How to Boost Your Approval Odds for a First Time Small Business Loan

There are 16.5 percent of small businesses that utilize business loans from banks or other financial institutions for launching their venture and keeping their business activities ongoing.

You should know that if you have a new business, it will be very challenging for you to secure a
first-time small business loan. As a startup, you should be prepared with the types of loans you want to move ahead with, which will best fit your business requirements.

Therefore, it is necessary for you to understand the basics of a first-time small business loan, so that you are able to make a wise decision for your new venture. In this article, you will learn about the approval odds, which can help you get a business loan.

Create a Budget

For most first-time small business loan applications, lenders will closely examine your business’s financial health to assess its ability to repay the loan. This means it’s essential to accurately track and document all revenue and expenses, covering every income source as well as both recurring and one-time costs.

Many lenders also verify cash flow by reviewing bank statements. Although not all require a dedicated business checking account, having one can strengthen your application. In some cases, if you already have a business checking account with the same bank, it may improve your chances of loan approval.

Additionally, providing a well-prepared business plan can demonstrate to lenders that you have thoroughly planned your business’s future. A business plan outlines your goals and the strategies you intend to use to achieve growth and manage working capital effectively.

If you are starting a new venture, some lenders may require a detailed business plan or funding proposal as part of the initial process for obtaining a small business loan. Preparing these documents carefully can significantly boost your chances of securing the working capital you need.

Know How Much Funding You Need

Once you have drafted your business budget, if you want to opt for a first-time small business loan, you will be able to track any type of shortfall or upcoming purchase that will require a business loan. You will also be able to gain an overview of your financial situation, allowing you to capitalize on any emergency fund or business opportunity.

When you know the maximum amount of your first-time small business loan, it will help you to cover the purchase you want and fit within your business budget. Make sure that your business is able to repay the loan amount after estimating the cost of your business in advance.

Lenders will also assess the debt of your business using the debt-to-income ratio or debt service coverage ratio. Both of them are used for a business’s debt in the context of revenue to check if it can handle repayments.

Check Your Credit

When applying for a first-time small business loan, lenders typically review your personal credit history to assess your ability to manage bills and payments. Having a strong personal credit score, normally 670 or higher, can significantly improve your chances, especially if your business is new. Additionally, lenders may require a personal guarantee, which means you pledge your assets to secure the loan.

If you have already established business credit, lenders may also look at your business credit score as part of the business's financing process. If you haven’t built business credit yet, starting by applying for a business credit card or purchasing inventory on vendor credit can help establish it.

Before submitting your loan application, it’s a good idea to check your credit scores. This provides a clearer picture of the types of loans you may qualify for, helping you prepare for successful business financing.

Determine What Loan Type May be Best

Once you are ready with your business funds and the amount you need as a first-time small business loan, you are now ready to compare business loans and make the down payments. Multiple business loans cater to specific purposes, and some loans have strict criteria for qualification.

If you are comparing your first-time small business loan, you would also want to know the features of every business loan to select the right one for your business. Some of these features include the interest rates, fees, the maximum and minimum loan amount, and everything that contributes to the borrowing cost of the loan.

You should also check the repayment terms of the loan offered by the first-time small business loan. As long-term loans can lower your monthly payments and interest rates. Short-term can also help you to recover from debt easily and lower the total interest rate. These features may influence your decision between different types of loans.

Alternatives to Business Loans

If you are unable to qualify for a traditional first-time small business loan, you may want to consider some of the zero-debt financing options mentioned below:

• Business credit cards: They enable you to make purchases up to a certain credit limit. It also helps in managing cash flow and other expenses.
• Business grants: They are like a scholarship in the business world, which offers you money to qualify for businesses. Every grant has some specific qualifications, including some that require a business plan or presentation.
• Crowdfunding: They allow businesses to raise capital with rewards or debt crowdfunding, in which different individuals fund a business loan.

Compare Lenders

The next step you should take is to consider the best lender that offers a first-time small business loan you are looking for. You should know that lenders can vary in interest rates and other loan features, even with the same type of loan.

