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5 business loan requirements

What lenders look for when you apply for a small business loan.

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By

Bethany Hickey

Updated

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There are several main business loan requirements you’ll find with most lenders: revenue, time in business and credit score. Many small business loan providers will also consider the industry you’re in, and nearly all are likely to require a personal guarantee.

Here are five basic requirements to expect when applying for a small business loan.

1. Annual revenue of $100,000

Business loan providers want to approve loans for profitable businesses.

Most lenders will require a business to make at least $100,000 in annual revenue. Some providers will require at least $10,000 per month, and will require your business to have an income greater than 1.25 times its normal operating expenses.

In addition, the amount of debt you and your business carries may also play a role. If your personal or business debt-to-income ratio is too high, you may not be approved for a loan — even if your business meets annual revenue requirements.

To prove your business is profitable and meets requirements, you’ll need supporting documentation such as tax returns and balance sheets. Some lenders have the capability to connect to your accounting software for seamless no-doc applications.

2. At least one year in business

Most lenders typically require 12 months’ worth of successful business operations — at minimum — to approve you for a business loan.

This 12-month cutoff requirement is largely due to the fact that around half of small businesses fail within the first five years, according to the Bureau of Labor Statistics. In 2017, there were 733,286 new businesses — and by 2022, only 378,596 survived.

Time in business requirements can vary by lender, and you may find providers that require six months or less, but it’s not very common. Unfortunately, this means that startups can struggle to find financing in the first few months. But there are lenders with startup financing with less stringent time in business requirements, but these options may be more costly.

Or, consider a personal loan from a lender like Upstart if you have good credit and income from outside your business.

3. Good personal credit

Generally, good credit is a FICO score above 670 — though each lender has its own definition of a “good” credit score. Generally, anyone with at least 20% of ownership in the business will have their credit checked when you’re looking to take out a loan.

The personal credit scores of you and any other owners or stakeholders of your business can play a big role in the funding you qualify for — and the rates you receive. Lenders want to see that you’re responsible with funds, largely because it translates directly to how well your business will be able to repay a loan.

The minimum personal credit requirement for a business loan varies from lender to lender. But the higher your personal credit score, the more options you’ll have. You’ll find that many loan providers prefer credit scores above 640 to 670, but there are bad credit business loans available for different credit situations. But again, these options may be more costly. If you have a good reason for your bad credit, borrowing from a local bank may be your best option, since small banks have more flexible credit requirements than other types of lenders.

Your business will also have a credit score and credit history, tied to your Employer Identification Number (EIN). However, checking a business’s credit history isn’t that common.

4. Personal guarantee and collateral

A personal guarantee is when the business owner promises to repay the loan if the business fails. Virtually all lenders require a personal guarantee from the majority owners — even if the loan is unsecured.

Additionally, many business lenders require collateral or a blanket lien on your business’s assets. Or a lender may require your business to have a deposit that covers 10% to 20% of the expense you seek to pay. Businesses need to prove that the company and its owners will be able to pay down the loan by selling assets if the borrower defaults.

5. Eligible industry

Most lenders set restrictions on the industries it will work with. For example, businesses involved in selling or producing “adult” content or those in the cannabis industry may struggle to find funding. But eligibility restrictions apply to more than these two industries.

Other industries that may not be eligible for a small business loan include:

  • Accounting
  • Construction
  • Cryptocurrency
  • Financial services
  • Gambling
  • Insurance
  • Legal services
  • Lending
  • Manufacturing
  • Newspaper
  • Pawn shops
  • Real estate
  • Real estate
  • Retail

Keep in mind that lenders vary and some may accept “high-risk” industries — simply ask any lenders which industries are eligible before submitting a full application. Certain types of financing also have broader industry restrictions. For example invoice factoring companies only serve business-facing businesses, while merchant cash advances are only available to consumer-facing businesses.

Compare top business lenders

Compare lenders by the loan amount you need, and search for lenders by their revenue and time in business requirements.

1 - 4 of 4
Updated regularly
Name Product Filter Values Min. Amount Max. Amount APR Requirements
SMB Compass
Finder Rating: 4.4 / 5: ★★★★★
SMB Compass
$25,000
$5,000,000
Starting at 5.99%
2 years in business, $25,000 monthly revenue, business bank account
Enjoy personalized solutions and a consultative approach to business lending.
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ROK Financial business loans
Finder Rating: 4.7 / 5: ★★★★★
ROK Financial business loans
$10,000
$5,000,000
Starting at 6%
Eligibility criteria 1+ year in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
Apply for up to $5 million with a 15-second online application. Choose your best offer and get funded as soon as the same day.
Go to site
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Backd
Finder Rating: 4.4 / 5: ★★★★★
Backd
$10,000
$2,000,000
Competitive
1 year in business, $100K annual revenue, business bank account, US based business
Get pre-approved for a business loan in minutes with no impact to your credit score.
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Bluevine business lines of credit
Finder Rating: 4.3 / 5: ★★★★★
Bluevine business lines of credit
$5,000
$250,000
Estimated 8% to 86%
24+ months in business, $40,000+ in monthly revenue, 625+ credit score
Get approved for a revolving credit line in as fast as 5 minutes.
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Documents to prepare for a small business loan

Having the right paperwork ready will make the application process smoother and show your lender that you’re prepared. These are some of the most common documents lenders require:

  • Business and personal bank statements
  • Business and personal tax returns
  • Profit and loss statements and balance sheets
  • Collateral documents
  • Personal financial statement
  • Government-issued ID and business registration
  • Business plan and financial projections
  • Personal resume

There are also no-doc lenders that allow for electronic document submission, making this process much easier and less time-consuming.

SBA loan requirements

The Small Business Administration (SBA) backs loans to help small businesses qualify for low rates and large funding amounts. In a nutshell, an SBA loan is a small business loan that’s backed by the government. Depending on the loan you go with, you could borrow anywhere from $500 to $5 million.

But SBA loans involve taxpayer money, so tighter requirements are associated with them than a typical business lender. For example, the SBA restricts what types of business qualify, how large or small your business can be and your business must be located in the US.

But on the plus side, they don’t require a minimum credit score.

At a minimum, you must meet the following criteria to qualify for an SBA loan:

  • Be a for-profit business
  • Meet specific SBA size standards
  • Eligible industry or business type
  • Operate in the US or territories
  • Exhausted all other financial resources

Compare alternatives for startups and low-revenue businesses

Personal loans can be a good alternative for small businesses that don’t make the cut when it comes to time in business or revenue minimums. These are best for entrepreneurs who have a source of revenue outside of their company — after all, you’ll be responsible for repayments.

Select Compare on up to four personal loan providers to weigh APRs, credit score cutoffs and loan amounts side by side.

1 - 3 of 3
Updated regularly
Name Product Filter Values APR Min. credit score Loan amount
Best Egg personal loans
Finder Rating: 3.8 / 5: ★★★★★
Best Egg personal loans
8.99% to 35.99%
600
$2,000 to $50,000
A prime online lending platform with multiple repayment methods.
Go to site
More Info
Upstart personal loans
Finder Rating: 4.15 / 5: ★★★★★
Upstart personal loans
6.7% to 35.99%
300
$1,000 to $50,000
This service looks beyond your credit score to get you a competitive-rate personal loan.
Go to site
More Info
LightStream personal loans
Finder Rating: 4.83 / 5: ★★★★★
LightStream personal loans
7.99% to 25.00%
Good to excellent credit
$5,000 to $100,000
Borrow up to $100,000 with low rates and no fees.
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Bottom line

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.

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