Starting a small business in this day and age often seems like a daunting task. One of the most difficult aspects of getting ready to launch a business is finding a business loan that meets your store’s needs and target budget. Luckily, online platforms have completely changed the stuffy way lenders traditionally approach business loans.
If you’re looking to kickstart a small business online without the headache, there are a few simple steps to ensuring a smooth glide path to success.
Getting Started
Regardless of where you go to acquire financing for your business, there are a few key factors that any lender will look at when sizing up your business platform for a loan. Some lenders won’t lend to sole proprietors.
Establishing your business as a legal entity, like an LLC, can make it easier to access financing and could even help lessen lender bias, as a recent study in the Journal of Marketing Research suggests.
First, let’s look at what lenders look at when sizing up your business platform.
Do You Qualify?
Most lenders like to see a business startup that has already proven its drive to succeed. It’s possible to get a business loan without revenue, but it’s challenging.
Lenders typically want to see a flow of revenue and profit, but they may consider other factors when deciding whether to lend to a startup, such as a
If you’ve already started a store with Ecwid, take a look at past and current sales to provide lenders a timeline of your repayment options. Lenders are going to want to see your cost vs. income ratio to be sure your business has the appropriate potential income.
Look at Your Credit History
Without substantial revenue and time in business, lenders will primarily look at your credit score to assess their risks. The amount you’re approved for is usually determined by your personal credit score, business credit score (if applicable), time in business, annual revenue and
The minimum credit score for a business loan typically ranges from 500 to 680, depending on the lender and loan type. Traditional banks often require higher scores (around 680 or more), while alternative lenders may accept lower scores
Of course, lenders are willing to look at other factors, including:
- Age of credit history
- Amount of derogatory remarks
On-time payment history- Your ratio of used credit
Even if your credit is not currently where it should be, traditional lenders may be willing to give you a chance with a proper and realistic plan for growth.
Does Your Store Have Income?
If your store has been in business for a while, lenders may want to see your track record.
Normally, lenders will want to know that you’ve earned a minimum of $50,000 by the end of your second year. Without this, their decision will most likely fall on your credit score and collateral.
What Do You Have to Offer?
Offering some type of collateral is a great way to catch a lender’s attention. Some of the most popular forms of collateral are homes, land, vehicles, and potential assets.
If you have something that the lender can use for security, this will drastically increase your chances of securing a loan with a lower APR.
Why Do You Need Money?
Any lender is going to want an explanation of how you plan to use your loan. You will need a concrete estimate of the exact dollar amount required to finance your goals.
For example, if you plan to fund operating costs and miscellaneous expenses, plan how long it will take to recoup those funds.
Check Out Your Options
You’ll want to examine multiple lenders and loan opportunities before settling for your first option.
However, as long as you do your research, you can find plenty of finance options to kickstart your business goals.
Business credit cards
Credit cards are great for smaller loans because of the fixed interest rates and flexibility in how much you borrow. Special credit cards allocated to business expenses also help you when differentiating business spending from personal spending.
Online lenders
This is often the best option if you decide to keep your business on an online platform like Ecwid. With decent credit and an established revenue source, you could see a loan with an annual percentage as low as 6%.
Collateral is rarely required with online lenders, and your funds are more easily accessible in a shorter period.
Traditional banks
A traditional bank is most often the hardest loan to get.
They will likely require at least two years of experience growing and maintaining steady revenue, and most banks require a much higher credit score and collateral.
However, a traditional bank will also most likely have the lowest APR rates as long as you qualify.
The easiest banks to get a personal loan from are USAA and Wells Fargo. USAA does not disclose a minimum credit score requirement, but their website indicates they consider people with scores below 640, so even people with bad credit may be able to qualify.
Microlenders
These lenders typically work with small businesses that are new or have bad credit. Generally, they lend a maximum of up to $50,000, and they will want a detailed plan for business growth and revenue sources.
Because these lenders work with clients that are considered high risk, they usually come with higher APR than traditional banks. However, they do not always require collateral or established credit.
Small business (SBA) loans
The SBA 7(a) loan is the most popular small business loan because it covers a range of general expenses like working capital, inventory, payroll, equipment and more.
In addition to meeting the numerical standards, your business must:
- Be a
for-profit business of any legal structure. - Be independently owned and operated.
- Not be nationally dominant in its field.
- Be physically located and operate in the U.S. or its territories.
SBA loans require a down payment. The minimum loan down payment requirement is 10% for 7(a) and 504 loans, although this amount can vary based on a business’s cash flow and collateral.
For example, weak cash flow or
Microloans
A microloan is most often the best loan for small businesses.
Funds can be used for working capital, equipment, inventory or other common startup expenses. SBA microloans typically have more lenient credit requirements than other lenders, focusing on underserved business owners like minorities, women, veterans or
SBA Express Loan
This term loan or line of credit offers fixed or variable SBA loan rates as well as the easiest application process, quick approval times, flexible terms, and lower down payment requirements than conventional loans.
