How to Get a First-Time Small Business Loan

If you’re looking for a first-time small-business loan, make a plan and understand your options before you apply.

Getting a first-time small-business loan can make a big difference for your company’s growth and success. But before you apply for your first small-business loan, make sure you understand your options, and make a plan for how to navigate the application process.

You might already be familiar with personal loans, such as car loans, home loans, or student loans. Small-business loans work a bit differently and can often be more complicated to apply for than personal loans. If you’re wondering how to get a business loan for the first time, it’s important to be prepared, be patient, and be willing to be flexible in how you obtain financing for your business.

Let’s take a closer look at what you need to know when you’re getting ready to apply for a first-time small-business loan.

Questions to ask before you apply for a first-time business loan

Before you start the process of applying for a business loan, give some thought to your overall business finances and business goals. Ask yourself the following questions:

What do you need this business loan to accomplish for your company? Be clear about why you are looking to borrow this money for your business. Depending on your goals, you might want to choose a different kind of small-business loan.

Do you need money for short-term needs like buying inventory, making payroll, hiring employees, or meeting seasonal demand? If so, you might want to get a business line of credit for everyday working capital and short-term spending.

Do you want to borrow for long-term goals like expanding your operations, developing a new product, upgrading your facilities, buying business equipment, or other investments in long-term growth? In that case, you might want to get a business term loan, business equipment loan, or other longer-term loan to meet your specific goals.

Do you have any other personal funds that you can use to grow your business? What happens if you don’t qualify for a business loan? Do you have any personal savings, personal credit cards, personal loans, or can you get loans or investments from friends and family? Make sure you are using all of the resources available to you. 

Is your business documentation ready? If you apply for a business loan, you will need to show a lot of documentation to the bank or lender, such as:

  • Business plan
  • Profit & loss statements
  • Previous years’ tax returns (business and personal)
  • Articles of organization or incorporation (if you have formed an LLC or other legal business entity)
  • Business licenses

Make sure you have your documentation ready to go before you apply.  

How do I get a small-business loan for the first time?

When applying for a first-time business loan, success is not guaranteed. The process of getting approved for a small-business loan from a bank can be complicated and time-consuming, especially if you’re accustomed to getting approved easily for personal credit cards or other financial products in your personal life. Before you apply, make sure you understand the process of how to get a business loan.

Here are a few of the factors that banks and other lenders look at when they’re deciding whether or not to issue a loan to your business.

Time in business

If you have just recently started your business, you might have a hard time getting a conventional loan from a bank. Many banks want to see at least 2 years of time in business and previous business tax returns from your company.

Credit scores—business and personal

Banks will want to look at your credit history for you as an individual and for your business. If you don’t already have a business credit score, you might be able to apply for a loan based on your personal credit score alone—but it’s better to have both.

Some loans might also require you as the business owner to sign a personal guarantee on the loan. This shows the bank that even if your business fails to repay the money, you’ll pay them back out of your own personal funds.

Business plan

Having a detailed, written business plan can help you get approved for a first-time business loan. Your business plan should help show lenders that you have a viable business model, that you have identified a lucrative market for your products or services, and that you have detailed financial projections to prove that your business is creditworthy. A good business plan is not just about marketing and mission statements; it’s about showing lenders that your company has big potential for future success.

Business cash flow

Hopefully your business is already making money. Lenders will want to see your business’s sales receipts, sales projections, and other financial records. This will help potential lenders assess your cash flow and decide whether or not your company is likely to generate enough revenue to repay the loan over time.

Collateral

Depending on the type of loan, loan amount, and other details of the loan, you might be required to offer collateral (such as property, business equipment, or real estate) to help secure the loan. Using collateral can potentially help you get a lower interest rate on the loan, or qualify for a larger loan amount or more favorable loan terms. 

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Who are the best lenders for first-time small-business loans?

Choosing the best lender might depend on how long your company has been in business, how much money you want to borrow, and other factors.

Established businesses

If your business is well-established, with 2 or more years of time in business, and this is the first time you’ve tried to borrow money, then you might want to apply for a business loan or line of credit with a bank or credit union. Start by talking to the bank or credit union where you already have a business bank account and are doing your everyday business banking.

