff, which lower prices and increases yields
  • This might relate to the Democrats winning the Senate and increasing stimulus spending

As noted, mortgage rates are no longer at record lows, and are in fact closer to 3% than 2%. So should we all freak out?

I’m going to go with no. While the media is using the word “spike” in their articles, perhaps to make its relatively boring weekly report a little more interesting, things aren’t that bad.

Remember, mortgage rates are only marginally higher, and probably not high enough to change anyone’s position on buying a home or refinancing their mortgage.

Sure, there’s a chance someone’s monthly mortgage payment now exceeds the max DTI allowed for the loan, but if you were cutting it that close, you’re probably buying too much home.

As to what’s causing the recent upward reversal, mortgage rate watcher Matthew Graham seems to think it relates to the bond sell-off as a result of the Democrats taking over the Senate.

Simply put, the government issues Treasuries to fund additional COVID-related stimulus, which while good for the economy and struggling households, increases bond supply.

The result is lower bond prices, which forces the accompanying yields (or interest rates) higher.

And because Treasuries correlate with long-term mortgage rates like the 30-year fixed, borrowers will pay more to finance their homes.

Is This the End of Low Mortgage Rates Forever?

  • Let us remember that mortgage rates started off 2021 at all-time record lows
  • So it’s not surprising for them to rise off those levels if there’s any pressure whatsoever
  • I fully expect mortgage rates to hit new lows at some point this year
  • But you’re always going to see ebbs and flows over the course of 365 days

While it’s easy to let your fears and emotions get the best of you, perhaps we shouldn’t call an end to the low-rate party just yet.

Ultimately, mortgage rates ebb and flow, similar to how stocks go up and down from day to day, or week to week.

Yes, it’s easy to get caught up in the psychology of it all and panic, but I just don’t believe we’ve seen the end of the low rates.

Additionally, there may even be more record lows in store for 2021.

Remember, the first week of 2021 resulted in new all-time lows for both the 30-year fixed and 15-year fixed, so it’s kind of far-fetched to sound the alarm.

This isn’t to say we don’t experience a period of relatively higher rates, it’s just that it could be short-lived.

Remember, the presidential inauguration is next week and there are thousands of National Guard protecting the Mall in Wasington D.C and holed up in the Capitol Building.

If that gives you confidence that good times are ahead, well, I don’t know what to tell you.

Not trying to be an alarmist, but there’s just too much uncertainty in the air for interest rates to flourish.

In short, bad news tends to lower rates, while good news increases them. I don’t see much good news, even with all that proposed government spending taken into account.

A month ago, the Federal Reserve said it would be keep its short-term interest rate near zero for the foreseeable future as the economy attempts to recover from the COVID-19 pandemic.

They also indicated that they’d continue to buy Treasuries and mortgage-backed securities (MBS) at the current pace until “substantial progress” is seen in the economy.

Call me a pessimist, but I don’t see anything positive happening with the economy this year, or even next year.

I think we’ve all been ignoring the elephant in the room while watching the stock market reach new all-time highs. At some point, reality will hit.

Ultimately, as long as they’re continuing to buy the mortgages this month and next, lenders will continue to make them at low, low rates.

Time will tell if rates will need to rise on long-term fixed mortgages as the Fed eventually exits the marketplace.

Is It Best to Lock Now or Wait?

  • Times like this exemplify the importance of locking in your mortgage rate
  • You are typically given the choice to lock or float your interest rate once you apply for a home loan
  • If you like what you see, lock it in and don’t give it another thought
  • If mortgage rates shoot up quickly, it could be wise to float and wait for things to calm down

My guess is fixed-rate mortgages will settle down and begin making their way back to lows seen earlier this month.

Of course, mortgage lenders are always quick to raise rates, and a lot more patient when it comes to lowering them (at our expense).

You can’t blame them though – they don’t want to get caught out if volatile rates change direction and they’re on the wrong end of that.

Times like these really exemplify the importance of locking in your mortgage rate. No one cares or complains until rates increase.

