How Hard Is It To Get A Startup Business Loan?

For starting a business, you’ll want a type of SBA loan. There are several types of these loans with different requirements and sources of income, some of which are harder to acquire than others.

Let’s go through how hard it can be to secure one of these loans, the approval factors of these loans, and a rundown of the loans available so you can find the best one for your business.

SBA loans have rigorous standards in place so that only potential entrepreneurs can secure financial assistance. They can’t give money to anybody who asks just because they asked for it.

They need to ensure that you’re the real deal before you get any money. These standards can make securing a loan difficult if your finances aren’t in order.

How Hard Is It To Get A Startup Business Loan

The best way to do this is to look at the applicant’s financial health. This brings us to loan approval factors. Let’s take a look at those.

Loan Approval Factors

The same typical factors that are used to award other loans are also used for SBA loans. These standards have stayed consistent for many years, so they’re not likely to change soon. Keeping the following financials in order is the key to securing any loan.

Personal Credit Score

The first thing most lenders consider is your ability to pay back the loan. This is best observed through the business owner’s credit score.

These help lenders gauge how responsible you have been with your finances in the past, which is a likely indicator of how responsible you’ll be in the future when operating your business.

Lenders typically have a minimum credit score that they’ll work with, if you’re under that then getting a loan will be hard for you.

Business Plan

Financial health isn’t the only factor, you’ll also need a plan. Any responsible lender will want to see your plans for the business so they can determine if you’re a safe investment.

This means extra work on your part but forming a business plan is a great way to identify the strengths and flaws of your business and writing one up can help you secure the startup financing that you need to get the business off the ground.

Time Conducting Business

A business plan is only half the story, however. Many businesses, particularly those who hire employees, fail within the first year.

This makes younger businesses more dangerous to lend to. More time conducting business also means you have experience, something that’s worth more than any business plan.

Lenders will look at your business’ age and weigh this up against the other factors, where they’ll decide if this risk is offset by your finances and your plans for the business's future.

Unfortunately, many will have a minimum age requirement. For many lenders, this is around two years of public business operations, so younger businesses will struggle to get a loan.

Annual Revenue

The business’ revenue is another surefire way of gauging the success of your venture. It’s another indicator that, after conducting business, you’ll have enough cash left to start paying off the lender.

If you don’t, the lenders may have to wait a lot longer for their money, which hurts your chances of securing the loan. Lenders need to find out how much the business makes in a year to determine if the loan is worth it and if they can get paid back.

Loan Amount

While obvious, the amount of money you’re asking for will determine your success at securing the loan. You shouldn’t be asking for more than you need since it’ll be harder to pay off when that time comes.

It’ll also determine the type of loan you’re getting. We’ve gone into more detail on the different types of loans that are available to businesses below, where you can see how difficult each one is to acquire.

Loan Purpose

While not something that all lenders will do, a lender is within their right to ask about the purpose of the loan you’re requesting.

If you’ve conducted a business plan, you should have already covered this, and doing so will build confidence in your lenders that the loan is justified and the money is in capable hands.

If not, you’ll have to do your homework on the loan to see what they’re intended for and show the lenders that your motives are similar.

Disclosure Of Other Debt

Just like how the lenders will want to know your credit history, they also want to know if you have existing debt too. If you have other debts to pay, then they’re likely to take priority over this newest debt, which makes lenders concerned that you won’t pay them back.

If you do have other debts, a business debt schedule can be useful for dispelling any concerns the lender may have. It lists all of your debts and your plans to pay them back.

Criteria For Different Business Loans

There are different startup loans available for new business ventures. The difficulty of getting a loan will depend on which ones you apply for. Let’s go through some of the most popular options and their requirements so you can see how hard each loan is to obtain.

SBA Loans

SBA loans are those handed down by the Small Business Administration. They’re great but they also have the most rigorous acceptance standards.

The interest rates are reasonable and the down payments are low, but you need to have your financials to even stand a chance of acceptance. On the plus side, you can use them for a wide variety of business operations, there aren’t many limitations.

So, what are the requirements? You need to have operated the business for two years, have a credit score of 640+, and have accrued over $100,000 in revenue from a year of business. These standards preclude many business people, especially first-timers.

They’re also a government branch, so you can expect good old red tape to get in your way. You’ll need an extensive list of papers to apply and get accepted.

You’ll need to send the SBA forms, a business plan, and debt schedule, both personal and business tax returns, a balance sheet, bank statements, profit and loss statements, a voided business check, and your driver’s license as a form of ID.

All of these requirements make SBA loans some of the most difficult to acquire.

Short-Term Loans

These are exactly what they sound like, a smaller loan that’s to be paid off sooner rather than later. If the term is short enough, you may pay on a daily or weekly basis instead of monthly. They’re more accessible but the APRs are higher.

To get a short-term loan you should have conducted business over a year, have a personal credit score of 550+, and $50,000+ in yearly revenue.

You’ll also need to present your driver’s license, proof of ownership, bank statements, your credit score (obviously), and personal tax returns, along with a voided business check.

Term Loans

These are longer-term business loans that award you a sum that’s paid off with scheduled monthly payments. Interest also applies. They’re straightforward and give you more time to pay them back but they’re more difficult to qualify for than short-term loans.

You need to have one year in business, a 600+ credit score, and over $90,000 in annual revenue. You also need to have a driver’s license, a voided business check, a balance sheet, your and your business’s tax returns, bank statements, and your profit and loss statements.

Equipment Financing

Equipment financing is an option with moderate to high acceptance requirements. This loan is obviously for buying equipment vital to your business, so the asked amount must match the piece(s) of equipment you wish to purchase.

You’ll need one to two years in business, a credit score of over 600, and over $100k in yearly revenue.

The loans come through quickly, in as little as two days, and you only need your license, a voided business check, bank statements, tax returns, and quotes for the equipment you’re financing.

Invoice Financing

This is one of the easiest loan options where a lender awards up to 90% of an outstanding invoice. Interest applies and the process is more expensive closer to the invoice’s fulfillment day, so they’re best taken out sooner rather than later.

You only need six months in business and $50k in annual revenue. All you need is a license, bank statements, a voided check, and outstanding invoices.