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Kentucky is home to more than 393,000 small businesses, which account for 99.3% of all enterprises in the commonwealth. From the bourbon distilleries in the Bluegrass Region to the manufacturing hubs in Louisville and Lexington, these companies employ roughly 43% of the state’s private workforce.
Whether you’re launching an ag-tech startup or expanding your logistics fleet, finding small business loans in Kentucky is generally a key step. Here’s what to know about securing financing for your company.
Key Points
• The Kentucky Small Business Credit Initiative (KSBCI) 2.0 uses federal funds to provide capital support and loan participation to reduce risk for local lenders.
• The Kentucky Agricultural Finance Corporation (KAFC) offers specialized low-interest loans to help beginning farmers purchase land and equipment.
• The Kentucky Economic Development Finance Authority (KEDFA) Small Business Loans provide accessible financing up to $100,000 for companies involved in manufacturing, agribusiness, and service and technology.
• Regional organizations like the Southeast Kentucky Economic (SKED) Corporation and the Metropolitan Business Development Corporation (METCO) offer financing to businesses in eastern Kentucky and the Louisville metro area respectively.
• Automotive and aerospace manufacturers frequently utilize equipment financing to acquire precision machinery needed for production.
Popular Types of Small Business Loans in Kentucky
Entrepreneurs in the Bluegrass State have access to a robust financial ecosystem designed to support its mix of agriculture, industry, and service sectors. The following sections explore the most common funding options available to business owners across Kentucky.
Kentucky Small Business Loan Programs
The state actively fosters economic growth through the Cabinet for Economic Development. The Kentucky Economic Development Finance Authority (KEDFA) offers accessible small business loans to help companies create jobs and invest in fixed assets. It also administers the Kentucky Small Business Credit Initiative (KSBCI), which provides small businesses with loan and venture capital support, including the Kentucky Collateral Support Program, which provides pledged cash assets to lenders for borrowers who lack sufficient collateral.
Additionally, the Kentucky Agricultural Finance Corporation (KAFC) provides low-interest loans for beginning farmers to use to buy land and equipment.
Funding may also be available more locally: The Southeast Kentucky Economic (SKED) Corporation, which provides financing to businesses in eastern Kentucky, and the Metropolitan Business Development Corporation (METCO), which services the Louisville metro area, are two examples.
Term Loans
A term loan can provide a small business with a lump sum of capital upfront. The principal, along with interest (which is usually charged at a fixed rate), is then repaid over a defined period of time in regular payments. Having a fixed, predictable repayment structure can be useful as you budget into the future, and because the funds come in a lump sum, such loans can be well-suited to funding large, one-time investments. For example, a distillery in Bardstown might use a term loan to construct a new rickhouse for aging barrels.
Business Lines of Credit
Unlike a term loan, a business line of credit can let you access a pool of funds that you can draw from when you need funding, up to a preset limit. Typically, you’ll pay interest only on the money you actually withdraw, and as you repay the balance, you’ll replenish the pool of funds so the money becomes available for you to withdraw again.
Lines of credit can be helpful for businesses that have seasonal lulls or uneven cash flow. For instance, a logistics company in northern Kentucky could use a line of credit to manage fuel costs while waiting for shipping invoices to be paid.
Equipment Financing
When your business is in need of a specific physical asset, like machinery, vehicles, or technology, you could consider applying for equipment financing. A row crop farmer in western Kentucky could use this kind of loan to finance a new combine, for example, while a manufacturer in Bowling Green might use it to acquire robotic assembly arms.
Because the equipment itself serves as collateral for the lender, equipment financing loans tend to be easier to obtain than unsecured loans. Additionally, they often come with more favorable terms.
SBA Loans
Although they’re issued by approved private lenders, SBA loans are partially guaranteed by the U.S. Small Business Administration. This backing reduces risk for the lender, so the loan conditions may permit lower down payments and longer repayment terms. If you qualify, these Kentucky business loans are available through many approved banks and credit unions.
