Starting and growing a business often requires money, and business loans can be an essential way to get that support. But what if you want to operate your business under a name, using a “Doing Business As” (DBA) name? Can you still get a business loan? This guide will help you understand the basics of DBAs, their benefits, and challenges, especially regarding business loans. We’ll cover essential insights to increase your chances of qualifying for a loan if you’re operating using a DBA.
Understanding DBAs and Sole Proprietorships
To start to understand how DBAs would work, let’s first explore what a DBA is and how it connects to business and partnership structures, for example, especially sole proprietorships.
What is a DBA?
A DBA, which stands for “Doing Business As,” is also called a “trade name” or “assumed name.” It is a name that a business can use instead of its legal name. For example, if “John Smith” owns a sole proprietorship but wants to name his business “Smith’s Lawn Care,” he would need to register “Smith’s Lawn Care” as a trade name under his DBA.
What is a Sole Proprietorship?
A sole proprietorship is a type of business structure where there is no separation between the business owner’s personal assets and the business assets. This means that if the business has debts, the business owner also is personally responsible for them. Sole proprietorships are popular because they are simple to set up, and the owner has full control over the business.
While filing a a DBA may also allows a sole proprietorship or partnership with another business to operate under a different name, it does not create a new separate legal entity. This means the one filing a DBA is not a distinct business; it’s simply a way for the business to want to have a different name.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
Benefits of Registering a DBA for Your Small Business
Registering a state DBA can offer many advantages for the state, small business owners and small businesses. Here are some key benefits that include:
Flexibility in Naming: A DBA allows you to operate your business under a fictitious name, a unique name that reflects your brand. This fictitious name can be different from your legal name or the name of your business structure (like an LLC).
Credibility and Trust: Having a DBA can make your business or service appear more professional and trustworthy to customers. For example, a customer or service may trust “Smith’s Lawn Care” over “John Smith.”
Reduced Personal Liability: Although a DBA does not create a separate legal entity, it allows for some separation between personal liability and business activities. However, it’s important to remember that without an LLC or corporation, you’re still personally responsible for the business’s debts.
Marketing and Privacy Benefits include: A DBA can provide a number of marketing advantages by helping you create a brand that resonates with customers. It also offers a level of privacy, as you don’t have to use your legal name in all business dealings.
Administrative Simplicity: Operating under a DBA can make it easier to open a business bank account, file everything in the name of the DBA, file, and keep finances organized.
Challenges of Getting a Business Loan with a DBA
Getting a loan as a business operating under a state DBA can be even more challenging for small businesses than for businesses as a corporation, partnership or LLC. Here are some reasons why:
No Separate Legal Entity: Since a DBA is not a separate entity from the owner, lenders may see it as riskier to lend to a DBA compared to an LLC or corporation. If your business defaults on the loan, you, the owner, are personally responsible for paying it back.
Higher Risk for Lenders: Sole proprietors and DBAs often find it harder to get business loans because lenders might worry about their ability to repay. Without a legal separation, the lender cannot seize business assets alone; they might have to go after the owner’s personal assets, which adds complexity and risk.
Limited Access to Business Credit: Unlike corporations or LLCs, DBAs may struggle to access business credit. Creditors would often prefer lending to businesses that have an established credit history, which a DBA does not need to have.
Possible Loan Restrictions: Some lenders may have policies limiting or restricting loans to DBAs or sole proprietorships. This can make it difficult to secure traditional business loans and may even require looking into alternative options.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
Business Loan Options for DBAs
While it may be challenging to find one, it is not impossible for one with a real estate business operating with a DBA to obtain financing for a loan. Here are some financing options:
Traditional Bank Loans:
Banks may provide loans to DBAs, especially if the owner has a strong personal credit score and a solid business plan. However, traditional banks are often cautious, as they may prefer lending to corporations and LLCs due to the separation between business and personal assets.
SBA Loans:
The Small Business Administration (SBA) offers loans to small businesses, including those with DBAs. Although SBA loans have strict requirements, they can be a good option if you qualify. These loans are partially guaranteed by the government, which can help increase approval chances.
Microloans:
Microloan programs provide smaller loan amounts, usually up to $50,000. Many of these programs are available to DBAs, and they may have more relaxed requirements compared to traditional bank loans.
Online Lenders and Alternative Lenders:
Online and alternative lenders are often more flexible with lending requirements. They may be willing to lend to a DBA if the owner has a good credit history. However, online loans may have higher interest rates than traditional bank loans.
Personal Loans:
Some DBA owners may choose to apply for a personal loan and use it for their business. This is not technically a business loan, but it can be a way to get funds. However, using personal loans for business purposes can carry risks if the business cannot repay the loan.
How to Increase Chances of Qualifying for a Business Loan
If you find you’re operating under a state DBA and seeking a loan, there are two steps you can take to help improve your chances of getting one approved by state one:
- Build and Maintain a Strong Credit History: Lenders will often check your personal credit history if your business is a DBA. Maintaining a high credit score shows that you are a responsible borrower.
