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How to Get a Small Loan if You Have a New Business

Written by Banks Editorial Team

Updated April 16, 2024​

4 min. read​

new small business loans

Many entrepreneurs and small business owners start their venture with the idea of bootstrapping their business — starting with their own savings or with help from family or friends — then scaling up as the revenue begins to roll in. But, in reality, revenue rarely keeps up with needs when growing a business from scratch or expanding an existing small business.

Most entrepreneurs quickly find themselves in need of a capital infusion to add staff or equipment to start or grow their business. Unfortunately, they often have no idea how to get a small business loan besides going hat in hand to their local bank or credit union. Many of these institutions have their hands tied by tight lending standards and cannot help out businesses without an established track record.

Don’t despair: Options are available to acquire a small business loan to start a business or expand a relatively new business while still getting favorable loan terms.

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Things to Consider Before Choosing a Loan for your New Business

Each business has unique needs and challenges, and many factors affect what type of business loan your company needs. What is your business’s greatest need to start or expand? Do you need special equipment? Do you need a marketing department to get your brand known? Do you need to manufacture a prototype of your product? Have you already started a big project but know you won’t be paid for months until the project is completed?

You also need to consider just how much money you need to get started or keep operating. Borrowing more than you need might give you a feeling of security … for a while. Just remember you pay a cost for that money, so balance your needs with your ability to pay and that debt burden’s effect on your future growth plans.

Any lender you approach also will assess your ability to repay the loan before giving you any loan options. Having a solid business plan to show how your product or service fills a market need with solid numbers on a reasonable growth strategy gives your application a stronger possibility of finding small business financing options available to you.

If You Want to Start a New Business

Getting funding for a new business requires selling yourself, your idea, and your plan as much as anything to get a startup business loan. With no financial track record to base a decision, lenders will need to see a great business plan that details how your service or product fills a unique need in the market. You’ll need to understand your competition and convince your lender how your business can better that competition.

If you have some capital and just need extra funds, determine where best to spend your existing capital and where to target your loan funds. For example, if you can pay staff and marketing with your existing funds, but need an office or another type of equipment, that will affect the type of small business startup loan you qualify for.

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If You Want to Expand Your Current Business

As an expanding business, you have a bit of a track record you can show lenders. But, again, a solid business plan on how the expansion will pay for itself and/or lead your company to the next level increases your chances of securing a business loan and get more favorable repayment terms and other terms.

Types of Lenders

If you’re not looking to give up control of your business to angel investors, your best bet is a small business loan. These are the three primary sources for loans for new or expanding businesses:

Small Business Administration

In general, the Small Business Administration does not directly provide loans to businesses. Instead, the agency works through other lenders by guaranteeing a portion of your loan, normally ranging from 75 percent to 85 percent, depending upon the size of the loan.

Conventional Banks

Conventional banks can range from your locally owned bank to Wall Street megabanks, but generally, a lending team or committee reviews loan applications. Since the recession of the early 2000s, lending practices from conventional banks and credit unions have become tighter.

Alternative Lenders

Alternative lenders have stepped up in recent years to fill a funding need for small to mid-sized businesses. Many of these online lenders were started by former entrepreneurs who recognize the capital needs of small businesses. These lenders typically charge higher fees and interest rates in return for the greater risk in supporting small businesses. But their online application processes are easy to complete, and funding often is available the next business day in your business bank account.

Types of Business Loans

Many types of business loans are designed to fit the special needs of different companies. Unfortunately, not all lenders offer every type of loan, so you may need to shop around for different lenders if your company has unique needs. For example, the company you are buying major equipment from may have a financial services arm that provides equipment loans that leverage the equipment as collateral. Still, they won’t offer any other type of business loan.

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SBA loans

SBA works with other lenders to guarantee loans for startup businesses through three programs:

7(a) loans: These are the primary, traditional type business loans backed by SBA. Loans can be short-term or long-term, with funding going as high as $5 million. Loans are paid back over a fixed period of time and carry a fairly low interest rate.

504 loans: 504 loans are long-term, fixed-rate loans to purchase or repair real estate, equipment purchases, machinery, or other fixed assets. These loans can go up to $5 million and are handled through Certified Development Companies, community-based, nonprofit organizations that promote economic development.

Microloans: SBA microloans are available up to a maximum loan amount of $50,000. This microloan program is routed through nonprofit agencies that support small economic development programs.

Loans from Conventional Banks and Alternative Lenders

Startup loans from conventional banks and alternative lenders take on many forms, depending upon the specialty of the lenders. Below are just some of the types of loans you should consider:

Working Capital Loans

Working capital loans are geared toward businesses that have shown a certain level of sales over at least a year or sometimes two years, so they are more suited for an expanding business.

Merchant Cash Advance

Merchant cash advance loans are geared toward retailers or restaurants or such who have consistent sales. The loans are paid back through a certain percentage of credit card sales going to the lender.

Lines of Credit

Business lines of credit are great for businesses that have seasonal needs. The lender sets aside a pool of money, and the business borrows whatever portion of the money they need when they need it, then pays interest only on the borrowed portion.

Professional Practice Loans

Professional practice loans are designed for professionals such as doctors, veterinarians, dentists, etc., who want to start their own practice. Therefore, funding decisions often are based upon the professional’s experience in the field.

Invoice Factoring

Invoice financing is a great choice for businesses that struggle with cash flow while waiting for large unpaid invoices to be paid. The lender “buys” the invoice from the company and is responsible for collecting it from your client.

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FAQs About Loans for New Businesses

How can you get a first-time small business loan?

You can try the conventional bank/SBA route if you have the time and good personal credit history. Otherwise, alternative lenders can provide money quickly, depending upon your need.

Can you get a business loan with no money?

If you have a good personal credit history or your business has a sales history, pending invoices, or equipment needs, you can get a business loan with no money.

Can a new business apply for an SBA loan?

Yes, SBA offers loans to help new businesses get started.

How can you get a start-up loan for a small business?

SBA and alternative lenders have programs to get start-up loans for small businesses.

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