How to Get a Small Business Loan (Even If Your Business Is New)

To get a small business loan, you’ll need to identify the right lender for your business, prepare key documents, and demonstrate your ability to repay. Lenders typically evaluate your business’s financial health, credit history, and business plan. If your business is new or lacks a long track record, you may need to rely more on your personal credit and a strong business plan. The process generally involves:

• Reviewing your personal and business credit
• Preparing a detailed business plan and financial projections
• Gathering documents such as tax returns, bank statements, and legal business paperwork
• Comparing loan options and submitting applications

Approval is based on your creditworthiness, business finances, and sometimes collateral. If you’re just starting out, some lenders may consider your personal credit and business plan in lieu of established business history. The following sections break down each step and provide guidance on navigating the process.

Lenders use a combination of factors to assess whether you qualify for a small business loan. While requirements vary by lender and loan type, common criteria include:

• Time in Business: Many lenders prefer businesses with at least one to two years of operating history, but some alternative lenders and nonprofit organizations may work with newer businesses.
• Annual Revenue: Lenders often look for a minimum level of business revenue, but the threshold can vary widely. Some lenders are more flexible, especially for microloans or community-based programs.
• Personal Credit Score: Your personal credit history is especially important if your business is new or lacks its own credit profile. Lenders may review your credit reports for payment history, outstanding debts, and overall credit management.
• Business Credit Score: Established businesses may have a business credit profile, which lenders can use to assess risk. New businesses may not have this yet.
• Collateral: Some loans require collateral, such as equipment or inventory, to secure the loan. Others may be unsecured but could require a personal guarantee.

Traditional banks often have stricter requirements, while online lenders, community development financial institutions (CDFIs), and nonprofit lenders may be more flexible. According to the Consumer Financial Protection Bureau (CFPB), lenders must disclose key loan terms, including costs and fees, before you accept an offer. [Source: CFPB]

If you’re a startup or have less than a year in business, focus on lenders that consider personal credit and business plans, such as SBA microloan intermediaries or nonprofit lenders.

There are several types of small business loans, each designed for different needs and business stages:

• Term Loans: These provide a lump sum of money that you repay over a set period. Offered by banks, credit unions, and online lenders, term loans are often used for major investments or expansion.
• SBA Loans: Backed by the U.S. Small Business Administration, these loans are issued by approved lenders. They typically offer favorable terms but have stricter eligibility requirements and a more involved application process.
• Lines of Credit: A flexible option that allows you to borrow up to a set limit and pay interest only on what you use. Useful for managing cash flow or covering short-term expenses.
• Microloans: Smaller loans, often from nonprofit organizations or CDFIs, designed for startups and businesses in underserved communities. These loans can be more accessible for new businesses.
• Equipment Financing: Loans or leases specifically for purchasing business equipment. The equipment itself often serves as collateral.

For new businesses, microloans and CDFIs are often the most accessible. The SBA’s Lender Match tool can help you find lenders suited to your business profile. Online lenders may also offer streamlined applications and faster funding, but it’s important to review all terms carefully.

Applying for a small business loan involves several key steps. Here’s a practical roadmap:

1. Check Your Credit: Review your personal and business credit reports for accuracy. Correct any errors before applying. Many lenders will use your personal credit if your business is new.

2. Write a Business Plan: Lenders want to see how you’ll use the funds and how your business will generate revenue. Include financial projections and a clear repayment strategy.

3. Gather Documents: Commonly required documents include:

- Personal and business tax returns (typically 1–2 years)

- Recent bank statements (usually 3–6 months)

- Legal documents (business license, articles of incorporation)

- Financial statements (profit & loss, balance sheet)

- Debt schedule (if you have existing loans)

4. Compare Lenders: Research banks, credit unions, online lenders, and CDFIs. Compare interest rates, fees, and approval criteria. Use CreditDoc’s best small business loans page for side-by-side comparisons.

5. Apply: Submit your application online or in person. Be prepared for a hard inquiry on your credit report. Some lenders offer prequalification with a soft inquiry.

