So, you’ve been in business for a while now, and you’re finally taking the leap of faith to apply for a first time business loan. Congratulations!
This is an important step that some business owners find difficult to take, but financing can be crucial in pushing your company to the next level.
The application can seem intimidating, but when you apply through an alternative lender like National, it’s easy! This step-by-step guide will tell you everything you need to know about applying for (and receiving) a first time business loan (and what to do if you’re not quite qualified yet)!

Stepping up to the Challenge of Qualifying for Your First Loan
First time business loans have a reputation of being difficult to get. When you throw the fact that you run and operate a small business into the mix, the challenge can seem even greater. We’re here to tell you that, with the right approach, you can receive the financing you need to grow! But if you’re new to the financing world, then the appropriate method might not be exactly what you expect. Lenders, especially banks and direct lenders, tend to inevitably favor businesses with the best financials out there. This means a high credit score, awesome revenue reports, and glowing bank statements. Unfortunately, reaching these levels can seem impossible. For banks, there’s a lot more risk involved when there are no sure signs that your business will continue driving profits well into the future. Giving a first time business owner loan isn’t always a sound move for banks, especially with 50% of small businesses failing in the first five years. It’s like applying for an entry-level job: if you don’t have experience, then how can you expect to get any? But this common misconception is far from the reality with first time business loans. Even if you’ve only been in business for a few months, there are ways that you can receive a loan without meeting the stiff bank requirements.How to Get Your First Business Loan: A Three-Step Guide
If your business is moving onward and upward, then you’re well on your way to qualifying for a first time business loan! But before moving into the process, it’s helpful to understand what’s expected for the best rates, amounts and terms. To maximize your chances for getting the best offer, follow the steps below!1. Build Your Personal & Business Credit Scores to at Least 625
Credit score isn’t the ultimate factor when it comes to qualifying for a loan. There are many different types of lenders out there, and while many of them can take credit score into account, its impact can vary quite a bit. That being said, improving your credit score will only help you on your journey toward qualifying for the best first time business loan offers. If you’ve been in business for a while, lenders may look at your personal credit score, but if not, then they may use your personal credit score. Without years of business transactions, chances are you don’t have a long business credit history. That’s completely fine! Your personal credit score still demonstrates your responsibility in making payments, and can qualify you for a first time business loan. When you apply, the following minimum credit scores can help your chances in qualifying:- 600-625 for a business credit score
- 650 for a personal credit score
Building Your Credit Score for A First Time Business Loan
You know credit score plays a role in helping you qualify for your first round of business financing. But what can you do to make it reach the best possible point? You can raise your business and personal credit scores with the following advice:- Make full, punctual payments. Credit scores are anything but random, and most credit bureaus take your payment history as a primary factor. One of the most important ways you can build your credit score is repaying all of your personal loans, as well as business credit card transactions.
- Use your credit, but not the full amount. Financing and credit might be the key to helping your business grow. The more credit you’ve used, the more of a risk you are to the credit agency. As you build your credit score to apply for a first time business loan, it’s best to err on the side of caution, keeping your credit usage under 30%.
- Don’t close older accounts (even if you no longer use them). Your credit history also plays a role in determining your credit score. Closing an account, especially an old one, can negatively impact your credit score.
- A diverse credit mix. If you’re just embarking on your journey as an entrepreneur, having a diverse credit mix might not be possible. But as you go, showing you can handle the responsibility of both credit card accounts and other installment loans will behoove you.
- No recent credit inquiries. Soft inquiries from alternative lenders like National won’t impact your credit score at all, but hard inquiries will remain on your credit report. If you’re planning to apply for a business loan, then keep other credit inquiries to a minimum.
2. Calculate How Much You Need for Your First Business Loan
It’s no secret that building your business to reach its full potential takes money. Regardless of your objectives, even the early stages of business growth take a hefty dose of capital. So if you’re intending to make your first business loan a sizable one, then that’s ok! But for a few reasons, you should calculate (almost) the exact amount that you’ll be applying for. Every time you apply for financing, and especially when you apply for a first time business loan, you should be able to back up the request with an explanation. This doesn’t need to be a multi-page report; your time is better spent managing your business than preparing a presentation! But to justify it both for yourself and the lender, having a plan is imperative. Keep in mind: there are no wrong answers, and what helps one business grow may or may not help another! At the beginning of your business’s life cycle, expenses are natural, and can cover every base in your day-to-day, like:- Purchasing new equipment to improve your process, or the quality of your product.