Below are the types of SBA loans that may be the most useful for small businesses.
• The SBA 7(a) loan. The 7(a) loan is very flexible: Amounts can range from $500 to $5 million. It’s suitable for covering working capital, refinancing debt, or purchasing supplies.
• The SBA 504 loan is specifically meant for companies to use on major fixed assets, such as commercial real estate or heavy equipment. The maximum amount is between $5 million and $5.5 million.
• The SBA Microloan is meant to help with short-term needs and can be useful to companies that need startup loans. You can borrow up to $50,000 and the maximum repayment term is seven years.
Using an SBA loan calculator can help you estimate what your loan costs might be for different kinds of SBA funding.
How to Apply for a Small Business Loan in Kentucky
When you’re applying for Kentucky small business loans, prospective lenders generally want you to present them with an in-depth, easy-to-understand rundown of your company’s robust financials and a defined plan for how you’d spend the funds you receive.
Before you start contacting lenders, it’s key to have a precise understanding of your funding needs. That means that you should be able to articulate exactly how much money your business needs, how it will be used, and how it will generate a return. A specific proposal, such as “$50,000 to automate our bottling line, which we anticipate will increase revenues by 3% annually” shows lenders your strategic financial thinking.
Know Your Credit Score
Prospective lenders will probably pay particular attention to your credit profile when reviewing your Kentucky business loan application. They’ll likely scrutinize your personal credit scores: Traditional banks often require a credit score for a business loan in the range of 680 or higher. Other lenders, like online banks, may be willing to consider slightly lower scores.
Because of your scores’ importance, it can be a good idea to review your credit reports before you apply so that you can spot any inaccuracies and have them corrected — and be sure you fully understand your financial situation before you submit your application for a Kentucky small business loan.
Gather Your Key Documents
Providing a potential lender with a loan application package that’s organized and complete can speed up the review process and demonstrate to a potential lender that you’re reliable, efficient, and motivated. While requirements vary by lender, you should generally be ready to provide the following:
• Credit report
• Income statement
• Bank statements
• Budget
• Income tax returns (both business and personal)
• Business plan
• Collateral valuation and supporting documents (which may include titles, deeds, or invoices)
Compare Lenders and Loan Offers
When you’re looking at Kentucky small business loans, it’s important to shop around to find the funding that best suits your needs, since different banks can offer very different options on term loans, for instance. It’s also a good idea to compare options from multiple kinds of sources, including small local banks, large national institutions, and online lenders.
As you evaluate financing proposals, it may be helpful to use a business loan calculator to estimate the monthly payments for different options. It’s also a good idea to look closely at the Annual Percentage Rate (APR) of each loan to understand its true cost.
Submit Your Application and Await Approval
After you’ve filled out the application form and gathered your supporting documentation, you should be ready to submit the application package. Once that’s done, you’ll need to wait for the lender’s response. This can take as little as two days in some cases, but may require several weeks in others.
Grow Your Business the Right Way. Explore small business funding options in one place with no impact to your credit score.*
Lenders typically want to see evidence of your business’s stability as well as its ability to repay the loan. Taking steps to strengthen your business’s financial profile before you apply might help you increase your chances of securing a loan. Here are some steps to think about trying:
• Be sure that you’ve got a realistic business plan with detailed financial projections.
• Work to build your business and personal credit scores by paying down your current balances and making timely payments.
• If you have collateral available, consider offering it as security to potentially bolster your application’s chance for approval with certain Kentucky business loans.
Other Funding Options for Kentucky Small Businesses
Sometimes a traditional loan may not be the right fit, and fortunately, there are generally other ways to fund your business. Kentucky’s entrepreneurial ecosystem offers several alternative ways to obtain capital. One of these options may align better with your business’s specific stage of growth or industry.
Small business grants are a highly sought-after option because they don’t require repayment, and you may be able to find specialized grants available in Kentucky. For instance, the Kentucky State Trade Expansion Program (STEP) offers reimbursement grants to businesses looking to export products internationally. National databases like Grants.gov can also be a source for federal programs relevant to your industry.
