Launching a business is exciting, but it often requires capital. For first-time business owners, finding the right funding can feel overwhelming. Banks generally prefer borrowers with strong credit and financial history, and new businesses may struggle to secure traditional loans due to limited track records.
However, there are a number of funding options available for new entrepreneurs—some affordable and some costly. Understanding your options can help you make smarter, more confident financial decisions.
When should you consider getting a business loan?
There are many reasons a first-time owner might seek outside funding. If your business needs capital for any of the following, it may be a good time to explore loans:
- Hiring and payroll
- Equipment purchases or upgrades
- Commercial lease or mortgage
- Marketing and advertising campaigns
- Launching new products or services
- Increasing inventory
- Covering operational expenses
- Refinancing high-interest business debt
What is a business loan?
A business loan is a form of financing where a lender provides capital to a business that must be repaid over time, usually with interest. Business loans may be structured as lump-sum loans (bank term loans), revolving credit (like lines of credit), or specialized loan programs (such as SBA loans). Interest is typically expressed as an annual percentage rate (APR), and loan terms vary depending on the lender and loan type.
Best loan options for first-time business owners in 2026
1. SBA 7(a) loans
The Small Business Administration (SBA) backs loans made by approved lenders. SBA 7(a) loans are considered the gold standard due to their low interest rates, flexible use of proceeds, and long repayment terms (up to 10 years for working capital and 25 years for real estate).
To qualify for an SBA 7(a) loan, businesses typically need to be in operation for at least two years. However, if you’re close to that threshold, it may be worth applying, especially if your business has consistent cash flow and strong credit.
Common uses:
- Hiring and working capital
- Marketing
- Equipment
- Debt refinance
More info: SBA 7(a) Loans
2. SBA microloans
If you’re a true startup or have limited revenue, the SBA Microloan Program may also be a good fit. It offers loans up to $50,000 and is designed specifically for small and underserved businesses. These loans are issued through nonprofit lenders and often come with free technical assistance.
Common uses:
- Equipment or inventory
- Startup working capital
- Business training and development
Note: You typically can’t use SBA microloans to refinance existing debt or purchase real estate.
More info: SBA Microloan Program
3. Short-term bank term loans
Short-term loans are lump-sum loans that are repaid over 2 to 5 years. They may offer faster access to capital and typically have fewer documentation requirements than long-term loans. However, the interest rates can be higher, especially if you have limited credit history.
Common uses:
- Equipment purchases
- Expansion
- Jumpstarting cash flow
SmartBiz offers short-term bank term loans generally offer between $30,000 and $500,000 with fixed interest rates, monthly payments, and no prepayment penalties.
More info: Bank Term Loans
4. Lines of credit
A business line of credit is a flexible financing option that allows you to draw funds as needed, up to a set limit. You only pay interest on the amount you use. Lines of credit can be easier to qualify for than term loans and are ideal for managing short-term needs.
Common uses:
- Emergency repairs
- Inventory restocking
- Seasonal expenses
Many online lenders and fintech banks now offer unsecured business lines of credit to new businesses, although rates may be higher.
More info: How Does a Line of Credit Work?
5. Startup business loans
Startup loans are specifically tailored for businesses that are not yet generating revenue. These may be offered by online lenders, nonprofits, or specialized programs. They often rely on the founder’s personal credit score, experience, and business plan.
Requirements:
- Strong personal credit
- Solid business plan and projections
- Willingness to provide a personal guarantee
Common uses:
- Launching a business
- Initial inventory or equipment
- Early marketing costs
6. Business credit cards
For entrepreneurs just getting started, a business credit card can be a helpful financial tool. They allow you to separate business expenses from personal ones and build a business credit profile. Many offer cashback or rewards, but high interest rates apply if balances aren’t paid in full.
Look for cards that report to commercial credit bureaus and come with manageable fees. Secured business credit cards are also an option if your credit is limited.
Other funding alternatives to consider
- Grants: Although competitive, there are grants available for startups in certain industries, minority-owned businesses, or those addressing social needs.
- Crowdfunding: Platforms like Kickstarter® or Indiegogo® allow you to raise startup funds from a wide audience.
- Angel investors: Some first-time founders seek equity investment from angel investors who fund startups in exchange for a stake in the company.
- Community development financial institutions (CDFIs): These nonprofit lenders support underserved business owners with flexible, lower-interest financing and mentoring.
Loan application tips for first-time borrowers
- Protect your credit score
Limit applications to lenders who offer soft credit pulls until you’re ready to proceed. Multiple hard inquiries can hurt your score. - Work with transparent lenders
Avoid predatory lenders with unclear fee structures or aggressive terms. Work with partners who clearly outline rates, repayment, and qualifications. - Know how much you need
Review your business plan and financial projections. Borrowing too little or too much can both be problematic. - Choose the right term
Longer terms mean lower monthly payments but higher total interest. Shorter terms cost more monthly but save over time. - Gather documentation
Prepare tax returns, financial statements, bank records, legal documents, and a strong business plan. Being organized speeds up funding.
Final thoughts
Getting your first business loan is a major milestone. With the right strategy and funding partner, you can access the capital you need to launch, stabilize, or grow. Explore multiple options, compare terms, and apply for the loan that matches your timeline, credit profile, and business goals.
Want to see if you pre-qualify for a business loan with no impact on your credit? Check your eligibility with SmartBiz in under five minutes.