If you’re happy with your quoted rate, lock it in and forget about it.

If you’ve got some time before funding, maybe float a bit and wait for some improvement.

After all, the more time you have, the more chances you’ve got for rates to move lower.

And you can always lean on your loan officer or mortgage broker if you’re not sure what to do. Most of the experienced ones keep a keen eye on rates.

In summary, you don’t need to panic, but you should be aware of the fluid situation if you’re looking to refinance or buy a home in 2021.

It might also be a good time to consider how long you plan to stay in your home as well.

That could dictate your mortgage decision and whether or not to pay mortgage points for an even lower rate.

Lock in a lower rate.


Guide to Small Business Loans for Women

Guide to Small Business Loans for Women – SmartAsset

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your financial details.

Women-owned businesses have more difficulty getting loans than companies that are majority-owned by men. Female-led firms applying for loans are more likely to get turned down and less likely to get all they requested. While there are no lending programs that are exclusively for women-owned companies, some sources of financing are more likely to approve a loan application from a woman-led business than others. A financial advisor can help you with any loan or other questions you have.

The annual Small Business Credit Survey by the Federal Reserve quantifies the problems female business owners face when applying for a business loan. The 2019 edition found that loans were the main method of financing for all firms. But while 50% of men-owned firms had their funding needs met, only 43% of women business owners had the same experience.

The Fed survey said women-owned businesses were denied credit more often because they had a low credit score or too much existing debt as reasons compared to other businesses. However, women applicants were less likely to be denied for reasons such as insufficient credit history, insufficient collateral and weak business performance.

Despite the apparent need for more credit for women-led companies, lenders cannot have business loan programs that are restricted to women applicants. The federal Equal Credit Opportunity Act bars creditors from discriminating when granting loans or on any other aspect of credit on the basis of sex, as well as gender, among other borrower characteristics.

Loan Sources for Women-Owned Businesses

However, women-owned businesses obtain loans every day. And there are some sources that have better records of lending to female-led companies than others. Among such sources are government agencies, for-profit organizations and nonprofit entities.

Federal government – Small Business Administration-backed loans are made through a network of participating financial institutions in amounts ranging from $500 to $5 million. Programs such as the main 7(a) loans and streamlined Express Loans are open to all businesses, including women-owned ones subject to size limits and other requirements like having been denied loans from other sources. The 8(a) program specifically targets disadvantaged businesses. SBA-backed loans generally have costs comparable to other loans but offer lower down payments and easier qualification.

Banks and credit unions – These are the primary source of business loans, used by 55% of companies the Fed surveyed. Banks and credit unions offer a variety of repayment terms and loan amounts as well as competitive interest rates and fees. But when it comes to women-owned businesses, not all banks are created equal. Based on the Fed credit survey, about 58% of women applications to large banks are approved, while that number rises to 64% when small banks are looking at the applications.

Online lenders – Women-owned businesses have more success with online lenders, such as peer-to-peer groups, than with banks. About 85% of loan requests by women-led companies were approved by online lenders. That’s a higher approval rate than for any other type of business, including those led by non-Hispanic white, African-American and Hispanic businesspeople. Online lenders tend to have higher interest rates and fees than banks, but may use different criteria to qualify borrowers, resulting in higher approval rates for borrowers such as women business owners.

Microloans – Small loans for amounts from $500 to $50,000 are also available to women-led companies. The SBA has a guaranteed microloan program but these loans are also available without guarantees from a number of nonprofit credit organizations. Although they aren’t suitable for borrowers seeking large amounts, microloans can work for service businesses and others with modest capital needs.

Angel investors and venture capitalists – Angels and venture capitalists primarily make equity investments, purchasing ownership in exchange for cash. However, they may also provide loans, especially in young, fast-growing companies.

Crowdfunding – These kinds of orgnizations connect business owners with individuals, each of whom is willing to put up a small portion of the required financing. Credit scores and other traditional credit qualifications are generally not relevant with crowdfunding. What matters more is making a convincing presentation and having a product that connects with potential crowdfunders.