Crowdfunding can be another viable route to obtain funding, allowing you to raise smaller amounts of capital online from a broad base of supporters.
Additional Business Resources in Kentucky
To succeed in business, you generally need more than just capital: Guidance and a supportive community are also key. Fortunately, Kentucky has a robust network of resources designed to help small business owners navigate challenges. The Kentucky Small Business Development Center (KSBDC) is a notable example, offering no-cost coaching at centers across the state.
For mentorship, local SCORE chapters connect entrepreneurs with experienced business leaders who volunteer their time. Engaging with your local Chamber of Commerce can also provide valuable networking opportunities.
The Takeaway
Securing a Kentucky small business loan can be the decisive factor that can allow your company to expand. While the process involves careful planning, it can be an important step in your journey as an entrepreneur. By defining your goals and utilizing state resources, you may ultimately be able to find the right financing solution for your company.
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.
With one simple search, see if you qualify and explore quotes for your business.
To apply for a Kentucky business loan, start by defining your funding needs and checking your credit scores. Then gather essential documents like your business plan, tax returns, and bank statements to prepare your loan application. Finally, compare options from various lenders to find the best terms you can get for your business needs on a Kentucky small business loan.
Can I get a startup business loan with no money?
Obtaining a startup business loan with no money can be challenging, since most lenders require an owner’s investment. However, some SBA microloans are designed for startups and may be easier to get. Another option could be to research business grants, which may provide funding that doesn’t need to be repaid.
How hard is it to get a small business loan in Kentucky?
Many times, the degree of difficulty depends on your business’s financial health, time in operation, and credit history. Traditional bank loans can have strict qualifications. Online lenders frequently offer more flexible requirements, making them a more accessible option for many Kentucky businesses.
What is the easiest type of business loan to get approved for?
Loans secured by collateral, such as equipment financing loans, are generally easier to obtain because the asset lowers the lender’s risk. Short-term loans and invoice financing from online lenders also typically have less stringent requirements.
What credit score do I need for a small business loan?
Requirements vary, but for traditional bank and SBA loans, a personal credit score of 680 or higher is often preferred. Some online lenders may approve applicants with scores in the low 600s. Bear in mind that higher scores can often result in better approval odds and lower interest rates.
What can I use a Kentucky small business loan for?
You can use a small business loan for almost any legitimate business purpose. Common uses include purchasing inventory, funding marketing campaigns, buying equipment, or refinancing debt. Bear in mind that you can’t use a business loan for personal expenses.
Are there any small business grants available in Kentucky?
Yes, grants are available from a variety of sources. The Kentucky Cabinet for Economic Development can be a resource for finding state-level opportunities like the STEP grant. You can also search national databases like Grants.gov for federal programs relevant to your industry.
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
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.
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 .
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.
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.
SoFi receives compensation in the event you obtain a loan, financial product, or service through SoFi’s marketplace. This webpage is owned and operated by SoFi Lending Corp., licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. ((www.nmlsconsumeraccess.org)). This page is NOT operated by SoFi Bank. Loans, financial products, and services may not be available in all states. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown through SoFi’s marketplace are from providers and are estimates based upon the limited information you provided and are for informational purposes only. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. The actual loan terms you receive, including APR, will depend on the provider you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the providers and not by SoFi Lending Corp. Please review each provider’s Terms and Conditions for additional details.
*Small Business Loans: Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank’s ability to clear a transfer and make funds available.
†Credit score impact: To check the options, terms, and/or rates you may qualify for, SoFi and/or its network providers will conduct a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the provider(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Rates may not be available from all providers.
Business loans don’t have to be complicated. Get clear answers on applications, learn what providers really look for, and understand popular loan options.
Delaware is home to more than 111,000 small businesses, which employ 214,539 employees . This makes up 50.6% of all state employees. Known globally as a corporate capital, the “First State” offers a sophisticated legal environment and a supportive ecosystem for entrepreneurs of all sizes.
