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Business loan requirements — explained
5+ things to add to your checklist when applying for financing.
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.
1. Personal credit score
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. 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.
But the minimum personal credit requirement for a business loan varies from lender to lender. In general, you’ll have more options with good credit — typically 670 or higher.
2. Financial and legal documents
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
3. Annual revenue
Lenders generally look for businesses that make at least $100,000 annually or have an income greater than 1.25 times 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 otherwise meets annual revenue requirements.
4. Time in business
Startups and businesses that haven’t begun operations will find it harder to get a loan. Online lenders may accept businesses as young as one year old, but banks and other larger lenders will want to see at least two years in business before considering you for a loan.
5. Collateral
While not every loan is secured, many lenders require your business to have a deposit that covers 10% to 20% of the expense you want to pay for. You may also be required to sign a personal guarantee that holds you accountable if your business is unable to pay its debts.
6. Eligible industry
Most lenders set restrictions on the industries it will work with. For example, businesses involved in selling or producing “adult” content or cannabis may struggle to find funding. But it isn’t limited to just these two — check with the lender you’re interested in before applying.
How to qualify for an SBA coronavirus loan
The Small Business Administration (SBA) is offering two types of low-interest loans to businesses affected by the coronavirus outbreak:
SBA Paycheck Protection Program requirements
Government-backed loans up to $10 million to businesses affected by the coronavirus outbreak. The deadline to apply has been extended to May 31, 2021. There’s a few main requirement to qualify:
- Right type of business. Your business must be a qualifying for-profit small business, nonprofit, sole proprietorship, independent contractor, partnership or franchise.
- Right size. Your business must have no more than 500 employees, meet the SBA size standards for its industry or meet the SBA's alternative size standards.
- Eligible owners. All owners with a 20% stake in the company or more must be US citizens or permanent residents, have no financial felonies in the past 5 years, no current criminal or bankruptcy proceedings. They also can't no defaults or delinquencies on federal loans — with the exception of student loans.
SBA disaster loan requirements
Disaster loans of up to $2 million to businesses affected by the coronavirus outbreak. There are two main requirements to qualify:
- Right type of business. Your business must qualify as a small business according to SBA size standards.
- Disaster area. The SBA has opened up this requirement to include all states, Washington D.C. and US territories. 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.
You can learn more about your eligibility by calling 800-659-2955 (TTY 800-877-8339) or sending an email to disastercustomerservice@sba.gov.
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I want an SBA loan. Do I need anything else to apply?
The Small Business Administration 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:
- For-profit business
- Meet specific SBA size standards
- Exhausted all other financial resources
- Eligible type of business
- Operate in the US or territories
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.
Download the business plan checklist
Nail down a compelling elevator pitch for an in-person application by using this worksheet.
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.
Frequently asked questions
Answers to commonly asked questions about business loans and their requirements.
What type of loans are typically offered to small businesses?
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.
Will I need to provide collateral when applying for my business loan?
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.
Can I apply for more than one business loan at a time?
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.
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