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How to Get a Business Loan with No Credit History

By Spodek Law Group | February 20, 2024

How to Get a Business Loan With No Credit History

Getting a business loan can be challenging, especially if you have no credit history to back up your application. However, there are still options available for aspiring entrepreneurs. With some preparation and persistence, you can get the financing you need to start or grow your business.

Determine If You Actually Need Financing

Before applying for a loan, carefully consider if you really need one. Bootstrapping your business by cutting costs, using personal savings, offering services before products, or finding creative ways to self-fund can help avoid debt. If financing is absolutely necessary, be sure you have a solid business plan that shows how the loan will grow your company.“Many startups bootstrap initially by using personal savings, cutting costs, and self-funding through early operations,” explains one Reddit user. “This allows you to build history and traction that lenders want to see before approving a loan.”

Build Your Credit

Having good personal credit won’t guarantee loan approval, but it helps. If your credit score is low or nonexistent, take 6-12 months to build it before applying for a business loan.“No credit history is seen as risky to lenders, so work on establishing personal credit with a secured card or credit builder loan first,” advises one small business owner on Quora. “After about a year of on-time payments, you’ll be in better shape to qualify.”Some options to build credit include:

  • Getting a secured credit card and using it responsibly
  • Becoming an authorized user on someone else’s card
  • Taking out a credit building loan

“Don’t apply for too much credit at once, as multiple hard inquiries can lower your score,” cautions one legal site. “Build credit slowly and focus on making all payments on time.”

Explore Alternative Funding Options

While getting a traditional bank loan may be difficult without established credit, alternative lending sources fill this gap by taking more factors into account during the application process.

Online Lenders

Online business lenders like Kabbage, CAN Capital, and Fundbox use business data like sales, shipping histories, and accounting records rather than FICO scores to make lending decisions. This [guide from Fundera] outlines the top online lenders for those with no credit history.“I had no personal credit when starting my business,” one Redditor explains. “I used an online lender that looked at my sales and growth potential to give me a startup loan.”

Peer-to-Peer Lending

Peer-to-peer lending networks like Lending Club and Prosper connect investors looking to fund small businesses with entrepreneurs who need capital. This lending structure provides more flexibility for those with limited credit histories.“I funded my food truck through a peer lending site,” says one business owner interviewed on Quora. “The investors are more willing to take a chance on a promising business idea than traditional banks.”

Community Development Financial Institutions

Community development financial institutions (CDFIs) and microloan programs specifically support lending in low-income and disadvantaged communities. CDFIs offer more flexibility in their underwriting standards for those without established credit. Resources like the [CDFI locator tool] can help find these nonprofit lenders.

Government-Backed Loans

Government small business loan programs through the SBA, SCORE, or local economic development organizations aim to expand access to financing, including for marginalized entrepreneurs with limited credit history.According to one legal site, “the SBA guarantees portions of eligible loans, which incentivizes lenders to approve applications they may otherwise see as risky.”Specific loan funds worth exploring include:

  • SBA Community Advantage Pilot Program
  • SBA Microloan Program
  • State and local economic development loans and grants

Improve Your Chances of Qualifying

While building your credit, take these additional steps to bolster your loan application:

Create a Solid Business Plan

Lenders want to see a thoughtful, data-backed business plan that realistically forecasts expenses, revenues, and growth.“I created a business plan with detailed financial projections and market research,” explains one entrepreneur on Reddit. “This gave investors confidence in my ability to repay.”SCORE provides a [business plan template] and mentorship opportunities to help develop this vital document.

Build up Your Capital

While difficult without outside financing, coming up with some capital on your own signals commitment to lenders. Consider getting a side job for extra income or finding a co-founder who can also invest funds.“I used money from my full-time job to cover business costs for the first six months,” says one Quora user. “This showed investors I was willing to risk my own money in the venture.”

Start Building Your Business

If possible, launch on a small scale before taking out a loan. This allows you to start establishing customers, work out kinks, and show traction. With proof of concept and early revenue, lenders gain assurance in your ability to scale successfully.One legal site confirms that “lenders like to see entrepreneurs who have already done legwork in registering the business, establishing operations, attracting early sales and showing the viability of their concept.”

Choose the Right Lender

With preparation and alternative lending options, getting a startup business loan with no credit is possible. Still, finding the lender most likely to approve you saves time and frustration. The [Lending Tree business loan finder] simplifies the process of identifying lenders open to limited credit borrowers based on criteria like industry, loan amount needed, and geographic region.Additionally, developing relationships with bankers and investors in your community can provide financing guidance and opportunities. Attend local small business resource events, pitch competitions, and networking meetups to connect with potential funding sources in your area.

Persistence is Key

The loan application process takes significant patience and perseverance, especially for those without established credit. But with dedication to building your profile and exploring all possible funding avenues, you can get the small business financing needed to turn your entrepreneurial dreams into reality.

Resources

Articles with Additional Tips

  • [6 Startup Financing Options for Entrepreneurs With No Credit Score] (U.S. Chamber of Commerce)
  • [How to Get Business Financing With Bad Credit] (Inc.)
  • [No Business Credit? No Problem — How to Fund Your Business When You Have No Credit] (Business News Daily)

Business Loan Provider Listings

  • [Top Alternative Business Loan Providers] (Fundera)
  • [Best No-Credit-Check Business Loans] (NerdWallet)
  • [Business Loans for Bad Credit] (LendingTree)

Video on Financing from Expert Investors

[How to Raise Money Even With Bad Credit] (YouTube)

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