Whether you are scaling a fintech startup in Wilmington or running a seasonal shop in Rehoboth Beach, learning about small business loans in Delaware is a critical step. Here is what you need to know about securing financing for your company.
Key Points
• The Delaware Strategic Fund provides low-interest loans and grants to businesses that create permanent, quality jobs within the state.
• The EDGE Grant program offers competitive matching funds specifically for STEM-based companies and entrepreneurs.
• Nonprofit lenders like True Access Capital serve as a vital resource for underserved business owners who may not qualify for traditional bank financing.
• State Small Business Credit Initiative (SSBCI) programs help local lenders offer capital to riskier borrowers through loan participation and capital access models.
• Agriculture and chemical manufacturing sectors frequently rely on equipment financing to maintain operations and upgrade technology.
Popular Types of Small Business Loans in Delaware
Delaware entrepreneurs benefit from a financial landscape that blends state-sponsored support with a robust private banking sector.
The following sections outline the most common funding options available to business owners across the state.
Delaware Small Business Loan Programs
The state actively fosters economic growth through the Delaware Division of Small Business. The Delaware Strategic Fund is a state tool that offers customized financial assistance to businesses looking to relocate, expand, or retain jobs in the state.
Additionally, the State Small Business Credit Initiative (SSBCI) supports programs like the Delaware Capital Access Program, which creates a reserve fund to protect lenders against losses, encouraging them to lend to smaller, higher-risk enterprises.
Term Loans
A term loan provides a lump sum of capital that is repaid over a specific period with regular, fixed payments. This structure can be ideal for Delaware small business loans used for investments financing with predictable costs For example, a restaurant in Newark might use a term loan to renovate its kitchen, while a logistics firm in Dover could use it to expand its warehouse capacity.
Unlike a term loan, a business line of credit is designed to provide access to a revolving pool of funds that you can draw from as needed. You only pay interest on the money you actually use, and as you repay the balance, your credit becomes available again. A seasonal retail business in Dewey Beach could use a line of credit to manage inventory costs during the off-season.
Equipment Financing
Equipment financing is a loan specifically designed to purchase physical assets, such as machinery, vehicles, or technology. Because the equipment itself serves as collateral, these loans often come with more accessible approval standards. A poultry farm in Sussex County could use this to finance new processing machinery, while a construction company in Middletown might use it to acquire a new excavator.
SBA Loans
Small Business Administration (SBA) loans are issued by private lenders but are partially guaranteed by the SBA. This federal backing can reduce the lender’s risk, which may lead to lower down payments and longer repayment terms. These Delaware business loans are widely available through approved banks and credit unions.
The most common types are the SBA 7(a) and 504 loans. The 7(a) program is highly versatile, suitable for working capital, refinancing debt, or purchasing supplies. The 504 loan is specifically for major fixed assets, such as purchasing commercial real estate or heavy equipment that promotes business growth and job creation.
How to Apply for a Small Business Loan in Delaware
Applying for a Delaware small business loan requires preparation and attention to detail. Lenders want to see a clear picture of your financial health and a well-thought-out plan for how their funds will be used. By organizing your documents in advance, you can present a professional application that stands out during the underwriting process, even if you are trying to get a startup loan.
Define Your Loan Purpose and Amount
Before contacting lenders, it may be important to have a precise understanding of your funding needs. You should be able to articulate exactly how much money is needed and how it will generate a return. A specific proposal, such as “$50,000 to upgrade our laboratory equipment,” demonstrates strategic thinking and financial discipline.
Know Your Credit Score
Your credit profile is one of the first things a lender should review. Credit scores are critical, with traditional banks often looking for scores of 680 or higher if it’s a personal credit score. It may be important to check your reports beforehand to identify any errors and understand where you stand before submitting an application.
Gather Your Key Documents
A complete application package can expedite the review process and could signal reliability. While requirements vary by lender, you should generally be prepared to provide a detailed business plan. You will also need personal and business tax returns for the last two to three years, along with recent bank statements.
