Navigating the Business Loan Process: A Step-by-Step Guide

Every new USA-based startup requires capital to commence with market operations. So we will dive in and show entrepreneurs how to get a loan to start with business! 

Key Takeaways:

  • Building a space, buying equipment, stocking inventory, and hiring staff, cost a lot, and most U.S startups cover these expenses thru business loan funding sources.
  • Before applying for a business loan, entrepreneurs need to form a business entity under which the company will legally conduct future operations. 
  • The process involved with getting business loans isn’t quite as simple as walking into a bank and walking out with money. 
  • Businesses that can’t get a business loan need to seek alternative options for funding their startups, such as angel investors or venture capitalists.

Steps to Get Business Loan

The good news—there aren’t too many steps actually involved when you are trying to get a business loan in the U.S to start with operations. That said, we will show in plain English how to fulfill these steps in order to make it possible to fulfill bank requirements.

If you want to get funding for your business, you need the following:

Learn How to Establish a Business as a Legal Entity

Even if you don’t have the capital to fully launch your company, you still need to establish your business legally. In fact, you’ll need to put your business under a legal structure in order to obtain the financing you need to continue the startup launching process. 

This means you’ll need to:

Find and Choose a Business Name 

Even if you’re not actually ready to launch, you will need a name for your business. You’ll use this name to distinguish yourself from your customers and on legal documents that will get your business going. 

Although it’s important to choose a business name carefully, you’ll be happy to know that you’re not stuck with your name forever—you can file what’s called a “DBA” (doing business as) in which you operate under a different name even if your legal documents still say the name you originally picked.

Start Process Of Establishing Business Entity Officially Within Your State 

Your next step is officially establishing yourself as a business within your state. This is called choosing a business entity, and during this process, you’ll officially declare the structure of your business and how you will pay taxes on your earnings. 

Examples of business entities are:

It’s also important to note that each state has a different process for establishing a business entity. For instance, if you’re going to start a business in California, the process you’ll go through is different than if you’re looking to start a business in Florida.

Learn What an EIN Is And Get It For Your Business 

Getting an EIN, or an “employer identification number,” is an important next step. This is sort of like your business’s social security number, and you’ll use it on many important documents—both at the beginning and down the line. 

Without EIN isn’t possible to make a business entity and thus get a loan for starting a business, so this step will be necessary in order to cover the startup financing structure!

Open a Small Business Bank Account

Although opening a small business bank account isn’t technically a requirement to start your business, you might as well do so when you’re getting up and running. 

Obviously, you’ll need one to get a loan to start a business. Still, it’s also important to help you separate your personal and business finances—an essential part of correctly and intelligently establishing your new business.

Figure Out How Much Capital You Need Before Applying For a Loan

Another step to complete before applying for a loan is understanding how much money you need and what you plan to use it for. When you’re applying for borrowing funds to start your new business, you’ll need to request a specific amount of money. 

This number should be a precise figure that you derive from the following factors:

  • What you’re planning to spend the money on 
  • The costs associated with these expenses
  • How much can your business really afford to pay back with interest rates factored in

Business loans also have different structures—for instance, some offer lump sums, others are draw-as-you-need, and others specifically finance certain fixed assets. On top of knowing how much money you need, you should also know how you need to be able to access and deploy your capital.

Understand What Lender Requirements Are

First, you need to understand how business loans work. Lenders have certain requirements that borrowers need to fulfill to qualify for money!

Some of these requirements can be tricky for new business owners to meet. So we will outline the most important parameters that lenders evaluate when granting capital to business owners.

What The Bank/Loan Source Will Analyze

Your Personal Credit Score

Your credit score is the most comprehensive indicator of your past responsibility with debt—how much credit you have available and how much you’re currently using, whether you’ve paid past loans and bills in full and on time, how long you’ve had credit in your name, and more.

Your company will also build up a business credit score as you commence market operations. Still, lenders will take into account your personal credit history as they decide whether you will get a loan on behalf of your business. 

Not only will your credit score determine whether or not you get a loan, but it can also dictate how much money you can borrow, the structure of your loan, and the terms under which you can borrow (including your business loan interest rate).

How Much is Your Past Business Experience

The amount of time you’ve been an entrepreneur is important, too. It helps lenders evaluate the viability of your business, which, in turn, helps them determine whether or not you have a strong enough business to lend to. 

Although some loans specifically cater to startups, many lenders require a year or two (in some cases, six months) of business history before they even consider extending you a loan.

Your Business Revenue and Cash Flow Potential 

Similarly, to properly assess whether or not you’ll be able to repay a business loan, lenders will consider how much revenue your business generates annually, as well as how much cash you already have in the bank. 

Some lenders require certain revenue numbers before considering a candidate for a loan, which can prove tricky for entrepreneurs looking for a business loan to start a business.

How Much Liquid and Other Assets You Have At Disposal

Along with your cash assets, lenders will look at the type of assets your business has to put up as collateral. This could be physical equipment or property or sellable inventory, for instance. 

