New Business? Here's How to Get a Loan When You Don't Have a Track Record

New businesses face a frustrating paradox: you need capital to grow, but lenders want to see growth before providing capital. Most traditional banks require 2+ years of business history, leaving newer businesses scrambling for options.

The good news is that financing options exist for businesses at every stage. The key is knowing where to look and how to present your business in the best possible light. Here's a comprehensive guide to financing your new business.

Why Lenders Want Time in Business

Understanding lender concerns helps you address them. According to the Bureau of Labor Statistics, approximately 20% of new businesses fail in their first year, and about 50% fail within five years. Lenders aren't being arbitrary - they're protecting themselves from predictable risks.

When you lack operating history, you can't show stable revenue, consistent profits, or proven ability to manage cash flow through challenges. You're asking lenders to bet on projections rather than performance.

Financing Options for Businesses Under 2 Years

Each financing option has different requirements, costs, and tradeoffs. Here's what's available:

SBA Microloans (6+ Months)

The SBA Microloan program provides loans up to $50,000 through nonprofit intermediary lenders. These lenders specifically serve new and underserved businesses. Average loan size is about $13,000.

• Requirements: 6+ months in business (sometimes less), 575+ credit score, business plan, personal guarantee
• Rates: 8-13% depending on intermediary
• Terms: Up to 6 years
• Pros: Lower rates than online lenders, technical assistance often included, builds toward larger SBA loans
• Cons: Small amounts, longer application process (2-4 weeks), may require training courses

Equipment Financing (Immediate)

Equipment loans and leases are often available to new businesses because the equipment itself serves as collateral. If you default, the lender repossesses the equipment.

• Requirements: Varies widely. Some lenders approve with 550+ credit and minimal time in business for essential equipment
• Rates: 6-30% depending on credit, equipment type, and whether new or used
• Terms: Typically matches equipment useful life (3-7 years)
• Pros: Collateral reduces lender risk, preserves working capital, may offer tax benefits (Section 179)
• Cons: Only works for equipment purchases, older/specialized equipment harder to finance

Revenue-Based Financing (6+ Months)

Revenue-based financing provides capital in exchange for a percentage of future revenue until you've repaid a set amount. If revenue drops, payments drop. If revenue surges, you pay off faster.

• Requirements: $10K-15K+ monthly revenue, 6+ months in business, 500+ credit score
• Cost: Factor rates of 1.2-1.5 (you repay 20-50% more than borrowed)
• Terms: 6-18 months typical
• Pros: Payments flex with revenue, fast approval, minimal documentation
• Cons: Expensive, daily/weekly payments, total cost uncertain until paid

Online Lenders (6-12 Months)

Online lenders have lower barriers than banks and faster processes. Many work with businesses that have just 6-12 months of operating history.

• Requirements: 6-12 months in business, $50K-100K annual revenue, 550+ credit
• Rates: 15-80% APR depending on risk profile
• Terms: 3-36 months
• Pros: Fast funding (1-3 days), simple application, high approval rates
• Cons: Expensive, frequent payments, may require personal guarantee

CDFI and Nonprofit Lenders (Startups OK)

Community Development Financial Institutions (CDFIs) are mission-driven lenders focused on underserved communities and businesses. Many work with startups, including pre-revenue businesses with solid plans.

• Requirements: Varies by lender. Many accept startups with strong plans and owner qualifications
• Rates: 8-15% typically
• Terms: Varies by program
• Pros: Work with challenging situations, provide mentoring, build toward mainstream financing
• Cons: Limited geographic availability, smaller loan amounts, longer process

Personal Loans for Business (Immediate)

If your personal credit is strong (700+), personal loans may offer better rates than business loans for a new company. However, this approach has significant implications.

• Requirements: Good personal credit (700+), stable income
• Rates: 8-20% for well-qualified borrowers
• Terms: 2-7 years
• Pros: Your business history is irrelevant, funds usable for any purpose
• Cons: Tied to personal credit, limited amounts ($50K typical max), no business credit building

Strengthening Your Application

When you lack business history, you must demonstrate competence and reduce perceived risk in other ways. Here's how:

• Emphasize personal qualifications: Industry experience, relevant education, successful past ventures all signal competence. If you've worked in your industry for 15 years, lead with that.
• Prepare professional financials: Even for new businesses, professional projections with reasonable assumptions show sophistication. Have an accountant review your numbers.
• Show existing traction: Customer contracts, letters of intent, recurring revenue, month-over-month growth - any evidence of market validation helps.
• Offer collateral: Personal real estate, equipment, or other assets reduce lender risk. Even home equity can strengthen applications.
• Bring a co-signer: A co-signer with strong credit and assets can make approval possible when it otherwise wouldn't be.
• Demonstrate capital injection: Lenders like seeing your skin in the game. If you've invested $50,000 of savings, that signals commitment.
• Build business credit early: Open business credit cards, establish vendor accounts that report to credit bureaus, pay everything early.

Comparison: Financing Options for New Businesses

Building Toward Better Options

The financing you access today should help you qualify for better financing tomorrow. Here's a strategic approach:

• Months 1-6: Bootstrap, use personal resources, focus on generating revenue and building systems
• Months 6-12: Access smaller financing (microloans, equipment financing) and repay perfectly
• Year 1-2: Establish business credit, grow revenue predictably, build banking relationships
• Year 2+: Qualify for bank loans, SBA 7(a), and other mainstream options with your track record

The Bottom Line

New businesses have financing options, but they require more effort and typically cost more than established business financing. The key is being realistic about your current options while building toward better ones.

If you're a startup, focus on SBA microloans, equipment financing, and CDFI lenders. If you have 6+ months of revenue, online lenders and revenue-based financing become available. Use whatever financing you access to build credit and track record, positioning yourself for mainstream bank financing within 2-3 years.

Most importantly, don't take on expensive financing without a clear plan for how that capital will generate returns exceeding its cost. The goal isn't just to get money - it's to get money that helps your business grow profitably.