- Taking care of essential start-up fees (like website creation, incorporation, and other basic expenses)
- Funding commercial property rent payments
- Buying additional inventory
- Making payroll
- Hiring a digital marketing service to generate new leads
- Even more depending on your industry
Calculating Your Debt Service Coverage Ratio (DSCR) for Your Business Loan
The purpose of this number is for lenders to determine the amount of cash you have to repay your debt, or loans. But, it also doubles as a simple way to find out how large a loan you can afford, considering interest rates. Running the numbers to calculate your DSCR for your first time business loan is actually quite simple. The easy equation for finding your DSCR is: Cash Flow / Loan Payment = DSCR For some businesses with seasonal fluctuations, this number can change on a monthly basis. But you can also calculate a general annual DSCR, which is helpful in most cases. The DSCR is measuring your business’s cash flow, or total sales after expenses, for each month. If your monthly cash flow is $6,000, and you expect loan payments from both principal and interest to be around $2000, then your DSCR would be 3. That’s great! For basic payment purposes, your DSCR must be higher than one. Any DSCR lower than one indicates that your business won’t necessarily be able to make payments based on current cash flow. As long as your DSCR is above one, you’re in a position to repay each loan. Anything above one indicates your business in an even better position to do so!3. Prepare to Apply for Your First Time Business Loan
Applying for your first business loan can feel like stepping into the big city for the first time. There’s information, advice, and qualifications listed everywhere, and everything appears to be different. Not every loan application is like this! Banks have a reputation of never-ending applications. Alternative lenders streamline this application and approval process, but we’ll get into that more later on. Nonetheless, some lenders tend to put you under a microscope more than usual when you’re applying for a first time business loan. If you’re just entering the world of small business loans, then it’s common to feel overwhelmed by the information and qualifications. All lenders have different requirements and qualifications for a first time business loan, but this is a complete list of anything that could come up once you start to apply:Business Plan for a First Time Small Business Loan
If your business is just getting fired up, your financials won’t exactly prove that you’re ready for a first time business loan. Instead of a credit score, a business plan can prove your business is ready to tackle the challenge of paying back capital. This plan of action will demonstrate each step your business is planning to take (before and after) receiving capital. Most alternative lenders won’t require a business plan to consider you for a first time business loan, but banks may not be so lenient. Through a business plan, traditional lenders are interested in finding out:- Who your customer base is
- How you plan to generate revenue
- The structure of your organization
- Opportunities, competitors and other details about your market
- How you plan to market your company, and increase sales
- Expected sales after implementing your new plan
Finding Collateral for a First Time Business Loan
Not all first time business loans are secured by collateral, and alternative lenders are willing to provide unsecured loans for companies that qualify. But banks and other traditional lenders might be reluctant to issue a loan without collateral. Collateral is any asset that the lender can seize in the event you don’t repay the loan. When you receive equipment financing, the equipment itself functions as the collateral. Often, banks will look for commercial real estate as collateral for a first time business owner loan. With alternative financing options, no collateral is required, which offers an important solution for business owners in this situation. But if you are putting up collateral, then be sure to document it clearly and thoroughly.The Documents You Need for a First Time Business Loan
An endless pile of documents is one of the biggest reasons people put off applying for their first business loans. But like the other requirements to qualify for a business loan, there’s a spectrum of qualifications that lenders can require. Alternative lenders rarely require anything other than a few bank statements and a digital application. On the other hand, banks and direct lenders are at the opposite end of the spectrum. Download Qualification Checklist Document requests can also vary depending on the loan program you’re applying for. For example, if you’re hoping to qualify for an SBA loan, then your lender might require more documentation than short-term loans. As you begin searching for your first loan, though, ensuring that you can satisfy every potential requirement is key. Lenders might ask for the following documents, but will but may not require everything listed below:- Licenses and permits
- Employer ID Number
- Income Statements
- Bank Statements
- Balance Sheet
- Personal & Business Tax Returns
- Copy of Commercial Lease
- Business Debt Schedule
- Accounts Receivable Aging and Accounts Payable Aging
- Payroll from 6 Months
- Entity structure paperwork (articles of organization, articles of incorporation, partnership)
- Certificate of Good Standing
- Sales Agreement & Financials (if you’re acquiring a competitor)
- Contracts with Suppliers
- Corporate Bylaws or operating procedures
- Purchase agreements