As a startup, you may not have strong assets to get your loan approved. Often, you’ll be asked to sign a personal guarantee, which means your personal assets will secure the loan in case of bankruptcy.

How Much Is Risky Industry Where New Business Will Operate 

Some industries are riskier than others—some have higher failure rates and are more susceptible to economic fluctuations (such as restaurants). Lenders are generally more interested in providing loans to businesses in more stable industries. 

How To Find The Best Loan and Lender Options

As you read through the above list, you probably realize that, as a new small business, you won’t have things such as revenue, collateral, business history, and business credit for lenders to evaluate! 

This can make it especially challenging to get a loan to start a business, especially from traditional lenders (and even some alternative lenders, who generally have slightly less stringent requirements). 

There are, however, some lenders that are more likely to loan capital to new enterprises and some types of loans that are better suited for startups!

Here’s what to know as you’re researching your options for how to get a business loan to start a small business:

Evaluate What Types of Loans are Available for Starting New Businesses

The long and short of it is that new businesses are unlikely to be able to secure traditional business loans, such as term loans. There are, of course, exceptions—for instance, maybe you’ve run a successful business in the past and have some track record for lenders to look at—but it’s wise to look into alternatives to traditional loans just in case. 

Some forms of startup funding that you may be able to secure include:

  • Equipment financing: The lender finances a piece of equipment directly, and the equipment itself secures the loan
  • Inventory financing: This is similar to equipment financing, in which the inventory financed provides collateral for the loan
  • The business line of credit: In which a lender approves a credit line you can draw from, similar to a business credit card, but in much higher amounts
  • SBA microloans: Up to $50,000 for less-established businesses, financed through the U.S. Small Business Administration
  • Business credit cards: These are often available to new businesses to fund smaller expenses and can help build credit for business loans down the line 

When To Start Seeking For Startup Lenders

Once you know the type of business loan you’d like to pursue to start your business, you can begin looking into lenders. You’ll find that not every lender will finance newer businesses, but some will have less time in business requirements than others. 

Additionally, if you’re able to offer up valuable collateral or choose a loan like an equipment loan that is self-securing, you might have a better chance of securing a loan as a new business. 

That said, you’ll find that some lenders specialize in offering loans to new businesses. Still, many of these lenders charge very high-interest rates to compensate for the risk, which could be difficult for your business to afford.

In other words, carefully understand what debt your business can take on—and at what cost—before proceeding.

How to Gather Business Loan Application Materials

Each business lender and type of business loan will have different application requirements. You’ll work with your specific lender to find out exactly what kind of information you’ll have to supply for your application.

However, there are several documents and pieces of information you can gather in advance, which can help speed along the business loan process.

To get a business loan, you’ll want to have the following ready:

  • Personal identification
  • Two years of personal tax returns
  • Business identification, including your EIN, ownership paperwork, and business license
  • Information on your business bank account, including your last three months of bank statements if you have them
  • Any other financial documentation that you may have on your business
  • Business plan

What to Do If You’re Rejected for a Loan to Start a Business

If you’re rejected for a business loan to start your business, it’s certainly not the case that you’ll never be able to secure capital. You may just be a little too early and may have to start generating some revenue and accruing some time in business—even if it’s just from bootstrapping your operations.

In the meantime, you might want to start by opening a business credit card. This can give you access to some capital to grease the wheels, and, most importantly, it’ll help you establish that business credit that’s essential for lenders to see when they’re evaluating your business loan application.

On the other hand, if you’re not in a position where you can wait to build up your business without capital, you can also reevaluate your collateral, redo your business plan, or look into different loan types that may be better suited for you as a business in the early days. 

Talk to your lender and see what they’re looking for in an applicant that you haven’t been able to provide yet, so you’re better primed to make the right decisions.

What Are Alternative Routes To Raise Startup Capital

It’s possible that you might not get approved for a loan to start a business right away. Because that’s the case, you’ll want to familiarize yourself with a few alternative routes for startup capital.

 Popular options include:

  • Personal loans for business: In which you take a loan out against your personal credit and finances and use the capital to build your business
  • Equity financing: In which you give away a percentage of ownership of your company in exchange for capital to build your business
  • Crowdfunding: This is a popular route for many consumer-product companies to help finance inventory and production 


As you begin the process of getting a loan and covering funding to start your small business, make sure that you keep your expectations realistic and are open to alternatives to traditional business loans, too. 

At the end of the day, securing a business loan as a startup isn’t the easiest process, so do your research about different types of loans and lenders, and you might be able to find a way to secure at least some of the capital you need to get going while you build up your time in business, credit, and revenue!

Written by:

Stuart MacPherson

Hi, I'm Stuart. I've been running my own small business since 2019 after leaving a successful career in finance. I created FranchiseTheory to share my enthusiasm for franchising and the franchise business model.

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