That’s because while some funding sources in the startup ecosystem — like VCs and angel investors — are looking to take big risks, traditional financial institutions like banks generally aren’t.

You’re going to need to show that you have perfect personal (and probably business) credit and they might even require that you’re profitable or on track to become profitable. Generally, banks prefer businesses that have a proven track record when they’re handing out loans.

But that doesn’t mean business loans are impossible for startup founders! It’s just something to keep in mind when you’re considering a bank loan as a funding source.

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Business Loan Requirements

If you’re trying to get a first time business loan, there’s some major prep work that needs to be done.

Regardless of the type of first time business loan you decide is the best fit for your startup, you’re going to need to present the following documents and information to your lending institution.

It’s a good idea to get all of this together before you approach the bank, so that you’re ready to go (and you’re sure you qualify) before you start the long process of applying and qualifying for a first time business loan.

A Personal Background Document

Your bank is going to want to know a lot about you in order to decide whether or not they’re going to loan to you, so prepare a document with the following information:

Previous addresses
Any previous names you’ve used
Criminal records (if applicable)
Educational background

Basically, you want to give them an overview of who you are — and show that you’re a reliable and good bet.

Your Professional Resume

You’ll also need to show them your professional history, so prepare a resume.

Feel free to offer a one-page, high-level resume, as well as a more detailed one that may extend beyond the traditional one-page resume but gives a more complete picture of your professional background.

A Business Plan

You should never, ever try to apply for a business loan without a business plan already in hand.

Even early-stage startups need to be able to show financial institutions that they have a roadmap they’ll be following.

It’s reassuring to the bank or credit union because it not only gives them an idea of what you’re going to do with their money, but also shows that you’ve thought seriously about the issue.

Make sure your business plan includes the following components:

Executive Summary
Company Description
Problem, Solution & Market Size
Product (How it Works)
Revenue Model
Operating Model
Competitive Analysis
Customer Definition
Customer Acquisition
Traction
Management Team
Funding Terms
Financials

For more information on business plans and how to make one, check out this article: What is a Business Plan: An Introductory Guide.

A Description Of How You Plan To Use The Loan

No bank is going to give you money without a description of what that loan will be used for. So figure out exactly the purpose of this loan — and be sure to take a look at the requirements for the type of loan you’re applying for — and get that down on paper.

How Long You’ve Been In The Business

While new startups can absolutely apply for a first time business loan, in general it’s easier for companies with a little history under their belt.

As a result, the minimum time in business is often two years, with companies with a longer business time more likely to be approved than younger companies.

Your Personal Credit Report

Your lending institution is going to want a copy of your personal credit report in order to determine whether or not you are a good bet for lending. As the founder, your personal credit history gives a good idea of how well you’ll handle money and loans within your startup.

Most places use the FICO scoring system, which is as follows:

Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600

If your personal credit is below 650, be prepared to explain why. Also, if you find a mistake on your credit report, you have the right contest it with the credit bureau. Make sure any corrections are taken care of before you approach the bank for a SBA loan.

A Business Credit Report

If your startup has a credit history, the bank will also want to see a business credit report. You can get one from D&B, Experian, or Equifax.

And while most people are familiar with the personal credit score ranking, the business one is different. It ranges from 0 to 1,000 and anything over 80 is in the good range, so don’t freak out of it’s a surprisingly low number!

Personal And Business Tax Returns

Have three years of your personal tax returns, as well as three years of business tax returns (if you’ve been in business that long) prepared and ready for examination by the bank.

They want this information for the same reason they want your credit scores: It gives them a good idea of your financial and business acumen.

One note: Many small businesses and startups write off a large number of things on their taxes. However, this might hurt you in a SBA loan application, as it makes it look like your startup doesn’t have a profit. If that’s the case, be prepared to explain to the bank officer why you chose to take that approach with your taxes.

Collateral

Collateral isn’t always required for loans, but it’s worth determining and documenting what collateral you’re willing to offer, in case they ask for it.

Startups in particular may be consider higher risk loans, so definitely don’t skip this step. Take a look at your assets and consider: What are you willing to give up if you default on your loan?

The answer will be particular to your assets and situation, but may include anything from real estate to equipment to the company itself.