Line up what you need for easier approval on your next small business loan.
Read on to learn what to expect when applying for a business loan, including typical eligibility and documentation requirements.
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Our top pick: LoanBuilder, A PayPal Service Business Loans
- Simple online application
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Our top pick: LoanBuilder, A PayPal Service Business Loans
- Min. Loan Amount: $5,000
- Max. Loan Amount: $500,000
- Requirements: Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
What eligibility criteria will I need to meet for a business loan?
The good news is that business owners today have many more options when it comes to finding funding than they did years ago. But you’ll find that eligibility for those loans can differ wildly among lenders.
Here are common business loan requirements you’ll find when applying for a business loan:
- Credit score. Lenders typically examine your personal credit report when you apply. Lenders often require a personal score of at least 650 from successful loan applicants. If you’re already in business, prepare to submit a credit report for your company as well.
- Age of your business. To qualify for most online small business loans, you’ll need to be in business for at least a year. Your typical bank could require you to be in business for at least two years. You can consider a startup loan if your business is less than a year old.
- Annual revenue. Lenders often require businesses to bring in annual revenues of $50,000 to $150,000.
- Personal debt-to-credit ratio. It sounds counterintuitive, but some lenders will consider too much personal credit a risk — you could turn to that credit if your business runs out of money.
- Net operating income. To be sure that you can meet repayment requirements, some lenders look for a total income that’s at least 1.25 times greater than your total expenses.
- Potential collateral. If you’re applying for a secured business loan, you may need to identify an asset — equipment, inventory or real estate — to back the loan against default. If you’d prefer not to provide collateral, you’ll need to compare unsecured business loans.
- How you intend to use your funds. You may need to specify exactly how you plan to use the money you borrow. Some lenders may limit how you spend the approved funds. For example, some equipment financing loans restrict you to only use the funds to purchase equipment.
Which of these eligibility criteria is most important?
It’s hard to say which factor is the most important when it comes to your business loan, with each lender weighing criteria differently. For one, it could be your business’s minimum annual revenue that decides the success of your application, while another could look more closely at how long you’ve been in business, your personal credit score or collateral you’re able to put up.
In the end, it’s best to research the specific lender you’re interested in and ask exactly what they’re looking for when it comes to approval. Otherwise, your application could be rejected.
Compare the requirements and terms of top online business lenders
What information do I need to provide with my application?
Many larger financial institutions, like banks, will require you to make an appointment to complete an application in person. However, newer online lenders automate the process with the convenience of completely online application.
To initially complete your application, you’ll typically submit:
- Your full name, contact information and marital status.
- Your full business name, address, phone number and email address.
- Your industry and date you started your business.
- The annual revenue of your business.
- Your personal bank account information and income earned.
- How much you’re looking for in funding.
- How you intend to use your loan.
What documents will I need to provide after I apply?
After applying, you may talk with a representative by phone to go over your application. To confirm the information you’ve provided in your initial application, you’re often required to upload further documentation of your business’s financial details that could include:
- Bank statements. Lenders typically ask to see two years of your business’s bank statements to verify your financial status.
- Revenue statements. Also called profit-and-loss statements, lenders often require a recent year-to-date revenue statement accompanied by statements from the past two years.
- Balance sheets. A good indication of your business’s financial standing, these statements list your assets, capital and any liabilities.
- Business and personal tax returns. The younger your business, the more likely a lender will require your personal tax returns as part of your application.
- Your personal financial details. Lenders may want to see your full personal assets and liabilities, including your home, credit cards, loans, cars and other investments.
- Personal credit score. Prepare to submit copies of your credit reports from the three main reporting agencies. A personal score of 600 or lower could jeopardize your application.
- Insurance or collateral. To lower its risk, a bank may require you to put up an asset or take out insurance against the deaths of you or your business partners to pay off the loan if needed.
- Business plan. Not all loans require one, but a solid plan can showcase your company and team, increasing your overall credibility.
If your lender provides the option to upload information online, you can protect the integrity of your documentation by submitting it as a PDF. You may also be required to fax copies of important documents before a lender will approve your application.
Downloadable worksheets to help you prepare
Although a business plan may seem like a lengthy document, if you break it up into sections and focus on one at a time you’re well on your way to a convincing position. Use our checklist to make sure you’ve ticked all the important boxes of what an excellent business plan is.
If you have to give a presentation along with your application, you may be wondering where to start. Nailing down a compelling elevator pitch is a good first step to feeling confident in presenting your business to just about anyone. Use our worksheet to come up with the highlights of your business elevator pitch.
How to qualify for a business loan step-by step
Step 1: Pinpoint why your business needs a loan
Knowing exactly why your business could use financing is key to deciding what type of loan you need, which lender to go with and figuring out how much it’s going to cost you.
Step 2: Calculate how much you need
Do the math and add up your expenses. This will help you narrow down lenders: Most have minimum and maximum borrowing amounts. It’s generally not a good idea to borrow more than your business needs because you’ll end up paying more in interest.