Family and friends – As is the case with crowdfunding, loans from family and friends are not likely to turn on credit history or the existence of collateral. However, this source of funding requires having family and friends with adequate financial resources. Also, if a business funded this way fails, it could strain important personal relationships.

Credit cards – A Fed survey found 52% of small businesses used credit cards, second only to 55% that used bank loans. Credit cards charge high interest rates compared to other funding sources, but the convenience makes up for it for many business borrowers.

The Bottom Line

While women-owned businesses have a harder time accessing credit than male-led companies, business loans are available. Some sources of financing seem more open to women-led companies than others, and female entrepreneurs can increase their chances of getting a loan by applying to the right lender. Finally, keep in mind that grants for women-owned businesses are also an option.

Tips for Business Borrowers

  • If you are a female business owner looking for business financing, consider working with an experienced financial advisor to guide you through selecting and applying for a loan. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors who will help you achieve your financial goals, get started now.
  • While there are no women-exclusive lenders, many sources of assistance tailored for female entrepreneurs can help women solve the funding puzzle. They include the SBA’s national network of Women’s Business Centers and the National Association of Women Business Owners. No matter where you choose to seek a loan, be sure to follow basic loan application guidelines.

Photo credit: © Sebastian, ©, ©

Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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5 Best Small-Business Loans & SBA Lenders of 2021

Millions of small-business owners rely on suboptimal sources of financing — or no financing at all. This deficit threatens their profitability, expansion plans, and in some cases their enterprises’ very existence.

According to statistics collected by the Small Business Administration (SBA), many businesses don’t even realize they’re eligible for small-business loans. Some 45% don’t know they have a business credit score separate from their owners’ personal credit scores. More than 70% don’t know where to find business credit score information and more than 80% wouldn’t know how to interpret it if they did.

As a result, many small-business borrowers rely on some combination of small-business credit cards, personal credit cards, and personal lenders offering unsecured or secured loans. SBA-collected data reveals that nearly half (46%) of small businesses rely on personal credit cards for working capital, equipment financing, and other short-term credit needs.

Many of these borrowers don’t actually need to mix their business and personal finances — a practice that can expose business owners to increased personal liability, among other downsides. Instead, they can turn to a hearty crop of small-business lenders offering secured and unsecured business loans, SBA loans, business lines of credit, and specialized business credit products like merchant cash advance loans, equipment financing loans, and invoice factoring (invoice financing) loans.

Best Small-Business Loans

Whether you’re evaluating your company’s financing options for the first time or looking for a new lender or type of loan to help grow or diversify your business, keep this list of business lenders close at hand. All offer competitively priced commercial financing products for smaller enterprises, including solopreneurs and microbusinesses.

Bear in mind that the lending offers — rates, terms, and loan amounts — you receive from these providers may vary based on your business or personal credit score, assets, annual revenue, time in business, and other factors.

1. BlueVine

Invoice Financing Lines Up to $5 Million

BlueVine is a pioneering online lender that offers two permanent business lending products: business lines of credit and invoice factoring lines.

BlueVine’s business lines of credit are available to businesses with at least $40,000 in monthly revenue and two years of operational history. The minimum eligible owner FICO score is 600, but a higher score likely qualifies you for a lower interest rate and higher funding amount. The application process is super easy: Just provide some basic information about your business, submit your application, and use your online dashboard to request funds, which typically arrive within hours.

BlueVine’s invoice factoring loans use borrowers’ accounts receivable — customer invoices issued but not yet paid — to secure revolving credit lines as large as $5 million. Depending on borrower creditworthiness and BlueVine’s determination of the likelihood of repayment, borrowers receive anywhere from 85% to 90% of the invoice value upfront and the rest when the customer pays. BlueVine typically approves or denies invoice factoring requests within 24 hours.