Compare Lenders and Loan Offers
When figuring out how to apply for a small business loan, it can be important to shop around to find the option that best fits your needs. Compare options from multiple sources, including local community banks, large national institutions, and online lenders. When evaluating proposals, look closely at the Annual Percentage Rate (APR) to understand the true cost of the potential loan.
You could improve your odds of securing a loan by taking steps to strengthen your business’s financial foundation before you apply. Lenders are looking for evidence of stability and the ability to repay. Presenting a strong, low-risk profile can be helpful in the underwriting process.
Start by ensuring your business plan is realistic and includes detailed financial projections. Work on improving your credit scores by paying down existing balances and making all payments on time. If available, offering collateral can also strengthen your application for certain Delaware business loans.
Other Funding Options for Delaware Small Businesses
If a traditional loan isn’t the right fit, there are other ways to fund your business. Delaware’s entrepreneurial ecosystem offers several alternative paths for capital. These options may align better with your specific stage of growth or industry.
Small business grants are a highly sought-after option because they do not require repayment. The EDGE Grant program awards matching funds to STEM and entrepreneur-class businesses to help them scale. Crowdfunding can be another route as it allows businesses to raise smaller amounts of capital from a broad base of supporters online.
Additional Business Resources in Delaware
Success in business often requires more than just capital; it requires guidance and community. Delaware has a robust network of resources designed to help small business owners navigate challenges. The Delaware Small Business Development Center (SBDC) can be a good resource, offering no-cost advising at locations across the state.
For mentorship, local SCORE chapters connect entrepreneurs with experienced business leaders who volunteer their time. Additionally, True Access Capital offers training and technical assistance alongside its lending products. Engaging with your local Chamber of Commerce can also provide valuable networking opportunities.
The Takeaway
Securing a small business loan in Delaware can be the decisive factor that helps your company expand. While the process involves careful planning, it can be a desirable step for any focused entrepreneur. By defining your goals and utilizing state resources, you may find the right financing solution.
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.
With one simple search, see if you qualify and explore quotes for your business.
Start by defining your funding needs and checking your credit scores. Gather essential documents like your business plan, tax returns, and bank statements. Finally, compare options from various lenders to help find the most favorable terms for your Delaware small business loan.
Can I get a startup business loan with no money?
It is challenging, as most lenders like to see a couple of years of business revenue. However, some SBA microloans are designed for startups with lower capital requirements. Another option is to research business grants, which provide funding that does not need to be repaid.
How hard is it to get a small business loan in Delaware?
The difficulty depends on your business’s financial health, time in operation, and credit history. Traditional bank loans can be competitive and strict. Online lenders often offer more flexible requirements, making them a more accessible option.
What is the easiest type of business loan to get approved for?
Loans secured by collateral, such as equipment financing, are generally easier to obtain because the asset lowers the lender’s risk. Short-term loans and invoice financing from online lenders also typically have less stringent requirements.
What credit score do I need for a small business loan?
Requirements vary, but for traditional Delaware small business loans and SBA loans, a personal credit score of 680 or higher is often preferred. Some online lenders may approve applicants with scores in the low 600s. Higher scores generally lead to better approval odds and lower interest rates.
What can I use a Delaware small business loan for?
You may use a small business loan for almost any legitimate business purpose. Common uses include purchasing inventory, buying equipment, funding marketing campaigns, or refinancing debt. Personal expenses are prohibited.
Are there any small business grants available in Delaware?
Yes, grants are available from federal, state, and private sources. The Delaware Division of Small Business manages the EDGE Grant program, which is a major state-level opportunity. You can also search national databases like Grants.gov for federal programs relevant to your industry.
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
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.
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.
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.
