How to Get Approved for a Loan Without a Strong Financial History

Whether you’re just starting your business or need money to cover expenses for now, you might need to get a loan. Here’s how to get approved for a loan regardless of your credit history.

Figure out your financing options

Different businesses and needs call for various business financing options. You have a few borrowing options, including personal loans, small business loans, or a personal line of credit.

Personal loans

If you’re just starting out, your business may not have a credit score yet. Business credit scores have a different scoring system than personal ones — measuring 1-100. Like personal credit scores, the higher your business creditworthiness, the more likely you will get approved for a loan with the lowest interest rate.

Without any business credit history, you might need a personal loan to fund your business. Personal loans can be used for anything, whether it’s debt consolidation or covering the early costs of starting a company. This is good news for how to get approved for a loan when you want to use your funds for a variety of different needs.

Lenders check your credit history to determine your loan eligibility. If you qualify for a personal loan, your credit score also determines your repayment terms, interest rate, and monthly payment amount. Each lender has different requirements and fees. The higher your credit score, the more likely you are to qualify for more loans with various lenders. A lower credit score means you might get loan approval from a couple of lenders and pay a higher interest rate. You might also have to pay origination fees, depending on your lender. Bad credit could be the determining factor in getting approved or denied a personal loan.

Small business loans

Business loans, including small business loans backed by the Small Business Administration (SBA), are strictly for business. You can’t use them for personal and business needs like you can with a personal loan. If you want to figure out how to get approved for a loan, make sure you qualify for the right type of loan first.

Commercial and SBA loans offer business financing options with higher amounts tailored toward business-related needs and goals. Borrowers can get anywhere from $500 to $5.5 million with SBA loans, whether it’s long-term financing or microloans.

Both SBA and commercial business loans come from private lenders, but the Small Business Administration partially backs SBA loans. Getting approved for SBA loans might take longer than getting approved for commercial loans. If you don’t have a strong financial history, getting approved for a loan through a government-backed program might be more difficult.

Line of credit

If you want the option to borrow money when you need it, a personal or business line of credit might be a better option.

A line of credit works like a credit card. It’s a revolving line of credit that you can borrow from as needed, and as you make payments, you’ll get access to borrow more, up to your approved amount. Lines of credit differ from a loan, which gives you a lump-sum amount with a fixed rate and you’ll make monthly payments on it until your loan is paid back in full.

Lines of credit have a variable interest rate rather than a fixed rate, with higher rates than lump-sum loans. However, lines of credit tend to have a faster approval process, and if you don’t have stellar credit to borrow a loan, you might have a better chance of approval with a line of credit or credit card.

Many lenders offer business lines of credit alongside business loans. How to get approved for a loan varies by lender. If you need to fund regular expenses and want ongoing access to borrowing, consider a line of credit might be right for you rather than a lump-sum loan.

Compare lenders

Once you determine the right financing type for your business needs, it’s time to compare lenders. There’s no universal standard across all lenders, so how to get approved for a loan comes down to vetting your options. Check out which ones fit you best based on:

• Interest rates. Look for those offering the lowest interest or annual percentage rates (APR). Your APR is your interest rate and any additional fees, like an origination fee. When comparing rates, ensure you’re looking at the same rate for each lender, whether the interest rate or the APR.
• Repayment terms. See which ones offer loan terms that best fit your budget. Longer repayment terms mean smaller monthly payments, while shorter terms mean larger monthly payments, but you’ll pay back your loan faster.
• Approval time. Check which lenders have a speedy loan application and loan approval process. Find lenders that fund loans within a business day or two if you need loan funds immediately.
• Eligibility requirements. Some lenders have higher debt-to-income ratio (DTI) thresholds to help those with bad credit qualify for business loans. Others give lower interest rates to borrowers with good credit. Check to see if you’re eligible before completing an application.
• Prequalification option. Some lenders let you check eligibility without completing a full application. Getting prequalified for a loan doesn’t guarantee loan approval, but it gives you an idea if you’re eligible for a loan or line of credit with a particular lender.

Since every lender has different requirements, comparing lenders before completing a loan application is essential.

Complete an application

Once you’ve found the right lender, apply for a loan. How to get approved for a loan happens after you complete an application. Depending on the type of financing you choose, you’ll need some paperwork, including:

• Documentation about your business, whether you’ve officially created your company yet or you have a business plan.
• Personal details, like your name, address, and your role in the company, plus any information on other company owners.
• Financial documents, like bank statements or tax returns, for you and your business.

The type of financing you choose may also require you to put up collateral, like equipment or business accounts. Collateral can help you get a secured loan, but if you don’t repay your loan, you could lose your collateral. Unsecured loans don’t require collateral. Make sure you can afford to repay the loan amount before borrowing.

Submit your application to know how to get approved for a loan. Once you get your approval, review your loan agreement and see if you agree to the terms. Once you do, your lender will let you know how soon you will get your funds.

Final thoughts

Not everyone has a strong financial history to qualify for business borrowing. If you want to get approved for a loan, check your credit report and score. Compare lenders and loan offers to find the best one for your needs. Explore personal loans as an option alongside business financing.

FAQs about how to get approved for a loan

What is the easiest loan to get approved for?

Every lender has different eligibility requirements. While you might be eligible for one loan, you may not meet all the qualifications for every loan offered by every lender. The easiest loan to get approved for is the one you’re qualified for.

How difficult is it to get a business loan?

Business loan requirements are different from personal loan requirements. You'll need to show your personal creditworthiness and a strong financial situation to get a business loan. If you haven’t created your business yet and need a loan to get started, you might have a harder time than someone with an established company.

How much money can an LLC borrow?

Your approved borrower amount depends on your business’s financial standing and creditworthiness. LLCs can borrow from commercial banks or SBA-backed loans as low as a couple of hundred dollars up to the millions.

What qualifies you for a loan?

Every lender has different loan requirements, and there are no set standards that every bank follows. How to get approved for a loan depends on the type of financing you’re looking for and if you meet the eligibility requirements. If you have little or no business credit, qualifying for a business line of credit might be easier than qualifying for a business loan. You might qualify for more loan options if you have good or excellent credit.

What is a hardship loan?

There are a few different hardship assistance options for small businesses. There are tax credits — like the Employee Retention Credit and Paid Leave Credit — for small business. There’s also the Paycheck Protection Program that helps small businesses keep or hire necessary employees, cover overhead costs, and payroll.

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