BlueVine’s underwriting standards for invoice factoring lines are quite lenient, making them appropriate for businesses with low annual revenues or bad credit. The minimum owner credit score (FICO) is 530, the minimum monthly revenue is $10,000, and the minimum time in business is just three months. The catch: This product is available only to “B2B” companies — businesses that sell to other businesses — not business-to-consumer (B2C) companies.

As a Paycheck Protection Program lender, BlueVine originated PPP loans and assisted borrowers with PPP loan forgiveness applications in 2020. If Congress reauthorizes the PPP program in the future, BlueVine may resume this offering.

  • Products: Business lines of credit, invoice factoring lines.
  • Loan Amounts: Business lines of credit up to $250,000; invoice factoring lines up to $5 million.
  • Terms: Business line of credit draws must be repaid on six- or 12-month schedules (monthly payments). Invoice factoring lines’ repayment schedules depend on invoice due dates.

Learn More

2. OnDeck

Flexible Business Term Loans and Lines of Credit

OnDeck was one of the first online lenders to make business term loans and business lines of credit available to startups and growing businesses with relatively low annual revenues. Today, it remains a top financing choice for enterprises of all sizes.

OnDeck offers two permanent business credit products: business term loans and business lines of credit. OnDeck also offered PPP loans and may do so again if Congress reauthorizes the program.

With a repayment term no longer than 18 months, OnDeck’s term product qualifies as a short-term loan. Loan amounts start at just $5,000, and funding typically arrives on the same business day after approval. The prepayment option is unusually generous too: Approved borrowers can pay their loans off early, in full, and have all outstanding interest waived. This is more generous than the typical “no prepayment penalties” offer.

OnDeck’s business lines of credit have 12-month repayment terms that reset after each withdrawal, one consolidated weekly repayment regardless of how many draws remain outstanding, and no prepayment penalties. Funding is near-instantaneous, even during weekends and evenings. For both permanent products, OnDeck has relatively lenient underwriting requirements: minimum credit score of 600 (FICO), at least one year in business, and at least $100,000 in annual revenues.

  • Products: Business term loans, business lines of credit.
  • Loan Amounts: Term loans range from $5,000 to $250,000; lines of credit range from $6,000 to $100,000.
  • Terms: Lines of credit repayment terms last as long as 12 months; business loan repayment terms last up to 18 months.

Learn More

3. Fundbox

Short-Term Financing Solutions for Growing Businesses

Fundbox offers a single permanent business funding option: short-term business lines of credit as large as $150,000. Fundbox participated in the PPP loan program and may do so again if the program is reauthorized.

Fundbox has reasonable qualification requirements for prospective borrowers: an active business bank account, operational history of at least six months, U.S. business registration, and at least $100,000 in annual revenue — although Fundbox advises that the median borrower pulls down more like $300,000 per year. Applicants stand a better chance of approval if they’re willing to share two to three months of business bank transactions or bookkeeping history.

Fundbox’s key differentiators include rapid funding — near-instantaneous draws after initial approval — and transparent pricing with no prepayment penalties. Just be aware that Fundbox is very much a short-term borrowing solution — the maximum draw term is 24 weeks (less than six months).

  • Products: Business lines of credit.
  • Loan Amounts: Up to $150,000.
  • Terms: Repayment terms last 12 to 24 weeks.

Learn More

4. Accion

Nonprofit Business Lender Offering Microloans to Underserved Communities

Accion is a nonprofit business lender more notable for the types of enterprises it caters to than the types of loans it makes.

Accion’s borrowers, broadly speaking, are businesses that have historically been neglected or underserved by traditional sources of capital: those owned by women, people of color, veterans, and disabled individuals, among other groups underrepresented in the broader business community. These businesses tend to be smaller, service-oriented — with restaurants, salons, and similar businesses featured prominently in Accion’s promotional materials — and capital- and credit-poor, including businesses whose loan applications have been denied elsewhere.

Accion’s core loan product is a business term loan available nationwide. Funding amounts start as low as $300, making Accion one of the few business funding options for bona fide microentrepreneurs and side hustlers seeking microloans. Unlike many lenders, Accion doesn’t require borrowers to have any operational or credit history — all that’s required for a startup business loan is a 12-month cash flow projection or business plan.