Step 3: Review your credit reports
Before you apply, check your personal and business credit reports for errors. If you notice anything wrong, contact the financial institution and the credit bureau to have it changed. Doing this before you apply can not only up your chances of being accepted, it can also help you qualify for more favorable rates and terms.
Step 4: Find a loan you and your business are eligible for
Pay just as much attention to lender’s eligibility requirements as rates and fees. While some lenders are flexible with eligibility, you’re more likely to be approved if you are solidly over or under any cutoffs. Rule out any that you don’t think you’ll qualify for. If you’re not sure, contact customer service — most are happy to discuss eligibility when it comes to specific situations.
Step 5: Get your documents in order
Before you even apply, gather together any documents your lender requests. It doesn’t hurt to anticipate any further requests by having extra documentation on hand. If you’re applying online, scan your essential documents beforehand to make the application process as quick and easy as possible.
Step 6: Complete your application
Follow your lender’s application instructions and reach out to customer service if you have any questions. Many lenders have a live chat option on their websites and almost all have a customer service line you can call. Before you submit your application, review it a few times to make sure all the information is accurate. One of the top reasons lenders reject applications is because it contained incorrect information.
Step 7: Provide collateral (optional)
While you don’t absolutely need collateral to get approved for a business loan, securing your business loan with assets like equipment or real estate can increase your chances of approval and even get low rates. You’ll have to apply with a lender that accepts collateral, of course.
Your business financing application checklist
| Request a free copy of your personal and business credit report from Equifax, Experian and TransUnion. |
|---|---|
| The older, the better. Lenders often require you to have been in business for at least a year or two. |
| Your industry could affect the type of loan you qualify for. Some lenders have restrictions for lending to business in industries such as gambling or firearms. |
| Ask for only as much as you think you’ll need based on your past business needs. |
| Be ready to discuss with your lender how you’ll use your funding. |
| Lenders often require a minimum annual revenue of $50,000 to $150,000 for approval. If you’ve been in business for less than a year and are applying for a startup loan, monthly revenue requirements are typically $10,000 or more. |
| Lenders typically like to see at least two years of your business’s bank statements. If you are a young company, provide as much information as you can to support your application. |
| Prepare a year-to-date revenue statement that documents your company’s net sales, cost of goods and administrative expenses. |
| Balance sheets provide a picture of your business’s overall assets, liabilities and shareholders’ equity. |
| Lenders will want to confirm your income and revenue reported to the IRS —on both your business’s and your personal returns. |
| It’s not always necessary, but a solid business plan boosts your credibility and helps convince lenders that you’re worth their investment. |
| Reference free templates online to assemble a comprehensive account of your business’s outstanding loans and other debt |
| Lenders will want to know your projections for expected revenue in the coming months. |
| Be ready to document inventory, real estate or equipment that you intend to offer as collateral if applying for a secured loan. |
| You may be required to submit documentation of your employee and payroll records when applying for your business loan. |
I want an SBA loan. Do I need anything else to apply?
The US Small Business Administration (SBA) offers programs to help you take your business to the next level. Rather than supplying funding itself, the SBA sets out guidelines that, when followed, let lenders benefit from a guarantee on the loan. Guaranteeing that lenders won’t lose money offers the peace of mind needed for them to lend to you when they might not have otherwise.Qualifying for an SBA loan comes with a bit more red tape and a slightly more involved qualification process. In addition to the documentation required for traditional business loans, you’ll need to produce documentation to confirm that:
- Your business is located in the US.
- Your business is for profit.
- Your business contributes to the US economy.
- Your business is independently owned and operated.
- Your business meets specific SBA size standards.
- You have previously exhausted all other financial resources.
- You are not delinquent on any existing debt owed to the US government.
Common business loan application mistakes
- Making major changes to your business. Now is not the time to take risks: Lenders want to see that you’re stable.
- Forgetting to submit your business plan. This is not only a requirement for many business loans, it’s also where you get to make a case for yourself.
- Not paying attention to your credit score. Your credit score is sometimes the only financial information underwriters check. Don’t apply for something you’ll automatically be disqualified from.
- Lying on your application. Maybe you read in the news that some lenders don’t always check your financial history. That doesn’t mean yours won’t. And besides, eligibility requirements are there in part protect you from getting yourself into a financial situation you can’t afford.
- Missing deadlines. It doesn’t look good for you, who are trying to convince a lender you can make payments on time, if you can’t even get them documents when they ask for them.
Bottom line
Depending on the size of your business and desired loan, you may qualify for more than one type of financing from a variety of lenders. Keep in mind that traditional banks often have stricter requirements and application processes. You could find that online lenders offer business loans with comparable interest rates and fees are a better option for your financing needs.
Explore your financing options and the requirements of various lenders to find a business loan that best fits your situation and helps you remain profitable and successful in the years to come.