Requirements vary significantly by lender, but you should be prepared with the following:
- Personal credit reports and scores from all three major credit bureaus. (The lender will obtain their own copies but it’s good for you to check first.)
- Business forecast with details on future cash flow and costs.
- Tax returns and supporting IRS documents for both your business (if available) and personal tax accounts (including personal documents for all owners or registered agents of the business).
- Any applicable licenses and registrations for doing business in your state.
- All financial documents that would be deemed relevant (including bank statements, credit card sales, unpaid invoices, and accounts receivable due to you, if available).
- Any legal contracts that would be relevant (franchise, incorporation, leasing).
- Bank account to deposit the loan proceeds into.
- Updated business plan with details on your growth and marketing strategies. Not all lenders will require a business plan, but the information in the business plan will be essential to helping you find and apply successfully for financing.
As a startup business, you probably won’t have business credit reports or business tax returns. In that case, the lender may rely on your personal credit, tax returns and/or a personal financial statement. If, however, you are purchasing an existing business, the lender will likely require information about that business.
Once you’ve submitted the application, you may have to be patient. Some financing options can be approved in minutes; some may take weeks or even months. Be sure that you’re aware of the wait time before you begin the application process. You don’t want your urgent business needs to be on hold or miss an obligation waiting for a loan to be approved.
How Do I Get a Startup Business Loan with Bad Credit?
Without at least two years’ time in business and strong revenues, lenders will have to rely on your credit scores to help determine their level of risk. A business owner with bad credit will find it tough to qualify for almost any loan. However, many of the microloans and crowdfunding options are worth exploring, as they may be available to business owners with poor credit or no credit, and there are a few startup business loans with bad credit you may qualify for.
Final Word: Startup Business Loans
Running your own business can be difficult, and starting a business might be the toughest part for entrepreneurs. While it can be challenging to find a lender from whom to borrow, don’t assume it’s impossible to obtain a startup business loan.
Don’t be afraid to consider alternative lending options. Nonprofit lenders offering microloan programs may be the right choice for your business, or tapping a business credit card may be a risk worth taking, provided the interest rate is low. Business credit cards for startups can help build good business credit for your business and could help bridge gaps in cash flow if absolutely necessary.
Whatever option you choose to pursue, be prepared and do your research and due diligence when you’re looking to borrow. Be realistic with your business and your ability to repay the loan, even if you’re approved for a high credit limit.
Above all, keep your motivation for starting the business in mind. It can be a rough process finding and being approved for a startup business loan, but the right motivation and the right business can push through it and get the job done.
FAQs
Do Banks Give Loans to Startups?
Banks will lend to startups, but it may be difficult to find a lender because startups don’t necessarily have an easy-to-demonstrate financial history. They will also be more picky about both personal and business credit scores and are very unlikely to give a loan to someone with a low credit score. One way that a startup can secure a loan is through a strong collateral arrangement, which could include a personal asset like your home or personal savings.
Is it Hard to Take Out a Loan to Start my Business?
It may be more difficult to secure a startup loan than other types of business loans, namely because you don’t have a financial history to prove that you’re likely to be able to repay the loan. But if you have a strong business plan, good personal credit scores, and have researched which banks are likely to approve your loan, you have a much better chance of securing financing.
Do startups qualify for SBA loans?
Startups may qualify for SBA loans but finding an SBA lender willing to lend to a brand new business can be challenging. Note that good to excellent credit is typically required, and you will need to provide a personal guarantee.
Can I get a loan for starting a new business?
You will need to be creative and persistent to get financing for an early-stage business. Equipment financing is a good example of this. In situations where you simply need cash, financing (or leasing) the equipment you need allows you to free up cash for those things you can’t finance. And, because the equipment is often considered the collateral for the loan, if you have a good personal credit score, it’s easier financing to qualify for than a traditional term loan.
How much of a loan can a startup business get?
The amount of funding you will be able to will depend on a number of factors, including your personal credit and qualifications. You may have to patch together several sources of financing to get the total funding you need. If you need a large amount of financing, look into SBA 7(a) loans, crowdfunding and venture capital or angel funding.
Can I get a PPP loan to start a business?
No. Not only is the Paycheck Protection Program (PPP) closed to new applicants, it was never designed to provide startup financing.