Financing is a concern that many newly established small business owners will have to deal with in their first few years of operation. Whether you need to purchase equipment, pay for certifications and licensing, or feed your advertising budget, a loan or other small business financing option is often necessary to really get your idea up and running.

Applying for a loan or other form of financing might seem a little intimidating, especially when you're balancing all the other tasks you have to handle. We understand just how daunting this can be. This article explains how to apply for a loan, the different types of financing that might be available to you, and which one might be right for your own business.

Before You Begin: Understand What You Need

Before you can begin the process of applying for and obtaining a loan or other financing, it's important to understand what you need to grow your business and just how much that will cost. Banks and other lenders don't like vague estimates, such as "about $15,000." Showing a potential lender that you know what you need and that you've put in the time to research and generate a breakdown of prices for everything on your list goes a long way toward building trust. After all, a lender won't want to give you any money for your business if they don't feel confident that you're going to pay that money back.

Take the time to get organized by thinking about what your business really needs to grow. Have you been working out of your home, but you're ready to move into a separate office space or storefront? Research properties currently available to buy or rent, see them, and be honest about how well each one does (or doesn't) meet your requirements. If you need new equipment, research various competitors' prices and find the best-for-you deals before approaching a lender. When meeting with potential lenders, be prepared to talk about your specific needs and the research you've done to show how much meeting those needs will cost.

Determine If You Qualify

To qualify for any sort of financing, potential borrowers are assessed via their credit score (or that of their business), credit history, and any assets they have available to offset a loan. If you're starting a new business, your personal credit score and business plan are what will be looked at.

If you've been in business a while, your business credit score and history, as well as business assets and up-to-date financial information, are what you'll need to show. Having all this information together and neatly organized is your first step. Using accounting software like Skynova can help you keep all of this information up to date, organized, and easy to access, saving you a potential major headache during the business loan application process.

It's important to know that different types of businesses are assessed by lenders differently. A new business seeking business financing will face more potential hurdles because a startup business just doesn't have an established history of success. In fact, many banks won't even consider small business borrowers for a loan if they haven't been in operation for at least a year. Frustrating? Yes. Don't worry - even the newest of businesses has financing options. They'll just look a little different than, say, the financing an established limited liability company (LLC) may pursue.

New business owners will rely on your personal credit score and the strength of your business plan, which will include a lot of research and a breakdown of your startup costs and projected earnings for your first few years. More established businesses will have to show their revenue and business credit history - especially if they've had and paid off any previous loans - as well as collateral, current expenses, and any industry-specific information that may be relevant.

Gather Documentation

For a startup business, the biggest piece of documentation you'll need is your business plan. A good plan includes more than your startup costs for necessary equipment, a store or office space, and licensing and registration. There are also sections about business structure, marketing and advertising, services or products, and more. The process of creating a business plan is about building a fully realized picture of what your business will be. It's a serious undertaking and shows your commitment to this endeavor. A well-developed plan can really build trust with potential lenders.

If you've been in business a while, even if only in a freelancing or part-time capacity, you need to show proof of that history. This includes cash flow or bank statements, tax returns, and other relevant financial statements and information.

Whether you're new or more established as a business owner, potential lenders are likely to run a credit report on your business and your personal credit history. Again, lenders want to feel sure that you can handle your finances enough to pay back any money they give you before approving your small business loan.

Choosing the Right Lender and Financing Option for Your Startup

Understanding the different financing options available to small business owners makes it easier to choose one right for you at this point in your business's growth and simplifies the process a little bit more. Why waste your time and energy applying for a financing or loan option that isn't right for you?

Repayment periods and interest rates are two important things to keep in mind regardless of which financing you're applying for since they will have a big impact on how much debt you take on and how long you'll be paying that money back. When it comes to deciding which type of financing to pursue, the biggest factors to consider are the age of your business and your business's credit history, if applicable.

As a startup business, you may not be able to obtain a traditional business loan before you've been in business for a year simply because you don't have that established history. You can still apply, of course (especially if the financial institution has a history of working with new businesses) but know that you also have other options before going that route.

Once you've created your business plan - fully assessing what your startup costs are with all relevant information at hand - begin exploring the following funding options:

Business Credit Cards

If you have reasonably good personal credit, applying for credit cards for your startup business may be the easiest first step in obtaining the financing you need to grow. This option is ideal for newer businesses because the process is fairly simple. Getting approved means immediately having money to spend. Shop around to find business credit cards with rewards programs, which can be further valuable.

Having business credit cards does more than give you money to spend, however. It's a way to establish and build a credit history unique to your business and separate from your personal finances. This is how many new or small businesses begin, and having that financial history will help you attain further funding down the line.

Business Line of Credit

Another option is to ask for lines of credit from anyone you buy supplies or materials from. Also known as vendor credit, this isn't a loan but rather a way to pay off your orders a bit at a time, usually over a period of one to three months. Beyond lightening your immediate financial load, this may be a way to build credit for your business, as you can later show potential lenders a history of on-time payments with these vendors.

If your business relies on vendors to create the products or provide the services you market to your customers, exploring a line of credit may be an ideal way to obtain financing.

Startup Business Loans

If you already have any of the above or just need a bit more cash on hand than a credit card will give you, a bank loan is your next option. Again, newer businesses may have more difficulty obtaining a loan, but you do have several options available to you.