Accion also offers SBA Community Advantage Loans for established and startup businesses with fewer than 100 employees.

  • Products: Business term loans, SBA Community Advantage Loans
  • Loan Amounts: Business term loan amounts range up to $1 million; SBA Community Advantage Loan amounts top out at $250,000.
  • Terms: Terms vary based on borrower location, creditworthiness, revenue, and other factors.

Learn More

5. Lendr

Rapid Nontraditional Financing Solutions for B2B and B2C Businesses Without Good Credit

Lendr offers two nontraditional types of business financing: invoice factoring loans and merchant cash advance loans. Its key selling points are rapid approval and funding — as little as two hours — and relatively high borrowing limits, up to $1 million for invoice factoring loans and $500,000 for merchant cash advance loans. Because both of its loan products are secured by future revenues, Lendr is ideal for businesses and owners with not-so-good credit.

Lendr’s invoice factoring solution is appropriate for businesses that count other businesses or government agencies as customers. The cost is typically less than 3% per loan, which works out to a very low interest rate. Lendr’s merchant cash advance product is a bit more expensive, but its unique combination of speed and lack of credit underwriting make it an ideal choice for business owners who might not qualify for traditional credit products.

  • Products: Invoice factoring loans, merchant cash advance loans.
  • Loan Amounts: Loan amounts for range up to $500,000 for merchant cash advances and $1 million for invoice factoring.
  • Terms: Invoice factoring loan repayment schedules vary by invoicing schedules and other borrower-specific factors. Merchant cash advance repayment terms range from four to 14 months.

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Best Small-Business Loan Marketplaces to Compare Options

Small-business lending is a competitive industry. The lenders on the list above constantly vie to offer the best interest rates and loan terms, with borrowers as the main beneficiaries. But applying for multiple loans is a time- and labor-intensive process.

That’s where small-business loan marketplaces come in. These resources allow prospective borrowers to check rates and terms from multiple lenders in one place, without entering the same information multiple times or fielding calls from more loan officers than they can count. The end result is basically the same: putting in a loan application, and hopefully accepting a loan offer, from the lender best suited to meet your business needs.

1. Funding Circle

Broad Range of Financing Solutions or Businesses of All Sizes

Funding Circle connects business owners with financing offers from dozens of lending partners, from mold-breaking online lenders to some of the biggest banks in the world. According to Funding Circle’s own data, the platform has facilitated more than $12 billion in loans to nearly 100,000 businesses in at least 700 industries.

In an ever-more competitive environment for business lending marketplaces, Funding Circle’s biggest selling point might be its commitment to transparency. It was among the co-writers of the Small Business Borrowers’ Bill of Rights — a roadmap for fair, responsible, nonpredatory small-business lending practices — and a leader of the Marketplace Lending Association.

But its broad array of financing solutions is notable as well, mixing traditional term loans and lines of credit with larger SBA loans and nontraditional solutions like invoice factoring and working capital loans.

  • Products: Business term loans, business lines of credit, SBA loans, merchant cash advance loans, invoice factoring loans, working capital loans.
  • Loan Amounts: SBA loan amounts range from $25,000 to $500,000. Business term loan amounts range from $5,000 to $500,000. Merchant cash advance and working capital loan amounts range up to $400,000. Invoice factoring lines range up to $5 million. Business lines of credit range from $6,000 to $250,000.
  • Terms: SBA loans have a 10-year repayment term. Business term loans’ repayment terms range from three months to 10 years. Merchant cash advance and working capital loan terms range from six to 18 months. Invoice factoring and line of credit terms vary by borrower- and lender-specific factors.

Learn More

2. Lendio

Specialized Short- and Long-Term Loan Products for Small and Midsize Businesses

Lendio is another business lending marketplace with no shortage of options for would-be borrowers. Like Funding Circle, Lendio brokers offers from dozens of reputable lenders and serves businesses of all sizes, from one-person operations — albeit with established operational histories and decent revenues — to enterprises with tens or hundreds of employees.