- Create a Comprehensive Business Plan: A solid business plan with financial projections, market research, and a clear strategy can show lenders that your business has potential. It demonstrates that you’re serious about your business and have a plan for success.
- Keep Accurate Financial Records: Having clear, accurate records of your business’s finances, including income, expenses, and cash flow, is essential. Lenders want to see that your business is financially stable and capable of repaying a loan.
- Strengthen Financial Health: Save money, manage debts responsibly, and maintain a good debt-to-income ratio. A healthy financial foundation increases trust in your ability to repay loans.
Registering a DBA and Obtaining an EIN
To operate with a DBA legally, you may need to register it. Here’s what you should want to register and need to know:
- Registering a DBA: Most states require businesses to register their DBAs if they are using a name different from their legal name. This process usually happens at the state or county level. Once registered, you can use your DBA for business purposes.
- Getting an EIN: An EIN, or Employer Identification Number, is essential for tax purposes and can be obtained from the IRS. Even though a DBA is not a separate entity, having an EIN can help with tax reporting and applying for loans.
Tax Implications of a DBA
A DBA corporation is not a corporation but a separate legal entity and corporation, which means it has limited liability and no independent tax obligations. Here’s an example of how it works:
- No Separate Tax Entity: With a DBA, all business income and expenses are reported on the owner’s personal tax return. The business income is considered part of the owner’s personal income.
- Self-Employment Taxes: Sole proprietors must pay self-employment taxes on their business earnings.
- Business Expenses: Even though a DBA doesn’t have separate taxes, you can still deduct business expenses on your tax return, which reduces the amount of taxable income.
- State and Local Tax Rules: Some states and local governments have special requirements for DBAs. Check with local tax authorities to make sure you comply with any additional rules.
Maintaining a DBA
Once you register a file as a name file on DBA, it’s important to maintain it and get it to work properly like this:
- Renewal: Many places require you to renew your DBA periodically, such as every few years. Failing to renew it can cause issues for your business.
- Updating Information: If you make changes to your business, like changing the address, owner, or other details, you may need to update your DBA registration.
- Accuracy and Transparency: Keeping your DBA information accurate helps build trust with customers and lenders. It also ensures that you stay compliant with legal requirements.
Conclusion
Getting a business loan with a DBA can be challenging, but it is possible. Understanding the benefits and challenges of using a DBA is important for making informed decisions about financing your new business structure. While new DBAs may face more challenges in securing financing, creating a strong business plan, maintaining good credit, and keeping accurate records can help increase approval chances.
Registering your company as a DBA and obtaining an EIN are two key steps for building credibility and making your business more attractive to lenders. By staying organized, keeping financial records, and following the steps outlined here, you can improve your company’ chances of securing a loan and start growing your business successfully.
Frequently Asked Questions
Can I Get a Business Loan with a DBA?
Yes, you can obtain business credit for a DBA, but it often requires leveraging the business owner’s personal credit history. Since a DBA is not a separate legal entity, lenders typically need to assess the creditworthiness of the business owner. To improve your chances, you need to ensure you have a strong personal credit score and maintain accurate financial records for your new business.
- Fastest funding 1 business day
- Min. time in business 6 months
- Term lengths Up to 60 months
4.8
- Loan amount Up to $500,000
- Min. time in business 6 months
- Min. annual revenue $250,000
4.8
Best for large business loans
- 3 Months in Business
- $10,000 in Monthly Rev
- Minimum Credit Score 550
4.9
Best for large business loans
- up to $1.5 million
- APR range Not disclosed
- Minimum Credit Score 570
4.7
Best for Small business loans
- Apply in Minutes
- No Hidden fees
- Wide range of Options to choose from
- Get funded in as little as 24 hours*
4.8
What Does DBA Mean on a Business Loan Application?
On a business loan application, DBA refers to “Doing Business As,” which indicates that the business operates under use a trade name different from its legal name. Lenders would need to know the use of DBA to verify the business’s identity and ensure all legal requirements are met. It helps in distinguishing the other business under a trade name’s brand while keeping the company’ legal name intact.
What Disqualifies You from a Small Business Loan?
Several factors can disqualify one of you from obtaining a small business loan, for one example, including poor personal credit history, lack of a solid business plan, limited liability, insufficient cash flow, and outstanding debts. Additionally, a company operating solely under the name of a DBA without establishing a separate legal entity like an LLC or corporation can raise concerns for lenders due to increased risk.
Can a DBA Get a Business Bank Account?
Yes, a DBA can open a business bank account. To do so, you will find you’ll require will typically require will need to provide the bank with your DBA registration documents, personal identification, and possibly an EIN if applicable. Having a separate bank account for your and can i get a business loan with a DBA helps in managing finances and maintaining clear records for tax filing and business purposes.
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