Personal Loans

Like credit cards or vendor credit, personal loans are ideal for newer or smaller business owners, especially if the loan amount you're applying for isn't very high. While it won't help you build credit for your business since the loan will be made to you personally, getting a personal loan may be the way to go if you're concerned with quickly meeting the needs and demands of your growing business.

Once you have your business more firmly established, consider applying for a credit card in your business's name as your next financial step. Not only will this help you establish a credit history for your business but it's also one of the first steps in separating your personal finances from your professional ones. Unless you plan to keep your business as a side source of income only, creating a unique identity for your business will be part of its natural growth (it'll also be a little easier to manage and report come tax time).

Startup Business Loans

While most banks won't consider lending to any business not in operation for at least a year (and sometimes longer), there are some lenders open to considering younger businesses and ones who may even specialize in startup business loans.

If you're a member of a credit union, start there. Credit unions often offer loans with lower interest rates and may be more willing to work with a startup. You'll still need to have your ducks in a row when it comes to financial documentation and have a fairly decent credit score, but a startup business loan may be the right option for you if all of those things are in place.

Small Business Administration Loans (SBA Loans)

The U.S. Small Business Administration (SBA) is a government organization that assists startup and small businesses. One way they do this is through various loan programs. These loans are actually loan guarantees to third-party lenders since the SBA doesn't provide funding for businesses.

They are also usually available to businesses that have been in operation for at least a few years. The SBA works with a wide variety of lenders and organizations so there may be startup-friendly options available to you, including less traditional financing (e.g., microloans provided by nonprofit organizations).

The SBA has plenty of tools and information for new businesses. Even if you're not ready to begin the process of applying for an SBA loan, it's still a good resource as you start and grow your business. Beyond financial assistance, you'll also find help becoming a government contractor, online courses and training, and help writing your business plan. To connect your business with the SBA, begin by finding and contacting your local SBA office.

Additional Financing Options

Depending on your specific business needs and financial or credit situation, traditional loans may not work for you. Consider exploring these nontraditional financing options instead.

Equipment Financing

An equipment loan might be right for you if you don't need a large amount of money or if you only need to purchase one particular piece of equipment. A construction company may want to invest in a heavy-duty backhoe or a photo lab may want to upgrade its printer, for instance. If your business needs are related to equipment, seeking financing specifically for that equipment may be the way to go.

Applying for an equipment loan through a bank will require you to show that you have adequate income, which means you'll need to have been in business for a little while but maybe not an entire year. Another option to finance an equipment purchase, ideal for new businesses, is to explore financing options through equipment retailers. This could be as simple as applying for a company- or store-specific credit card.

Commercial Mortgage

Commercial mortgages are for businesses that want to move into a space or onto a property of their own. A commercial mortgage can grant you a hefty sum of money and often at a very reasonable interest rate. You'll need to have decent credit, of course, and be able to provide a fair amount of information about the building or land you want to buy. Be prepared with a detailed description and assessment of the property, as well as any improvements or other work you'll need to do to be up and running.

If you're just starting with your business, you may not think a commercial mortgage could be right for you, but it's still an option worth exploring. This is especially true if you need a space outside of your home for your business to operate (e.g., a cafe, workshop, or other large area). Real estate can be a personal or business asset you can later use to obtain further business funding.

Research lenders around you and look for any that are open to working with new businesses. It pays to reach out and make a connection with these lenders; even if you're not approved (or don't explore this option just yet), they can still provide you with valuable information specific to the area in which you operate.


Fairly new to the business financing scene, crowdfunding is by now a well-known option for owners wanting to get their small businesses off the ground. Platforms like GoFundMe and Kickstarter have been the launching pads for a number of businesses in the last few years. And they're not just for creative entrepreneurs, like musicians wanting to fund their next album or artists working to launch a line of products. Crowdfunding can be a way for you to get that bit of seed money you need to really get your business going.

To get started on crowdfunding and to really make money, plan to market and promote the fact that your business is on one of these sites. A lot of entrepreneurs also create incentives for anyone who donates to their fund. While this is extra work or may feel like another hurdle to jump, you can get your business at least a little money this way, so it might be worth your time to at least explore this option.

Financing Your Business When You Have Bad Credit

Not having an established credit history for your business means you'll be relying on your personal credit score and credit report when you seek financing. If you don't have very good credit, working to improve a poor or bad credit score is something to address even before you launch your business. You can do this by paying down your debts and removing inaccurate information from your report. Beyond this, don't let bad credit stop you from exploring business financing options.

A business or personal credit card is a good choice for anyone struggling with credit report issues. Be aware, however, that this lower credit score may mean any card you can get will come with a higher interest rate, making staying on top of your repayment schedule an even higher priority. Making payments on time and keeping your spending limited to necessary items will go a long way to repairing your credit and establishing a decent credit score.

Manage Your Business Finances With Skynova Accounting Software

Accurate, up-to-date financial information is crucial when applying for loans and other business financing. Business lenders want to see all those ducks of yours lined up neat and straight.

Stay organized and set your business up for success now and in the future with Skynova's business accounting software. Keep your invoices, expenses, and other financial information updated and easy to find from any computer, any time, anywhere. See how our software products and business templates can help.

Notice to Reader

The content in this article is meant to be used as a general guideline for startups and small businesses. It may not apply to your specific situation. As always, please consult with a professional accountant or other business expert.