Lendio’s advantages include extremely long-term financing options (SBA loans with terms up to 30 years) and nontraditional financing solutions, such as equipment financing loans to finance major equipment purchases and business acquisition loans to finance the purchase of competitive or complementary businesses.

Eligibility requirements vary by loan type and lender, but borrowers typically need to show operational histories of at least 12 months, solid cash flow for at least three months, and annual revenues of at least $50,000.

  • Products: Business term loans, business lines of credit, SBA loans, merchant cash advance loans, invoice factoring loans, equipment financing loans.
  • Loan Amounts: Merchant cash advance loans range up to $250,000. Business lines of credit range up to $500,000. Business term loans range up to $2 million. SBA loans and equipment financing loans range up to $5 million. Other products depending on lender- and borrower-specific factors.
  • Terms: SBA loan terms range up to 30 years. Business lines of credit last one to two years. Business term loans and equipment financing loans must be repaid within one to five years. Invoice factoring loan terms range up to 12 months.

Learn More

3. SmartBiz

Long-Term Financing Options

SmartBiz doesn’t have quite the product breadth of Lendio or Funding Circle, but it excels at serving a common business borrowing need: long-term financing with predictable pricing and repayment terms.

SmartBiz specializes in smaller SBA loans and does massive lending volumes. According to its own data, banks use the platform to process more than 10% of all SBA 7(a) loans under $350,000, with more than 50% of the loans funded by its partner financial institutions destined for women-, minority-, and veteran-owned businesses.

And SmartBiz’s proprietary underwriting process has a success rate of more than 90%, meaning more than nine in 10 qualified applications sent to partner lenders get funded. That’s a massive selling point for businesses that have struggled to qualify for financing in the past.

  • Products: Business term loans, business lines of credit, SBA loans, invoice financing loans.
  • Loan Amounts: Business line of credit, invoice financing, and business term loan amounts range up to $500,000. SBA loan amounts range up to $5 million.
  • Terms: Repayment terms range from 24 to 60 months for business term loans and lines of credit. SBA repayment terms range from 10 to 25 years. Terms for other products vary by lender- and borrower-specific factors.

Learn More

4. Fundera

Comprehensive Lineup of Business Lending Solutions

Fundera offers access to a comprehensive lineup of traditional and nontraditional business lending solutions from dozens of financial partners. Business term loans, lines of credit, SBA loans, equipment financing, you name it — if it’s a reputable type of business credit, it’s probably available here.

Fundera also provides specialized government loans for businesses impacted by the COVID pandemic and more localized disasters, including SBA disaster loans.

  • Products: Business term loans, business lines of credit, SBA loans, invoice factoring loans, equipment financing loans.
  • Loan Amounts: Business line of credit amounts range up to $500,000. Business loan amounts range up to $600,000. Equipment and invoice loans range up to 100% of the securing assets’ value. SBA loan amounts range up to $5 million.
  • Terms: Repayment terms range up to five years for business term loans and lines of credit. SBA repayment terms range from 10 to 25 years. Terms for other products vary by lender- and borrower-specific factors.

Learn More

Final Word

Keen-eyed readers might notice that this list of small-business financing options omits two common sources of commercial funding: traditional banks and credit unions.

That’s no accident. I have nothing against big banks and community-focused credit unions. Both types of institutions offer excellent business bank account products, including a few with totally free business checking options. And some traditional banks’ solutions appear on marketplace lending platforms like Lendio, which works with Bank of America, JPMorgan Chase, and other megabanks.

But it’s also true that traditional banks, in particular, tend to be friendlier to larger, established enterprises, especially during periods of economic uncertainty. Smaller businesses with limited revenues and shorter operational track records suffer as a result.

The good news, of course, is that small-business lenders like the ones on this list are more than willing to step up and fill the gap. If your business needs financing now, there’s a good chance you’ll find it from one of these lenders or marketplaces — even if you have spotty or downright bad credit.


