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Business Loans for New Businesses With Good & Bad Credit - New LLC

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Business Loans for New Businesses With Good & Bad Credit - New LLC

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Loans for New Businesses

Learn about business loans for new businesses, such as SBA loans, business lines of credit, equipment loans, invoice factoring, and invoice financing. Discover what small business lenders look for, how to apply, and what to consider before securing a startup loan for your new business

Getting a loan for your small business has never been a straight path. In fact, it is one of the major challenges that new and small businesses face. Funding is important if any business wants to grow, and more often than not, this leaves room for one option—a loan.

Keep reading to learn how to get a business loan for a new business, alongside everything you need to know about small business loans and startup loans for new businesses. 

What is a business loan for a new business?

A business loan for a new business is a type of financing that is specially created for new companies and startups still finding their foot. The idea behind this loan is to give these businesses the necessary funds to take the business off the ground and allow entrepreneurs to thrive.

These loans are used for several purposes, but mostly to purchase inventory and to cover the cost of operations. It can also be used to buy assets such as equipment or even land. Also, since new businesses are just starting, the loans here are technically small business loans.

How do small business loans work?

At the core, small business loans work similarly to any other type of loan. You take out a business loan to grow and expand your business, and the financial institution giving you the loan analyzes metrics such as your business plan, creditworthiness, collateral, and financial projection.

First, you have to apply for the loan. This usually includes all relevant information about your business, what the loan can be used for, your business's current financial status, and any other relevant information the lender asks for.

Next, you have to go through the approval process. This is the most crucial part of the loan process. It is here that the bank/lender decides whether the business deserves the loan. If your loan is approved, the bank or financial institution giving you the loan will provide you with the amount you asked for (or, in some cases, the amount the lender can give you), interest rate, repayment plan, and terms of the loan contract.

Typically, before you get any small business loans, you must put up collateral, such as real estate, equipment, etc, to secure the loan. If the loan is unsecured, you don't need collateral, just a personal guarantee where you pledge to repay the debt.

Is it hard to get a business loan for a new business?

Securing a business loan for new businesses can be challenging. This is because lenders view startups and new businesses as higher risk compared to older businesses with track records.

However, this doesn't mean it is impossible. In fact, businesses such as mySMBscore help small businesses get loans. mySMBscore analyzes the credit scores of small businesses and gives these businesses all the relevant information banks use to determine loan eligibility. This service allows their clients to make better financial decisions. Plus, it doesn’t cost business owners a dime! Utilizing mySMBscore can actually help business owners save money on a future loan.  Take advantage of mySMBscore to increase your chance of approval for a business loan. 

What do small business lenders look for?

Getting a startup loan for a new business can be a drag. There are a lot of intricacies, red tape, and process to it. However, this is necessary as financial institutions don't just hand out cash to whoever asks. They need to know that their loan is in good hands. So here is what they usually look for before granting the loans.

Sales and revenue: Lenders can look at your gross annual sales or revenues and check account balances. If your business is less than a year old they can look at financial plans. Being prepared with cash flow projects up to 36 months can increase chance of approval. 

Current debts: If your small business is a little bit established, lenders can ask for a schedule of loan balances and current debts, available collateral, payment schedules for any outstanding debts, and maturity. Lenders can also look for the amount of working capital you have and how you intend to allocate them.

Credit score and history: FICO score and credit history  is another factor that can play a huge role in eligibility. Small or new businesses may not have a business credit score therefore personal credit scores are usually taken into account. Furthermore, a personal guarantee may be required. 

Personal financial health: Small business lenders would consider your own spending habits, such as your credit card histories and how you handle debts. This is because borrowers with fewer personal debts would be better equipped to withstand a decrease in revenue generation from their business during downtimes.

Balance sheet: Finally, small business lenders can look at the balance sheet and check for any discrepancies. If there are any questionable financial actions from your business, it can raise a red flag. 

Tip: Don't overwhelm your lender with too much information. Give only what they ask, nothing more or less. Giving out too much information in the earlier stage can slow down your application process.

Can I get a startup business loan? 

Yes, you can get a startup business loan. Just know what kind of loan you want, get all relevant documents, know your personal and business credit score, research the lender that's best for you, and then submit your application.

Confused on where to start? Let mySMBscore help simplify the process while saving you money and time on your next business loan!

What types of business loans for new businesses are available?

There are several types of business loans for new LLCs and small businesses. Here’s a quick overview:

  • SBA Loans: These are called Small Business Administration loans because the U.S. Small Business Administration backs them. These loans normally have long repayment periods and low-interest rates. However, their application process is long, and it takes a lot to qualify for them. There are several types of SBA Loans, such as SBA 7(a) Loan, SBA 504 Loan, SBA CAPLines, SBA Disaster Loans, and SBA Microloan.
  • Equipment loans: This is a type of loan where you use the money from the loan to get equipment for your business. The equipment, in turn, then becomes collateral for your business.
  • Business Line of Credit: In this type, you get loans on an as-needed basis. This means that you only get loans for what you need and only pay back with interest exactly what you borrowed and used. It's almost like a credit card. Here, the lending institution gives your business a limit you can draw from as many times as needed. The only caveat is that you can't exceed the limit, and you pay back within the specified time.
  • Invoice Factoring: If your business transacts with other businesses, you may be eligible for this type of loan. Here your small business sells its unpaid invoices to a different party. After selling your unpaid invoices, you get a fee between 70-95% of their value. Then the factoring company that buys the invoices collects the loan over a period of time from your customers.
  • Invoice Financing: This is similar to invoice factoring, but what happens in invoice financing is that your business uses the invoice as collateral. You can then get up to 90% of the value of the invoice in cash advance. Also, unlike invoice factoring, here you stay in total control of your revenue from customers and pay back the loan by yourself.

Not sure what type of loan is best? Check your SMBscore and navigate the path to finding the right business loan like the professional you are. 

What credit score do you need for a business loan?

Generally, you need at least a credit score of 640 to 700 to qualify for a business loan. Going above 700 is an excellent position to be in and can open more options for you. If you fall below 640 but higher than 600, you still have solid options such as equipment financing, invoice financing, and other types of business loans. At mySMBscore you can connect with lenders willing to extend a loan based on your current financial position. 

Are there small business loans for bad credit? 

There are small business loans you can get even if you have bad credit. Usually, one of the best options is to get a secured loan, i.e., backed by collateral. The reality of a bad credit business loan though is that it can be costly. If repaid on-time it can help your credit score, but it may be best to improve your credit before risking your business. mySMBscore can help you identify steps to take to become more financially prepared for a business loan. 

 What do I do if I’m rejected for a small business loan?

If your small business loan is rejected, the first thing to do is to try and figure out why. Was it because of bad credit, bad finances, wrong documentation, or lack of collateral? If the letter of rejection doesn't state what the reason was, you can call the lender and find out why.

If the small business loan was rejected because of a poor credit score, try and boost it. For instance, start making all your payments on time. If the loan is rejected because of collateral, try to get assets of value to match the type of loan you want.

You can also seek alternative lenders such as peer-to-peer loans, direct online lenders, or marketplace lenders. Be sure to take absolute precautions when doing this. It's best to have a financial expert by your side.

Experienced business loan rejection? MySMBscore can increase your chance of approval the next time around. 

Getting a business loan for new businesses is not an easy task. So it's best to know your options, what lenders will ask during the application process, the credit score you need, and how to navigate the loaning world. Always plan ahead, ensure all your documents are ready, and you have enough collateral.

Considering a business loan for a new business? Check your SMBscore now!

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