Getting a small business loan for your new venture can feel like a catch-22: it takes money to make money. Lenders want to see a track record, but how are you supposed to get that? 

Here we’ll explain when (and how) your small business can get a business loan.

How Do Business Loans Work for a New Business

Startup loans can be among the most difficult to get. Business loan requirements often consider three or four main factors:

1. How long have you been in business? A significant percentage of startups fail, and lenders realize the first two years can be the most risky for a new business. 
2. What is your credit history? Most lenders want to see good credit, and they may look at personal credit reports or scores, business credit, or both.
3. How much money are you making? Many lenders have minimum annual revenue requirements. As a startup, you may not be bringing in much money (if any), so they may look to personal income or assets instead.
4. What is your industry? Some industries are considered higher risk, and if your business falls into that category it will be more difficult to get funding, whether your business is new or well established. 

Now all financing options have all of these requirements, though, so you may need to look at alternative loan options to get funding for your new business. 

Where To Get Loans for New Business

Here’s where small business owners can look for loans for startup business loans. 

Business credit cards 

You may think of credit cards as an easy way to make purchases for your business, rather than in terms of borrowing money. But most small business credit cards offer a line of credit that can be helpful as a short-term loan. 

Higher interest rates can make this an expensive way to borrow, though. One tip: check whether you can qualify for a 0% intro APR business credit card that gives you several months of interest-free financing if you pay the balance in full before the intro rate expires. 

The reason business credit cards are so popular with new entrepreneurs is because many are available as soon as you start your business, provided you have good credit (personal credit), and sufficient income from all sources, not just the business. A personal guarantee will usually be required. 

SBA loans

The U.S. Small Business Administration guarantees small business loans to businesses that have a good chance at success, but are having trouble getting financing from traditional lenders. These loans feature competitive annual percentage rates and reasonable loan payments. 

Except for disaster loans, these loans are made through SBA lenders (approved by the SBA). A few of the most popular programs for new and established businesses include: 

SBA 7 (a) loans: The SBA’s flagship program, it helps small businesses access financing through approved lenders with government guarantees. These loans offer loan amounts up to $5 million for various business needs, including real estate acquisition and improvement, working capital, debt refinancing, equipment purchases, ownership changes, and multiple-purpose funding. 

7(a) Working Capital Pilot Program: This is a newer loan program designed to help small businesses access the working capital they need to support and grow their business. The maximum loan size is up to $5 million with a repayment term of up to 5 years. 

SBA Microloans: These offer up to $50,000 to eligible businesses, usually disadvantaged borrowers. Typically made by nonprofit community lenders, these often carry reasonable interest rates and more flexible requirements than traditional bank loans. While they still require a solid business plan, they can be accessible to startups without extensive business credit history.

While SBA loans generally don’t have a minimum credit score requirement, they do require acceptable credit and have other eligibility requirements (such as being classified as a small business). 

Equipment financing

Equipment leasing or loans help you get the business equipment you need without large upfront costs. Since the equipment serves as collateral, this financing can be more accessible to new businesses. Just keep in mind that lenders and lessors don’t want to repossess collateral: so they will often require a down payment from less qualified businesses. Terms typically align with the equipment’s expected lifespan, and interest rates are generally more favorable than unsecured loans.

Online business loans

Online lenders (sometimes called “fintechs”), offer streamlined applications and quick decisions. While costs tend to be higher (though not always), they often consider alternative data points beyond credit scores: minimum monthly or annual revenue is the most common. 

There are many types of business loans and financing available online, including a business line of credit, term loans, merchant cash advances, invoice factoring, and more. Check the lender’s requirements before you apply: some will require at least 6—12 months in business, or longer. 

Supplier financing

Vendor terms (like net-30 accounts) lets a business make purchases from suppliers, and pay for them later. While these aren’t traditional loans, they provide valuable breathing room for cash flow and help establish creditworthiness for larger financing later. If you get a net-30 account that reports to business credit, and you pay on time, you can build strong business credit.  

