Are you looking for financing to get your startup off the ground in business? then, the good news is that there are many ways to get funded. Even as a small business owner with no credit, you might be able to find a startup business loan.
In this article, we will be writing on how to get a startup business loan or no loan to make the procedures easier for you. Read to the end to gain access to the information it contains.
Every great business has to start somewhere. The founders of Apple and Amazon launched their business dreams in garages.
Samsung commenced as a grocery store. Coca-Cola originally made its product in jugs and sold the now-famous soda for a nickel and a glass at a local pharmacy.
Many businesses start from nothing before becoming something huge. Yet it is also true that, when the right moment arrives, securing the right funding for your startup can be pivotal in getting your business off the starting block and on the path to success.
Getting a business loan with no credit is one of the medium you can fund your new business. When you apply for a business loan, many commercial lenders will review your credit history to get a sense of how you’ve handled debt in the past.
Reviewing previous credit history and checking your credit scores helps lenders predict risk. The problem for many entrepreneurs is that their new businesses are yet to have an opportunity to establish a track record when it comes to managing credit obligations.
How to Get a Startup Business Loan with no Credit
1. Decide what type of business loan you need
Whether you want to buy commercial real estate or just need a working capital loan to keep your business afloat during a seasonal lull, there are many types of business loans to consider.
Deciding the type of business loan you need can be nailed down by answering some questions like:
- How often do you need funds?
- How much do you need to borrow?
- How quickly do you need the funds?
2. Determine your eligibility
Each lender will have specific business loan requirements, often outlined on their website. Here are the most common eligibility criteria for small business financing:
Credit score: To qualify for the best rates, you typically need a FICO Score of 670 or higher and a business credit score above 80.
Check your personal credit score before applying to know where you stand. You can build your business credit by responsibly opening accounts with vendors and paying off invoices promptly.
Time in business: You typically need to be in business for six months to one year to qualify for an online business loan and at least two years with traditional banks. If you don’t qualify yet, you could wait until you become eligible or look at startup business loans.
Annual revenue: Many lenders require a reliable income stream for small business financing, with annual minimums as low as $36,000 up to $480,000. If your revenue is on the lower side, consider applying for business credit cards or microloans.
Collateral and/or personal guarantee:
A personal guarantee allows a lender to go after your personal assets if you fail to repay your debt.
Collateral, such as real estate, equipment or cash, reduces a lender’s risk with secured business loans. If you default, the lender can repossess your collateral as a form of payment.
Repayment terms: Most lenders limit your loan to 30% of your annual revenue to ensure you can manage repayments.
3. Compare small business lenders
Some lenders might be a better fit for your business than others.
Some of the small business loan lenders include:
You can apply for a range of small business loans with a traditional bank, including term loans, commercial real estate loans, lines of credit and SBA loans.
While traditional banks tend to offer the lowest business loan interest rates, they usually have stricter criteria and a longer application process than online lenders. See Personal Loan for International Students in Canada.
The Small Business Administration (SBA) partners with lenders nationwide to offer various loans for small businesses.
The most popular option for general business expenses is the SBA 7(a) loan, with funds going up to $5 million and an interest rate that is capped based on the loan amount, repayment term and whether you opt for a fixed or variable rate.
Online lenders, also called nonbank or alternative lenders, utilize digital underwriting technology to approve or deny business loan applications with record speed. For example, Fundbox claims to make a funding decision in as little as three minutes.
However, online lenders rarely offer rates as low as traditional banks, with APRs ranging from 4.66% to 48.9% or higher.
Your final business loan rate will be based on the loan type and size, repayment term, credit score and whether you can provide collateral.
A business microloan can help startups, low-income businesses, or those with a damaged credit history access the cash they need to launch, grow or expand their business.
Nonprofit organizations and government agencies typically fund microloans, providing up to $50,000 with flexible terms, low-interest rates, and minimal fees.
Some popular microloan lenders include Accion Opportunity Fund, Grameen America, Kiva and LiftFund.
4. Gather the required documents
Before you apply for a business loan, your lender will likely request some of the following documents. By having these common documents at the ready, you will help speed the process along.
Business plan: A business plan outlines your company’s mission and goals, including financing and marketing strategies. This can help lenders see how you plan to utilize the business loan.
Business licenses: Each state has different requirements for business licensure. Make sure everything is in order before submitting your business loan application.
Financial documents for the business: Your lender may use your bank and income statements and balance sheets to confirm your company’s annual revenue.
Personal financial statements: It’s common for lenders to request your and your business partners’ personal financial information to determine your overall creditworthiness for a business loan.
Personal and business tax returns: Your personal and business tax returns are needed to show your overall net profit. Eligible business partners will likely need to provide their personal tax returns as well.
Articles of Incorporation, Bylaws or Operating Agreement: Depending on your business entity, you may need to provide these legal documents.
Building lease. If applicable, have any building leases on hand, including your monthly payment.
Your lender may also need additional information, such as:
- Personal details for all business owners, such as name, date of birth, Social Security number
- Business name or DBA name
- Business street address
- Phone number
- Type of business
- Date the business was established
- Business tax ID
- Annual net profit
- Number of employees (if applicable)
5. Apply for a business loan
Some Things To Keep in Mind Before You Apply For A Business Loan
1). Understand lender requirements
Lenders evaluate a prospective borrower’s credit history, collateral availability, capacity to repay from future revenues or savings, and length of time in business. Review each lender’s criteria before you take time to apply.
2). Know your cashflow and assets
Lenders want to understand where the money for loan interest and repayment will come from. Be able to explain this by creating a budget for future cash flows and assets.
3). Be prepared to sign a personal guarantee
Startup lenders frequently require a personal guarantee from the company’s owners. Understand the risks of signing a personal guarantee: You could lose your home, car and savings if the business defaults on the loan.
4). Decide what you can afford to repay
Keeping up with loan payments is critical even if your startup costs are higher than expected. Loan payments are based on the loan amount, interest rate, repayment frequency, and total time to repay the loan.
If your expected payment is more than you’re certain you can afford, find a loan that is more favorable on one or more of these factors.
That is all in this article. We believe it was helpful to you. For more inquiries, you can reach us via the comment box.