Can New Businesses Qualify?

New businesses are often limited in what type of loans they can qualify for.

In order to qualify for a business loan, lenders look at certain criteria such as a business’ financial history and credit rating to assess the risk and likelihood that a business will repay the loan. In addition, many lenders require a business to have been in operation for at least 6 months or longer.

So how do new businesses that have only recently opened prove their creditworthiness to secure a loan?

If you’re looking to start a new company, you can turn to small business startup loans to jump-start your business such as:

SBA Startup Loans

The Small Business Administration (SBA) works with partnering lenders, community development organizations, and micro-lending institutions to provide loans to new businesses.

The SBA has a range of loans available with different qualifications and restrictions such as:

SBA 7a Loans

Startups that can demonstrate a strong business model such as franchises can qualify for up to $5 million in funding through an SBA 7a loan.

SBA Express Loans

An SBA Express Loan represents another version of an SBA 7a loan. This type of loan makes a great option for startups that need up to $350,000 to open their business. Because of the smaller loan amount, this type of loan has less risk. Therefore, startups often turn to this type of loan because they will have a better chance of qualifying for an Express loan.

SBA Microloans

The SBA also works with nonprofit intermediary lenders that lend money to new businesses. With SBA microloans, new businesses can get small loans for up to $50,000 to start a company. However, the SBA does not guarantee this type of new business loan.

SBA 504 Loans

An SBA 504 Loan helps new businesses access up to $5 million in financing for real estate necessary to run a company. This can include a warehouse, office, or manufacturing facility.

Business Credit Cards

A high percentage of businesses that apply for a credit card receive an approval letter. Business credit cards make an excellent choice for new businesses to pay for office equipment, inventory, and pay for advertising. For the best option, look for cards with low or 0% APR that offer rewards like air miles or cashback bonuses.

Personal Loans for Business

Personal loans can also go towards financing a new business. If you have a credit score of 580 or higher, you could qualify for a personal loan worth up to $40,000. On the downside, this type of loan could affect your personal finances and credit score.

Nonprofit Microloans

New businesses can also secure a nonprofit microloan. Fundera, for example, provides short term loans between $500 and $50,000 with lower interest rates. Kiva also issues interest-free microloans for up to $10,000 and gives free marketing support and guidance for building a business.

Rollover Business Startup

If you have at least $50,000 in retirement funds, you have the option of a rollover business startup (ROBS). With a ROBS, you establish your corporation and then transfer the funds from your personal retirement to your new company’s 401k. You can then use the money to buy stock in the company. When the stock is sold, you can use this money to fund your business.

How to Qualify for a New Business Loan

As a new business, you won’t have any financial or credit history to prove to a lender that you will repay a loan. However, you can still make some preparations in order to secure a loan to start a new business such as build personal credit and develop a solid business plan. Before beginning the application process, you can improve your chances of qualifying by doing the following:

Improve personal credit: Lenders may use your personal credit score as criteria for giving a startup loan. You’ll want to have a strong personal credit score over 700 to feel confident about meeting requirements.

Save money for a down payment: Not all lenders will require a down payment. However, new businesses that put 20%-30% down can qualify for a better loan.

Put up collateral: New businesses can secure a loan by putting up collateral. Collateral refers to an asset pledged to a lender in the event of a default. If the borrower does not repay the loan, the lender can seize and sell the asset to recover some of the loan. With a business loan, you can use collateral such as new or used equipment, land, or real estate.

Create a business plan: Lenders will want to know how you plan to repay the loan. New businesses should develop a business plan and presentation to prove that they have a plan to succeed and repay the loan.

Prove your experience: You have a better chance of qualifying for a new business loan by demonstrating previous work experience. Prepare a resume that highlights your success in business or partner with someone who has at least 5-10 years of experience.

By coming up with a good strategy, building credit, and applying for the right loan, you have a better chance of securing funding to help start and grow your new business.


Joe Schwartz | Loans Editor