Features
Part of Startup loans: trading-record substitutes and SBA options
Five substitutes make up a complete startup loans requirements checklist
Startup loans requirements: the five substitutes examined in place of a trading record, what evidences each, and the preparation to do before any call.
A new business is asked for the same documents as an established one, and cannot produce most of them. That is the whole difficulty, and it is why the requirement list for a startup is not a shorter version of the ordinary list. It is a different list, made of substitutes, and each substitute has its own evidence.
This page works through the startup loans requirements that replace a trading record: what each item is proved with, and what to have ready before any conversation. Lenders set their own detail and revise it over time, so the categories below are the shape of the file rather than one fixed form.
What to take away
- Nothing on this list is optional because you are new. The substitutes are what is examined instead of history, and they are examined closely.
- Most of the work is evidence, not persuasion. A signed order beats any projection.
- Do the personal preparation first. Where there is no business record, the founder's own file is the file being read.
The five substitutes, and what evidences each
The five substitutes
| What stands in for a trading record | What actually proves it |
|---|---|
| The founder | The personal credit file, personal income documentation, a schedule of personal assets and debts |
| Collateral | Title or ownership evidence, a valuation, and confirmation nothing is already filed against it |
| A third party | That person's own file and assets, and their signature, given knowingly |
| A contract | Signed orders, an executed lease, a customer commitment with terms and dates |
| Prior history you already own | Accounts and filings from a business you previously ran, presented deliberately rather than mentioned |
The fourth row changes conversations, yet it is most often left in a drawer. Proof that revenue is not hypothetical beats any forecast, and it is the only item here a founder can create.
Substitutes and Their Proof
Substitute
- Founder
- Credit file
- Collateral
- Title evidence
- Third party
- Their file
- Contract
- Signed orders
- Prior history
- Accounts
What Proves It
- Founder
- Income documents
- Collateral
- Valuation
- Third party
- Their assets
- Contract
- Executed lease
- Prior history
- Filings
Each substitute is proved with paperwork rather than argument:
- The founder.Personal tax returns, recent personal bank statements, a written schedule of personal assets and debts, and the credit report itself, pulled and read before anyone else sees it.
- Collateral.Title or ownership documents for the asset, a valuation, and a lien check confirming what is already pledged against it.
- A guarantor or third party.Their credit file, their asset schedule, and their written willingness to stand behind the loan.
- A contract.Signed customer orders, an executed lease, or a written commitment with dates and amounts on it.
- Prior business history.Accounts and filings from a business you previously ran, even one that has closed.
Why each substitute works, and what signing for it means, is in startup loans.
Which SBA program the file is going to
The main SBA-affiliated sources of small business loans are the Microloan program, the 504 Loan Program and the 7(a) Loan Program, and the one a file is aimed at changes what it has to prove. The lender is usually a community bank, a credit union or a nonprofit lender; the program sits behind the loan, not in place of the file.
Under 7(a), the maximum amount and guaranty run to $5 million, with an 85% guaranty for loans of $150,000 or less and a 75% guaranty for larger loans.
The base file, which is still required
Newness does not remove these.
- Formation and registration documents for the entity, and the federal identifier the IRS issues, described under employer identification numbers.
Base File Still Required
- Formation and registration documents
- Federal identifier from the IRS
- Business bank statements from opening
- Personal bank statements and tax filings
- Ownership details and guarantor information
- Licenses, permits, certifications to trade
- Insurance and lease with landlord consent
Beyond the formation documents, the parts of the file that do not depend on trading history:
- Personal tax returns for each owner, and a personal financial statement.
- Bank statements, business ones where they exist and personal ones until they do.
- The business plan and the cash forecast behind the amount requested.
- Licenses and permits the business needs in order to trade, and the lease or premises agreement.
- Articles of incorporation or organization, and the operating agreement.
Where the business is a few months old rather than a few days, bring what exists and say plainly how long it covers. A short record presented honestly reads better than a long forecast presented confidently.
The number, and where it should come from
Every application rests on an amount, and the amount is the requirement founders prepare least. Borrowing the plan's total is the mistake underneath most of the others.
Build the Amount
- List what the money buys
- Attach a quote or estimate to each line
- Add pre-revenue months
- Add a justifiable contingency
- Name the repayment source
Build the figure from a list of what the money buys, with a quote or estimate against each line. Add the months before the business is permitted or able to earn, plus a contingency you can justify.
The SBA's page on calculating startup costs covers the categories left out, and licensing lead time is the most left out.
Then say where repayment comes from, in a sentence that names something rather than describing growth. A named repayment source is a requirement in substance even where it is not one on any checklist.
The personal preparation that comes first
Where there is no business record, the founder's file is what is being underwritten, and errors on it are common and slow to correct.
Personal File Preparation
- Obtain and read every line
- Dispute errors in writing
- Bring past due current
- Stop opening new accounts
- Write one page on bad items
- Settle what a guarantee reaches
The same preparation in more detail, including what a weaker record adds to the requirement list, is in loans by credit profile requirements.
Two things to prepare that nobody asks for
A cash forecast built on the downside case. Not the plan's forecast. One that assumes the launch is slower and the first customers take longer to pay, with the proposed repayment in it. Founders underwrite their own ventures far more generously than they would underwrite anyone else's, and a lender knows that. Arriving with the pessimistic version already done is unusual and it reads well.
Prepare Unasked Documents
Document
- Cash forecast
- Downside case
- Alternatives note
- Customer deposits
What It Shows
- Cash forecast
- Slower launch
- Alternatives note
- Smaller start
A note on what you considered instead of borrowing. Customer deposits, a smaller start, used equipment, a deferred hire, supplier terms. Each reduces what has to sit behind a guarantee. Where the instruments stand relative to each other, including the ones that are not debt at all, is set out in startup loans comparison.
Before the first conversation
- The amount, built from a list, with the pre-revenue months in it.
- The repayment source, named and evidenced where possible.
- The personal file, obtained and read, with anything awkward already written up.
- The base documents assembled and consistent with each other.
- Whatever contracts, orders or commitments exist, collected in one place.
- An understanding of what the offer will cost across its whole life, computed rather than assumed, using the worked method in the startup loans calculator.
Ask each institution the two questions that save the most time. What does a complete file for a business like mine look like to you? What most often stalls one?
Before the First Conversation
- Amount built from a list
- Repayment source named and evidenced
- Personal file obtained and read
- Base documents assembled and consistent
- Contracts, orders, commitments collected
- Whole-life cost of the offer computed
Both are answered readily and convert guesswork into a list you can finish, while the provisions that will govern the years after signing, the same for a new business as for any other, are in application and repayment.
Common questions
Can I apply with no trading history at all?
Yes, but understand what is being examined instead: you, collateral, a guarantor, a contract, or a record from a business you ran before. If none of those exists in a presentable form, the preparation is to create one rather than to apply.
How much does a business plan matter?
Less than the evidence behind it. A signed order changes an application; a projection rarely does. Keep the plan short and put the effort into what supports the numbers.
Should I open the business bank account before applying?
Yes, and early, so there is some statement history by the time anyone looks. Keeping business and personal money separate from the first day also removes a question you would otherwise have to answer.
Is a guarantee always required for a new business?
Assume it will be asked for. What varies is whether it is capped, who else signs, and what releases it, and all three are worth asking about before an offer is drafted rather than after. The SBA guaranty behind a federal loan is a different thing from your own signature: it covers part of the lender's risk and does not cap what you sign.