SoFi receives compensation in the event you obtain a loan, financial product, or service through SoFi’s marketplace. This webpage is owned and operated by SoFi Lending Corp., licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. ((www.nmlsconsumeraccess.org)). This page is NOT operated by SoFi Bank. Loans, financial products, and services may not be available in all states. All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown through SoFi’s marketplace are from providers and are estimates based upon the limited information you provided and are for informational purposes only. All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. The actual loan terms you receive, including APR, will depend on the provider you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the providers and not by SoFi Lending Corp. Please review each provider’s Terms and Conditions for additional details.
*Small Business Loans: Reference to “same day funding” or “funding within 24 hours” describes a general capability of many lenders you can reach through SoFi’s marketplace. Funding or funding timing is not guaranteed. Your experience with any lender will vary based on requirements of the lender and the loan you apply for. To determine the timing of funds availability, you must inquire directly with any lender. In addition, your access to any funds from a loan may be dependent on your bank’s ability to clear a transfer and make funds available.
†Credit score impact: To check the options, terms, and/or rates you may qualify for, SoFi and/or its network providers will conduct a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the provider(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Rates may not be available from all providers.
Business loans don’t have to be complicated. Get clear answers on applications, learn what providers really look for, and understand popular loan options.
By Lindsay VanSomeren |
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Comments Off on Would a 10% Cap on Credit Card Rates Help or Hurt Americans?
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When it’s time to pay, credit cards are often our go-to. But if you don’t pay your balance each month, they can also be a very expensive way to pay, with an average interest rate of 22% in November — among the highest for any loan product.
That’s why President Trump made big headlines last week when he called for a limit on credit card interest rates. In his words on Truth Social: “Effective January 20, 2026, I, as President of the United States, am calling for a one year cap on Credit Card Interest Rates of 10%.”
While the president didn’t explain how he would enact or enforce such a “cap” — and it’s unclear how much he can do without Congressional approval — his plan has gotten the nation’s attention. It’s raising questions about not just the implications of a cap but what borrowing could look like down the road.
Credit card debt is a slippery slope for many Americans. Nearly half of U.S. credit cardholders surveyed by Bankrate carry a balance month to month, paying interest rates that are higher than on a mortgage or auto loan because there’s no collateral backing the loan. Plus, interest that compounds daily can leave many people feeling stuck on a credit treadmill. Years of burdensome debt can make it harder to save enough for retirement, pay kids’ college tuition, or reach other financial goals.
With the average balance topping $6,500, limiting credit card rates to 10% would save borrowers a lot – a collective $100 billion a year, according to a recent estimate by Vanderbilt University. Think of it this way: If you’re carrying a $10,000 balance and pay $200 in a given month, $117 of it would go toward principal with a 10% rate, versus just $33 with a 20% rate.
That said, lower credit card rates could backfire if banks scale back their credit card offerings or adapt in other, less consumer-friendly ways.
“People will lose access to credit on a very extensive and broad basis, especially the people who need it most,” Jeremy Barnum, chief financial officer of JPMorgan Chase, told analysts on a quarterly earnings call this week, echoing a warning from several banking trade groups.
Some analysts say people with lower credit scores or incomes would feel it the most, since banks set rates to match their risk of being repaid. In fact, one recent study by the Electronic Payments Coalition suggested that the 10% interest rate cap would mean anyone with a credit score under 740 would be cut off from credit cards — or at least have their credit limit dramatically reduced. And that would include 82% to 88% of open credit card accounts.
A 10% cap could also push credit card issuers to raise fees and scale back rewards programs (like miles or cashback.) The Vanderbilt analysis estimates that a 10% limit would cost cardholders with FICO scores below 760 an estimated $27 billion in credit card rewards.
There’s no doubt about it, credit cards are a convenient and appealing product — you borrow only when you need to, on demand and right at the register. If millions of borrowers were to lose access, they might turn to less-regulated alternatives like payday loans, which have even higher interest rates.
But other products can offer distinct advantages over credit cards, depending on the situation. Personal loans, as one example, tend to have lower (and fixed) interest rates, making borrowing more affordable and predictable. And a Buy Now, Pay Later (BNPL) loan often charges no interest – as long as it’s repaid on time.