New startups

If your company is a new startup and you have less than a year in business, it might be harder to get a business loan from a traditional bank. You might want to consider an online lender that works with new businesses that are just starting to build business credit. Check out our list of best small business loans for startups.

Another option if you are concerned that your business might not qualify for a bank loan: apply for a Small Business Administration (SBA) loan. Many banks and credit unions offer SBA loans to small businesses that might not otherwise be able to access credit. The eligibility requirements for SBA loans are sometimes less strict than a usual bank loan.

What if I don’t qualify for a business loan from my bank?

If your business is still in the early stages of startup mode, if you do not have 2 years of established business credit history, and if your personal credit history is less than perfect, you might struggle to qualify for a small-business loan from a bank. Fortunately, you still have options:

Bad credit business loans

There are many types of small business loans for business owners with bad credit. Some online lenders offer microloans, crowd-sourced loans, lending marketplaces, and more. These online lenders typically do not require as high of a credit score as a bank. Check out our list of best business loans for bad credit.

SBA Loans

If you’ve been rejected for a business loan by a bank, you should consider applying for a SBA loan. Most SBA loans require a 680 credit score, but check the eligibility requirements to be sure. Many banks and credit unions offer SBA loans; ask your banker if SBA loans are available at your financial institution. 

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What are SBA loans?

SBA loans are backed by the federal government, and are intended for small businesses that cannot get access to private financing, so their lending requirements are less strict than a usual bank loan. If you’re looking for a first-time business loan and have been denied a conventional bank loan, you might want to apply for a SBA loan instead.

There are many types of SBA loans with different loan amounts, interest rates, and details depending on your business, industry, and how you want to use the loan proceeds. If you apply for a SBA loan, you might be able to get a lower interest rate and a longer-term payoff schedule than a typical bank loan, but be prepared for a longer application process and more paperwork to fill out. 

What are online lenders?

If you don’t want to wait weeks or months to go through the process of applying for a first-time business loan through a typical bank, credit union, or SBA lender, and if you’re willing to accept a higher interest rate on the money that you borrow, you might want to consider an online lender.

Online lenders, also called alternative lenders, help small businesses get access to loans and lines of credit quickly, sometimes in a matter of minutes. These lenders often are willing to work with business owners with bad credit, with new businesses that don’t have much time in business, and also are flexible about how to assess a business’s creditworthiness. For example, if you don’t have a business credit score, but do have a track record of online sales, you might qualify for a first-time business loan from an online lender.

Check out our list of best online lenders for small business loans. 

First-time small-business loan FAQ

How can I get a business loan with no money?

You don’t always need money or collateral to get a first-time business loan, but you should hopefully have a track record of making money at your business, with positive cash flow and a viable business plan. Even if you have bad credit and less than a year of time in business, you might be able to qualify for a business loan or line of credit from an online lender.

How do I qualify for a first-time business loan?

Get your paperwork in order: business and personal credit reports, tax returns, business financial statements, business plan, business licenses, and any other documentation to show that your business is a legal, viable entity that is making money.

Is it hard to get a small-business loan?

If you are a young business, with less than 2 years of time in business and limited business credit history, it can be hard to qualify for a conventional business loan from a bank. However, you still have options, depending on your credit score and other factors. Even if you get turned down for a conventional business loan from a bank, you can still potentially apply for a SBA loan or get a first-time business loan from an online lender.

How hard is it to get an SBA small-business loan?

SBA lending requirements tend to be less strict than a typical bank loan; SBA loans are intended to help provide credit, backed by the federal government, to small businesses that otherwise might not be able to qualify for credit. However, in case you don’t have a good enough credit score or meet other eligibility requirements for an SBA loan, you should consider applying for a business loan from an online lender.

Want more options? Fund your business with a personal loan.

The takeaway

Applying for a first-time business loan can help take your business growth to the next level. Don’t worry if you don’t have perfect credit or don’t have many years of established history of being in business; even new startups and business owners with bad credit can still potentially qualify for first-time business loans. Be willing to look beyond a typical business loan from a bank, and consider your options for SBA loans or online lenders. 

Would you like to learn more about how to get a first-time small business loan and find the right lender for your needs? Please check out our picks for the best small-business loans.

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Disclaimer

At Business.org, our research is meant to offer general product and service recommendations. We don't guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.

Ben Gran
Written by
Ben Gran
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