6. Review Offers: Read all terms carefully. Look for the total cost of the loan, repayment schedule, fees, and any prepayment penalties.

7. Accept and Fund: If approved, sign the agreement. Funds may arrive in a few days to several weeks, depending on the lender and loan type.

Tip: Keep copies of everything you submit and ask questions if any terms are unclear. Don’t hesitate to seek help from a Small Business Development Center (SBDC) or SCORE mentor if you’re unsure about any part of the process.

If you’re just starting out or have less-than-ideal credit, you still have options for funding your business:

• Microloans: Nonprofit lenders and CDFIs often work with startups and those with lower credit scores. The SBA microloan program is a good starting point for new businesses.
• Personal Loans: Some business owners use personal loan lenders for startup capital, but this puts your personal credit and assets at risk. Make sure you understand the implications before proceeding.
• Secured Credit Cards or Credit Builder Loans: These can help you build your credit profile before applying for larger business loans. Responsible use can demonstrate creditworthiness to future lenders.
• Business Grants: While not loans, grants from government agencies or private organizations don’t require repayment. They’re competitive but worth exploring, especially for businesses in specific industries or owned by underrepresented groups.

Improving your credit score, building a track record of business revenue, and keeping business and personal finances separate can all help you qualify for better loan options over time. For more on building credit, see our guides on credit builder loans and secured credit cards.

Being prepared with the right paperwork can speed up your loan application and improve your chances of approval. Here’s what most lenders ask for:

• Personal identification: Driver’s license or passport
• Business formation documents: Articles of incorporation, business license
• Tax returns: Personal and business, usually 1–2 years
• Bank statements: Recent 3–6 months
• Financial statements: Profit & loss, balance sheet
• Business plan: Especially important for new businesses
• Debt schedule: List of existing business debts
• Collateral documentation: If required

Some lenders may also ask for:

• Lease agreements
• Accounts receivable/payable aging reports
• Ownership and management resumes

Having these documents ready can help you respond quickly to lender requests and avoid delays. If you’re unsure what’s required, ask the lender for a checklist before you apply.

Small business loans can help your business grow, but it’s important to understand the risks and costs involved:

• Interest Rates: Rates can vary widely depending on the lender, your credit, and the type of loan. Online lenders may charge higher rates than banks or SBA loans, especially for newer businesses or lower credit scores.
• Fees: Watch for origination fees, prepayment penalties, and late fees. Always ask for a full breakdown of costs before accepting a loan.
• Personal Guarantees: Many lenders require you to personally guarantee the loan, meaning your personal assets could be at risk if the business can’t repay.
• Collateral: Some loans require business or personal assets as collateral. If you default, you could lose these assets.
• Predatory Lenders: Be wary of any lender that promises approval regardless of your credit or business history, or that charges extremely high fees. The CFPB warns that some lenders target new business owners with misleading terms or unclear costs. [Source: CFPB]

Always compare offers and read the fine print. If you’re unsure, consult a financial advisor or a local Small Business Development Center (SBDC).

To boost your odds of getting approved for a small business loan, consider these strategies:

• Build Your Credit: Pay down existing debts, make payments on time, and monitor your credit reports for errors. Responsible credit use can help you qualify for better loan terms. See: credit monitoring services
• Increase Revenue: Even a few months of steady business income can help. Keep detailed records to demonstrate your business’s financial health.
• Separate Finances: Open a business bank account and keep personal and business expenses apart. This makes it easier to track revenue and expenses and shows lenders you’re managing your business professionally.
• Strengthen Your Business Plan: Show lenders you have a clear path to profitability. Include realistic financial projections and a detailed explanation of how you’ll use the loan funds.
• Start Small: Consider microloans or smaller loan amounts to build a relationship with a lender. Successfully repaying a smaller loan can help you qualify for larger amounts in the future.
• Seek Guidance: Local SBDCs, SCORE mentors, and CDFIs can help you prepare your application and business plan. They can also connect you with lenders that are a good fit for your business.

Improving these areas can help you qualify for better rates and larger loan amounts in the future. When you’re ready to compare offers, CreditDoc’s best small business loans page is a good place to start.