The most important criteria for business lenders typically include revenue, time in business, your credit score and industry type — but it can vary. The higher the loan amount or the lower the rates, the more requirements you’ll need to meet.
MUST READ: How to qualify for an SBA disaster loan during the coronavirus outbreak
The Small Business Administration is offering low-interest, long-term disaster loans of up to $2 million to businesses that have been affected by the coronavirus outbreak. There are two main requirements to qualify:
Right type of business. Your business must either qualify as a small business according to SBA size standards or be a private nonprofit.
Disaster area. Your business must be in a state where the governor has declared a disaster emergency. Visit the SBA website to find out if your area is eligible for a disaster loan.
Does the SBA consider my credit score?
The SBA doesn’t disclose any credit requirements for its disaster loan program. Generally, it’s more important to show that your business has been affected by the coronavirus outbreak than demonstrate good credit.
Annual revenue. Lenders won’t work with you if you don’t meet the minimum monthly or annual revenue requirement.
Time in business. Many lenders won’t fund a business that hasn’t opened its doors yet.
Eligible industry. Some lenders have restrictions on the industries they’re willing to work with. Some may specialize in ecommerce financing, while others might not be willing to work with lenders in high-risk industries like construction and hospitality.
These requirements can vary depending on the type of loan you’re applying for, how much funding you need and the type of lender.
What if I can’t meet these requirements?
You aren’t totally out of options if you bring in less than $100,000 a year, have only been operating for a few months or have bad credit. You can even get a loan before your business launches. But these tend to be more costly and have less favorable repayment terms.
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How do I qualify for a business loan?
Every lender has its own criteria. But taking these steps can help you make sure you qualify:
Strengthen your credit. Take steps to improve your personal credit score, like consolidating debt. You’ll have more options with good credit — typically 670 or higher.
Pay off debt. Lenders look at your personal and business debt to make sure you have enough free funds to afford repayments. Plus, paying it off can improve your credit.
Invest your own funds. Lenders like to see that you also have some skin in the game. Try to cover 10% or 20% of the cost before you borrow.
Back your loan with collateral. Not all business loans are secured. But putting up business assets as collateral offsets the risk to the lender.
Wait for the right time. You’ll have more options if your business has been around for more than three years, makes at least $100,000 in annual revenue and has an income that’s 1.25 times more than operating expenses.
Find a lender that offers what you need. Only apply with lenders that offer the type of financing you’re looking for — such as equipment loans, term loans or lines of credit.
Government-issued ID. By law, lenders need a copy of your government-issued ID — like a driver’s license or passport — to verify your identity.
Financial projections. Lenders often want to know your projections for expected revenue in the coming months or even years. Especially if it’s less than a year old.
Business registration. Some lenders ask to see your articles of incorporation or other registration documents.
Business plan. Not all loans require one, but a solid business plan can showcase your company and team, increasing your overall credibility.
How to get a business loan in 6 steps
Following these steps can help ensure you get approved for a good deal on a business loan when you apply.
Step 1: Figure out exactly what you’re looking for
Go into your comparison armed with the following information:
What you need to fund. You’ll need to tell your lenders what the funds are for — even if you’re just covering general operating expenses.
How much you need to borrow. Lenders prefer to see an exact loan amount on the application — it shows that you aren’t borrowing too much or too little for a project.
The type of funding you need. Are you looking to fund a one-time expense, or do you need access to a line of credit? Knowing this can help you choose a provider.
When you need the funding. If it’s an emergency, stay away from banks, credit unions and SBA loans — they can take weeks or even months to fund.
Your credit score. You can check your credit score online or by using a budgeting app.
Business revenue and expenses. You need to know how much your business brings in each month and year, as well as its monthly and annual expenses.
Business industry. If you’re not sure what industry you’re in, look it up. Many lenders have restrictions on which industries they work with.
Step 2: Compare lenders
Use the information you gathered in the first step and look for a lender. Compare factors like interest rates, fees, loan terms and how often you need to make repayments.
You might have to call the lender to get this information, since many don’t provide it online. Also, check out customer reviews to look out for business loan red flags.
Step 3: Prequalify
After you narrow down your choices, fill out a prequalification application with your top picks, if possible. This gives you a more personalized idea of what your business will get, though it’s not a guaranteed offer.
If you don’t have the option to prequalify, consider calling the lender and speaking to a representative — often they can give you a ballpark of rates and terms your business might qualify for.
Step 4: Fill out the application
Follow the lender’s instructions to fill out the application. Many allow you to get started online, but often you’ll need to speak with a representative before you can fully complete it.
After you submit your application, lenders typically ask you to submit documents to verify the information you provided.
If you’re applying online, you can often upload PDFs of any verification documents. You also often have the option to fax or mail in copies of your documents if you can’t submit them in person.
Step 6: Review the terms and conditions
If approved, look over your loan documents. Make sure you agree to the terms and conditions before you sign. And be sure to mark your calendar for the first repayment date.
I want an SBA loan. Do I need anything else to apply?
The Small Business Administration (SBA) backs loans to help small businesses qualify for low rates and large amounts of funds. But since it involves taxpayer money, these come with tighter requirements than your typical business lender. At a minimum, your business must meet the following criteria:
We recommend double- and even triple-checking your application to avoid these common mistakes:
Forgetting to check your application. Any inaccuracies on your application will land you in the “no” pile.
Forgetting to submit documents. If your lender can’t verify any information on your application, you won’t qualify.
Not checking your credit score. While some lenders are flexible with credit requirements, others might not be. Don’t apply if you can’t meet this basic requirement.
Lying on your application. Lying is treated the same as inaccuracies. If information isn’t verifiable, you won’t get approved.
Missing deadlines.You’re trying to convince a lender you can make payments on time, so it doesn’t look good if you can’t get documents during the application process returned on time.
Downloadable worksheets to help you prepare
Use our checklist to make sure you’ve ticked all the boxes of what a comprehensive business plan looks like.
Nail down a compelling elevator pitch for an in-person application by using this worksheet.
Your credit score, revenue, time in business and industry are generally the most important requirements when applying for a business loan. But it can vary depending on the lender. Explore your options by checking out our guide to business financing before you get started.
Frequently asked questions
The types of loans offered depends largely on the lender — some specialize in invoice financing or merchant cash advances or term loans, while others offer a variety of options. You can learn more about the different types of business loans available with our guide.
Some lenders require you to provide collateral when applying for a loan, while others don’t. Different lenders will have different loan collateral requirements. The financing amount and type of loan you apply for will often affect what’s required.
Yes — but be careful. Many lenders offer convenient online applications, but may make a hard pull on your credit report when assessing the information you submit.
If you apply for multiple loans and a lender sees other recent pulls on your credit history, it could interpret this activity as a sign of desperation on your part. This could affect how that lender perceives your creditworthiness and potential for risk.
Shannon Terrell is a writer for finder.com who studied communications and English literature at the University of Toronto. On any given day, you can find her researching everything from equine financing to merchant account providers. She loves hot coffee, the smell of fresh books and discovering new ways to save her pennies.
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