Mortgage Lending Volume Hits Highest Level on Record Despite COVID-19

Posted on September 9th, 2020

It makes sense that the mortgage industry would see its best quarter in history during a global pandemic.

Okay, it doesn’t make sense, but that’s what happened anyway, per the latest Mortgage Monitor report from Black Knight.

Mortgage Lenders Originated $1.1 Trillion in Home Loans During the Second Quarter

record originations

  • Mortgage lenders experienced best quarter in history during Q2 2020
  • Driven most by refinance loans thanks to record low mortgage rates
  • Refinancing was up 60% from first quarter and 200% from a year earlier
  • Purchase lending was only down 8% from a year earlier despite pandemic

The data analytics firm said about $1.1 trillion (yes, trillion) in first-lien mortgages were originated during the second quarter of 2020, the best three months on record since reporting began in January 2000.

The record numbers were mostly fueled by mortgage refinance transactions, which have surged due to continued record low mortgage rates, helped in part by the COVID-19 pandemic.

They said refinance lending was up more than 60% from the first quarter alone, and more than 200% higher than the same time last year.

Such home loans accounted for almost 70% of all first-lien mortgage originations in terms of dollar value, compared to just 39% in the second quarter of 2019.

Meanwhile, home purchase lending was down about eight percent from a year earlier, which is surprisingly strong given the economic uncertainty surrounding the coronavirus.

Some $351 billion in home purchase loans were originated during the quarter, thanks again to low mortgage rates and improved housing affordability that returned demand to its pre-COVID levels quickly.

We Might Set Another Record in the Third Quarter

purchase rate locks

  • The third quarter of 2020 might be even better than the second
  • Rate lock data reveals that many more home loans are slated to close in Q3
  • And there are still nearly 18 million homeowners ripe for a refinance
  • So there’s plenty of business left despite the already big numbers

Despite those amazing numbers, the record set in the second quarter might be very short-lived.

Based on rate-lock data gathered by Black Knight, the third quarter is looking like it’s going to be even bigger.

The company said locks on home refinance loans are up 20% from the second quarter, assuming these loans close during the third quarter based on a 45-day lock-to-close timeline (how long does it take to close a mortgage).

They also pointed out that there are still nearly 18 million homeowners with sufficient credit scores and at least 20% home equity who could reduce their mortgage rate by at least 0.75% by refinancing.

And purchase locks that are scheduled to close during the third quarter are 23% higher than the seasonal expectation, which could be an indication of making up for lost time during the early days of the pandemic.

The second and third quarter combined purchase locks are more than 6% above their expected seasonal volume based on January’s pre-pandemic baseline.

So in essence, the traditional spring home buying season was merely shifted into the summer months, which is great news for real estate agents and home builders.

Most Homeowners Refinance with a Different Mortgage Lender

servicer retention

  • Customer retention continues to be an issue for mortgage lenders
  • About one in five borrowers use their original mortgage lender when refinancing
  • Despite very marginal differences in interest rates among lenders
  • But given how busy they all are it might not matter right now

Lastly, Black Knight highlighted the awful retention rates in the mortgage industry.

Simply put, most borrowers don’t stick with their old mortgage lender when refinancing the mortgage.

Instead, they go with a new company, as indicated by the fact that just 22% of rate and term refinances and 13% of cash out refinances were retained in loan servicers’ portfolios.

Essentially, less than one in five homeowners went back to their original lender during the second quarter.

Interestingly, the difference in mortgage rate pricing for rate and term refinance borrowers (into GSE mortgages) was only seven basis points lower on average than borrowers who stuck with their original company.

So while pricing is key to drumming up business, it shows lenders could probably retain many of their customers given the very marginal price difference.

Of course, it might be a case of a lender merry-go-round, with lenders simply taking each other’s business over time, as opposed to some lenders losing out.

Nonetheless, identifying those borrowers ripe for a refinance should be a top priority for lenders/servicers if they’re interested in driving more business and growing their portfolios.

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.