Yes, a new business can get a commercial loan, but it’s typically more challenging than for established businesses. Lenders look for ways to mitigate risk since new businesses don’t have a proven track record or strong financial history. Here’s a breakdown of what you need to know:
1. Options for New Business Commercial Loans
- SBA Loans (Small Business Administration)
- SBA 7(a) or 504 loans are popular for new businesses.
- They often require lower down payments and offer longer repayment terms.
- The SBA guarantees part of the loan, reducing the lender’s risk.
- Bank Loans
- Traditional banks are stricter; they prefer established businesses with revenue history.
- New businesses may need strong personal credit and collateral.
- Alternative Lenders
- Online lenders or fintechs are more flexible.
- Interest rates may be higher, but approval is faster.
- Business Line of Credit
- Provides flexible access to funds up to a certain limit.
- Good for short-term expenses and cash flow needs.
2. What Lenders Look For
- Personal Credit Score: Typically 680+ for traditional lenders, but some alternatives accept lower scores.
- Business Plan: A detailed, realistic plan showing how you’ll generate revenue.
- Collateral: Assets like property, equipment, or personal assets can help secure the loan.
- Down Payment: Usually 10–30% for commercial loans. SBA loans may require less.
- Experience: Management or industry experience helps convince lenders you can succeed.
3. Tips to Improve Approval Chances
- Prepare a strong business plan with detailed financial projections.
- Separate personal and business finances early.
- Consider SBA-backed loans for better terms and approval odds.
- Leverage personal assets if needed for collateral.
- Start smaller; a smaller loan has higher chances of approval.