So what?
For now, a 10% limit on credit card rates remains a hypothetical. We can’t know exactly how things would play out in the market. But if Trump’s cap is enacted, there could be both welcome and unwelcome changes. It’s worth having a backup borrowing plan in place, especially if you have a less-than-stellar credit record.
Either way, the debate is a good reminder that credit card debt is an easy trap to fall into. Living within your means, giving every dollar a purpose, and building a healthy emergency savings can help you avoid it.
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By Derek Stratton |
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Comments Off on A Guide to Alternative Investments
Alternative Investments 101
SoFi’s Alt Investment Guide for Beginners
Alternative investments — which fall outside the realm of conventional assets like stocks and bonds — were once considered too high risk for ordinary investors. Now alternative strategies are becoming more accessible through mutual funds and ETFs, and may even be available in some employer-sponsored retirement plans starting in 2026.
Thanks to their low correlation with traditional asset classes, alternatives may offer investors certain benefits. Alts can increase portfolio diversification, which may help offset some risk factors and improve risk-adjusted returns.
Alts include a range of assets including commodities, art, and collectibles, as well as alternative strategies such as investing in derivatives, real estate, private equity, and more.
Because alts tend to be very complex, fairly illiquid, and high risk, these investments do require careful management. To that end, this guide provides a comprehensive overview of some of the most common alternative investment choices.
Alternative Investments: An Overview
The term “alternative” refers to investments that are alternatives to conventional strategies — not necessarily substitutes for them. To invest wisely in alts, it’s important to consider the potential risks and benefits of these assets. Alts tend to be complex, lightly regulated, and less transparent than other asset classes.
In addition, investors should bear in mind that alts can differ widely from one another in terms of their structure, fees, liquidity, tax treatment, and more.
Real estate is a common type of alternative investment because real estate values tend not to correlate with stock market performance, and thus they may provide a potential buffer against volatility. You can invest in various types of properties directly, or buy shares of publicly traded Real Estate Investment Trusts (REITs), as well as mutual funds and ETFs that provide access to this asset class.
Commodities are raw materials (e.g., precious metals, oil and gas, agricultural products) that are used in manufacturing or for consumption. Owing to the relatively steady demand for most commodities, these can be a hedge against inflation. That said, demand for different commodities can fluctuate — and commodities can be vulnerable to environmental and political risks.
Investors can access commodities via commodity stocks, mutual funds, and ETFs.
Foreign currency investing, often referred to as forex, is one of the largest and most liquid global markets. Forex trading offers the potential for diversification and tends to cost less than other types of alts. That noted, trading currencies directly can be quite volatile, and investors may prefer the relative stability of mutual funds or ETFs that provide exposure to foreign currencies.
Overview of Private Equity and Venture Capital Funds
Private equity provides investors with an opportunity to own a stake in smaller and early-stage companies that need capital to regain their footing, make a pivot, or (in the case of venture capital) get off to a strong start. As such, the risks of many PE and VC projects tend to be high — although there is also the potential for substantial profits when companies succeed.
High investment minimums have made it difficult for retailers to access these investments, but that has been changing as more private equity funds are designed with retail investors in mind.
Private credit is a form of lending from non-bank financial institutions. Sometimes called direct lending or private debt, private credit allows smaller companies to seek financing via channels outside of traditional bank loans.
Private credit can be a boon to businesses by supplying much-needed capital. And, as a type of alternative investment, it can create opportunities for investors who pool funds in order to issue loans — which in turn generate income for investors through interest payments. Private credit may utilize a range of strategies, each with its own risk and reward factors, so it’s important to understand the structures involved.
Today, alternative investment options are rapidly evolving to provide lower-cost, more liquid choices for retail investors through mutual funds, ETFs, and other vehicles (including some retirement accounts), many of them offered by well-established asset managers.
As always, investors need to do their due diligence to understand the potential pros and cons of these investments.