Term loans
Term loans are among the most common types of business funding.
These loans can be secured or unsecured, with the amount available often contingent on the business’s credit history. Borrowers receive a lump sum of capital upfront, repayable with interest over an
Be Prepared for a Direct Approach
One of the most important steps in securing a loan is preparing a detailed business model for your potential growth and cash flow.
Lenders want to see evidence that you have a plan for success and will follow through.
Prepare your documents
On top of your business model, you will need several business documents to secure a loan with most lenders. These may include:
- All tax documents for your business
- Personal tax return documents
- Financial statements for your business
- Any legal documents you have for business operations
- Plan for business expenses vs. projected income
Have these ready before contacting the business. Coming in fully prepared will inspire more faith and confidence in your business potential.
How long have you been in business?
If you are fresh on Ecwid, you may have only been in business for a few days, weeks, or months, but you may still qualify for a business loan.
Lenders typically want to see established businesses with at least two years of documented income. However, with great credit and collateral, this may not be necessary.
If you are on this online platform and do not currently have collateral, there may be online lenders still willing to work with you. Of course, if you’ve generated revenue, that’s a great start, but online lenders understand that sometimes loans are necessary for building your business.
What expenses are essential?
Lenders want to see what their money will be funding.
Of course, this guarantees that their money will not be buying someone a yacht instead of funding a business. However, it also shows them that you can plan and coordinate everyday business operations.
Come to your lenders with a detailed outline of current and projected business expenses and what type of revenue those expenses generate. This includes the cost of daily business operations, as well as the cost of producing your products and services.
Go Ahead and Apply!
You’ve put in the work and time, so now it’s time to contact a lender. If you have decided to pursue online options, log into your chosen platform with your plans in hand. Then, fill out any required forms, and then finally, hit that submit button.
For lenders with a physical location, call and set up an appointment, dress the part, and prepare to answer their questions thoughtfully. Again, present your best self to establish a good rapport with your potential lenders. With a solid plan and honest confidence in your success, nothing can slow you down!
What to do When Your Loan is Rejected
It may happen that your application for a business loan gets rejected. This is not unusual. In fact, according to the 2024 Report on Employer Firms, 22 percent of employer firms were denied business loans in the past 12 months. Another 28 percent were only partially approved.
Economic pressures and an increasing
Possible Reasons for Denials
First off, the most important thing is to find out why your loan application was rejected.
More often than not, rejection letters are very general and may not give the exact reason. Key is to reach out to the lender and get their exact concerns.
Some of the most common reasons for denial are:
- Bad credit
- Too much debt
- Not enough collateral
- Not enough cash flow
High-risk industry- Bad Credit
If your credit is poor or bad, lenders may conclude that you have trouble managing your finances. Collections,
The solution is to start rebuilding your credit by making a series of
It’s a common fact that most credit reports have incorrect information and correcting the inaccuracies can gain 20 points or more. But essentially, the best remedy is to build your credit with
Too much debt
Lenders view excessive debt as a risk because it can lead to default. And if you default on a business loan, the lender may seize business or personal property.
If your denial is based on too much debt but you do have more income or a collateral, you can renegotiate your loan. You can also lower your existing debt by negotiating with creditors for a favorable
Another option is to consolidate your loans and payments.
Not enough collateral
A collateral is used as a means to repay the loan if your business no longer can make payments. But if the value of your assets doesn’t cover a significant portion of the loan, a lender may deny the application.
When this happens, you can turn to unsecured loans,
Not enough cash flow
Lenders may deny a business loan if your level of revenue doesn’t support repaying the loan in addition to your other business expenses. Lenders typically set the minimum amount of revenue between $100,000 and $250,000.
At the same time, the exact amount of cash flow that lenders consider reasonable is subjective. To get approved with low revenue, search for lenders that have more lenient requirements.
Online or alternative lenders are typically more flexible if you are only looking for a business loan of $100,000 or less.
High-risk Industry
Some lenders consider certain industries a higher risk, due to the odds of failure or unstable revenue. For example, restaurants and real estate businesses may fall into this category. Most lenders will list the excluded industries on their websites or in the fine print of the application.
If you are unsure whether or not your business falls into a
If not, there are many alternative lenders who don’t have the same industry restrictions, but they may come at a higher price due to higher interest and fees.
Overall
If the reason for the loan denial is something you can’t change immediately, you can look for lenders that will take your business in its current state.
Every lender sets requirements for credit score, time in business and revenue. You can find lenders with relaxed requirements to improve your odds of approval. You may need to pay higher interest in those cases, but a careful assessment of what you can afford versus what you stand to gain will give you the right solutions.
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