Getting a business loan for a new business comes down to three things: choosing the right type of financing, meeting the lender’s eligibility bar, and preparing documentation that makes your case. Traditional banks often want years of history and established business credit, which most startups don’t have yet. The good news is that SBA programs, online lenders, and flexible products like lines of credit exist for exactly this stage. Here’s how to navigate your options and improve your chances of getting approved.
What you need to know
- Business loans come in two main types: term loans and lines of credit.
- Your business loan documentation should include a business plan, financial reports, personal information, and business checking account statements.
- Applying for venture capital or government grants may be the solution if you don’t yet meet eligibility requirements.
What are the types of startup business loans?
Business loans come in two main types. The first is the fixed-interest business term loan, a lump sum that you repay in equal monthly installments. The second is the business line of credit, a pool of available funds you can draw from and repay with a variable interest rate for each draw.
Business loans and lines of credit differ from funding sources like venture capital, government grants, or crowdfunding because those sources don’t require repayment.
Am I eligible for a business loan?
Obtaining startup funding can be difficult, as lenders like to see a strong business credit score, an established credit history, a few years of financial reports, and a strong business credit score.
According to Bluevine’s Small Business Financing Report, though, 56% of SMB owners didn’t check their business credit score before applying for financing in the last year. Roughly half (51%) of SMB owners don’t know their current business credit score at all.
Luckily, finding your business credit score isn’t much harder than finding your personal score. The major business credit bureaus—Experian, Equifax, and Dun & Bradstreet—compile credit reports for small businesses. Register your business with these bureaus and request your reports to assess your company’s creditworthiness before applying for small business financing.
If you don’t yet meet the eligibility requirements to apply for a term loan or line of credit, you’ll need to get funding from other sources. Try applying for different business-related loans instead. You can pre-screen your business by applying for business credit cards or a business line of credit from your bank, or apply for a smaller, short-term loan and pay it back early to establish some credit history.
How to prepare for a business loan
While business loan requirements can vary, your documentation should include:
- A business plan
- Financial reports
- Personal identification and financial information
- Business credit reports from the major bureaus
- Business checking account statements going as far back as possible
Research the type of loan you’re applying for and make a strong case in your business plan for which type of loan you need to meet your goals. Lenders may offer financial products specific to your industry or corporate structure. You should also ask the lender if they require any additional documentation.
SBA loans for new businesses
If your business is too young for conventional financing, an SBA loan for a new business can be the bridge. The Small Business Administration doesn’t lend directly. It guarantees a portion of loans made by participating lenders, which lowers the lender’s risk and makes approval more realistic for younger businesses.
The flagship program is the SBA 7(a) loan, which can fund working capital, equipment, inventory, or real estate. Two things to plan for: the paperwork is heavier than an online lender’s application, and required down payments for SBA 7(a) loans generally range from 10% to 30% of the loan amount.
Bluevine has partnered with Fundera by NerdWallet to help business owners access SBA 7(a) loans up to $350,000. If the down payment is the sticking point, some owners cover it with a business line of credit and keep their business and personal savings intact.
Startup working capital loans
A startup working capital loan covers the day-to-day costs of running your business: payroll, inventory, rent, and the gaps between invoicing and getting paid. Unlike a loan for a specific purchase, working capital financing is about smoothing cash flow while revenue is still uneven.
Two structures dominate:
- A business line of credit works well when your needs are ongoing and unpredictable. You draw as needed and pay interest only on what you use. The Bluevine Line of Credit offers credit lines up to $250,000 with a quick online application.
- A term loan fits a defined, one-time need. Through Bluevine’s lending partners, term loans go up to $500,000 with repayment terms up to 24 months.
For most new businesses, the line of credit is the more forgiving starting point, because you aren’t paying interest on money you haven’t used.
Where to get a startup business loan: banks vs. online lenders
The best place to start applying for business loans is the banking platform that hosts your business checking account. Since you already have history with them, they already have a sense of their risk in lending to you, so they might process your application faster.
Searching for the best banks for startup business loans usually leads to a hard truth: while traditional banks and credit unions offer a wide range of business loan products, they typically serve established businesses rather than startups, and most want two or more years of operating history. Your chances of getting approved for a startup loan may be higher with digital banking providers, who often have more relaxed lending criteria and in some cases can take on more risk because they have lower overhead.
As a startup, you may also qualify for loans from lenders participating in Small Business Administration (SBA) programs, covered in the SBA section above.
The startup loan application process
Business loan application processes vary by lender. Most begin with a pre-qualification phase in which you enter your basic business and personal financial information. The lender will then make a soft inquiry into your credit history, meaning there’s no impact to your credit score. Based on this soft inquiry, the lender will determine whether you meet their loan eligibility criteria. The lender will then perform their risk analysis to determine whether you’re approved. For some lenders this includes a hard credit inquiry.
The best way to avoid delays or pitfalls in the application process is to be truthful and upfront in your loan application.
How to understand and negotiate loan terms
You as the borrower can always negotiate better terms if you have a strong personal and/or business credit profile, because these indicate that you’re responsible with loans. Points of a loan agreement that can be negotiated include:
- Loan amount
- Loan term
- Interest rate(s)
- Repayment schedule
- Fees
Note that changing these can affect the total cost. For example, if you change from a three-year term to a five-year term, you’ll have lower monthly payments, but pay higher total interest.
Tips for increasing your loan approval chances
Use the following tips to make your business more appealing to lenders:
- Maintain good personal and business credit scores
- Maintain business revenue and financial health
- Gather all the documents you need before starting your application
- Present a clear business plan to the lender
What to do if your loan application is denied
Your business loan application can be denied for any number of reasons. Startups are often turned down because they haven’t been in business long enough. Seek alternative financing like venture capital or government grants and maintain your business’s financial health until you qualify.
Get a business loan or line of credit that fits your needs.
Startup business loan FAQs
Yes. SBA programs exist to help businesses that fall short of conventional lending standards, including newer ones. Lenders still review your personal credit, business plan, and finances, and you should expect to document how the loan will be used. The SBA 7(a) is the most common program, and required down payments generally range from 10% to 30%. Through Bluevine’s partnership with Fundera by NerdWallet, you can access SBA 7(a) loans up to $350,000.
It’s financing that covers operating costs like payroll, rent, and inventory, not a one-time purchase. For startups, it usually takes the form of a business line of credit, which lets you draw funds as needed and pay interest only on what you use, or a short-term loan repaid on a fixed schedule.
Traditional banks and credit unions typically want two or more years in business, so few approve true startups. Start with the institution that holds your business checking account, then compare digital banking providers, which often have more flexible criteria. Lenders participating in SBA programs are another option, since the government guarantee makes it easier for them to approve younger businesses.
It’s difficult. Most lenders want to see consistent revenue before approving a loan. Startups without revenue are usually better served by funding sources like venture capital, grants, business credit cards, or crowdfunding while they build financial history. Once you have several months of consistent revenue, more loan options open up.