Banks

Traditional banks and credit unions are a solid option for small business owners seeking a first-time small business loan, especially if you already have an existing relationship with them. An existing relationship can boost your chances of approval, even with borderline finances.

These lenders typically offer low interest rates but require strong credit (a score of 670 or higher), at least two years in business, and detailed financial statements. Though the application process can be extensive, guidance from loan specialists can help you choose the right loan for your needs.

SBA

If you are not able to qualify for a traditional first-time small business loan, then the first-time borrowers can look into loans that the U.S. Small Business Administration backs. The SBA has established standards for its loan programs, but these loans are offered by SBA-approved lenders who provide the financing.

SBA loans are drafted to manage the interest rates and also offer longer repayment terms as compared to other conventional loans. The SBA 7(a) loan is usually applied for as a first-time small business loan. You can also use the SBA’s Lender Match tool to find SBA-approved lenders in your area.

Microloans

Microloans are small business loans typically offered in amounts of $100,000 or less, with SBA microloans capped at $50,000. While there’s no set standard for microloan sizes, these loans are ideal for first-time borrowers seeking small business loans.

Because microlenders often have more flexible eligibility requirements, startups and businesses with limited annual revenue may qualify more easily. SBA microloans are provided through approved SBA microlenders, many of which are nonprofit organizations focused on supporting minority communities.

Online lenders

Online lenders, often known as nonbank lenders or fintech, are also available for borrowers who are not able to meet the requirements of traditional lending. These lenders can also specialize in specific types of loans, startups, and businesses with bad credit.

Generally, the loan application process is conducted online, which allows you to apply in minutes. Most of the online lenders could have a funding decision quickly. However, it takes time for the funds to be deposited into your account.

Apply for Your First Business Loan

Now that you have selected your first-time small business loan and gathered the documents required to apply for first time business loan, you can submit the application to the lender. There are some lenders who will ask you to submit paperwork in person, while others have the provision to submit the same online.

Submission of paperwork does not just mean that the loan application is not in your hands. But you would have to keep track of the response you get from the lenders; there is a possibility that some extra information is required. If you respond to these requests spontaneously, your application process will keep moving smoothly.

Generally, the approval process takes a few days to several weeks, but the type of loan and the lender selected by you will influence how long it takes for small business loans for first time business owners to get approved.

Conclusion

Securing a first-time small business loan can be challenging, but with careful planning and the right approach, you can improve your chances of receiving approval. By creating a solid budget, understanding your credit, and identifying the right loan options for your type of business, you can confidently move forward.

Whether you pursue funding through traditional banks, SBA-backed loans, microloans, or online lenders, comparing lenders and preparing thorough documentation is key. If loans aren't an option, consider alternatives like grants or crowdfunding. Selecting the right financing path can position your business for long-term success and growth.

FAQs for First-Time Small Business Loan

Can you get a business loan when you first start a business?

You can get a business loan for a new business even if you don’t have security or any existing capital, even though it’s a challenging process. Traditional lenders, like banks, generally require you to have an established business with a solid history of finances and assets, which helps in securing a loan.

How hard is it to get a first-time small business loan?

It can be challenging to obtain a business loan initially, as it requires a solid business plan, collateral, good credit, and proof of stable revenue. The ease of obtaining a loan can vary based on the lender and the financial credit of the business.

How can small businesses improve their chances of getting approved for a loan?

You should start by having a well-prepared business plan. If you are able to show proposed earnings to the lender, it gives them clarity that you will be able to repay the loan. Moreover, you should manage your business as well as your personal earnings well, so that your loan is approved.

How to get a loan with LLC and EIN?

To get a business loan for your LLC using its EIN, you’ll need more than just the EIN. Lenders assess business credit, financial stability, and often the owner’s credit. A strong credit profile and solid financials increase your chances of approval, especially if your business is newly established.

How much can I realistically get for a small business loan?

The amount you can get for a first-time small business loan varies widely and also depends on multiple factors like the financial health of your business, annual revenue, the loan terms of the lender, credit history, and much more.

Frequent searches leading to this page