Crowdfunding

This type of funding doesn’t usually require any specific time in business or good credit scores. Instead, you use these platforms to find backers who believe in your business to pitch in, either as investors, lenders, or for a reward. Top types of crowdfunding for small business include loan-based crowdfunding, rewards-based crowdfunding and investment-based crowdfunding. 

Nonprofit lenders

Community Development Financial Institutions (CDFIs) specifically target underserved entrepreneurs. These mission-driven lenders often provide technical assistance alongside funding, making them ideal for new business owners who need both capital and guidance. Their rates typically fall between traditional bank loans and online lenders.

While it might be ideal to get a loan that will offer all the money you need, in reality many business owners use a combination of these funding sources and cobble together what they need. 

How To Get Loans for New Business

If you’re new to small business financing, it probably feels a little overwhelming. There are so many options available, how do you decide what’s best for your business?

Start by checking your credit, so you can see what lenders will likely see when they check your credit. It usually makes sense to check both personal and business credit, and to check with multiple credit reporting agencies. Lenders have their choice of credit bureaus, and you should know what each report says. 

Another tip: Make sure you use a business checking account to deposit income into your business and to pay expenses. With many types of financing, you’ll be required to provide business bank account statements so the lender can verify income and cash flow. 

How to Apply for New Small Business Loans

Whether the loan application process is easy or involved depends on the type of loan, loan amount, how the lender operates. 

If you want a traditional business loan from a bank, for example, you may need to provide a business plan with financial projections, personal and business tax returns, bank statements, and legal business documents, along with business licenses. Some lenders will require a personal financial statement so lenders with information about your personal income and assets, and documentation for any collateral.

At the other end of the spectrum, some small business lenders will use a simple online application where you provide information about your personal identity and your business, then allow the lender to view your business bank account information to verify revenue and cash flow. 

The Value of Building Business Credit First

Building business credit is one way to help make the process of getting financing easier. 

Some lenders use business credit scores as a shortcut for creditworthiness. Good business credit scores indicate lower risk, and that can help your business qualify for 

But business credit isn’t just about helping your business qualify for a wider range of funding options. It may help you land better terms with suppliers (which can improve cash flow), and even land important contracts with other businesses.

It takes time to establish business credit, so the earlier you start, the better. 

Do You Know Your Business Credit Score

Most personal credit scores are calculated by VantageScore or FICO, while business credit scores are often created by the credit bureaus themselves. (One exception is the FICO SBSS score that is calculated by FICO, based on The scale or range for business credit scores can be very different depending on which bureau is supplying the credit score. 

Read: What is the Highest Possible Credit Score for Small Businesses

Pro tip: Check your business credit reports and scores before you apply to understand what lenders may see about your business. 

What To Do if You Are Looking for Loans for Bad Credit

Just like it’s more challenging to get funding for a startup, it’s more challenging if you have bad credit. You may need to get creative to find the funding you need. Microloans, supplier credit, or crowdfunding might be your best bet.

In the meantime, work on your credit. You can build business credit even if you have poor personal credit, by starting with tradelines that don’t check personal credit. 

Work on your personal credit at the same time. Good personal credit will make it a lot easier to qualify for many small business loans. 

Risks Business Lenders Might Avoid

Credit risk is one type of risk that can lead to getting turned down for credit. Recent bankruptcies, tax liens, or judgments raise red flags, as do inconsistent revenue and high debt-to-income ratios. Too many UCC filings can also be seen as high risk.  

Other risks include lack of collateral, industry risk (some industries are high risk), and limited personal investment in the business. 

Good credit and strong revenues can help offset risk, but some types of businesses will always have trouble getting approved and may need to look for hard money loans. 

Where to Apply for a Small Business Loan if You Are Ready

When you’re prepared to apply, you’ll want to look for a lender that offers the type of loan you need, with monthly payments (or periodic payments) you can afford, at the right terms based on your qualifications. Though that sounds like a lot, the starting point is always to understand where your business stands first.

If you need funds fast, online lenders will often be your best bet. If you have plenty of time, you may want to consider crowdfunding, or even a loan from a credit union or bank.

How Nav Can Help You Get Business Loan Ready

With Nav, you can track your business and personal credit scores in one place, track cash flow, understand your business financial health, and get matched to funding options based on your business data.

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