Business loan requirements explained

Line up what you need for easier approval on your next small business loan.

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Unlike your typical personal loan, business loans involve more risk for a lender, resulting in stricter eligibility and longer applications. You’ll typically need to gather some key financial details to complete your loan application.

Here’s what to expect when applying for a business loan, including typical eligibility and documentation requirements.

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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. 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 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 meet a minimum level of income to be considered for a loan.
  • 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.

There are also a number of legal requirements that both you and your business will need to meet to be eligible for a loan

All lenders will need the applicant to meet these basic criteria:

  • Over 18
  • Resident in the UK
All lenders will need the business to meet these basic criteria:

  • Based in the UK

What information do I need to provide with my application?

Larger financial institutions, such as banks, will generally 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.

You’ll typically need to provide the following information as part of your application:

  • Your full name, contact details 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. You will generally need to provide evidence of your credit history.
  • 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.

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.

Typically, the very best rates on unsecured loans will be reserved for businesses and directors with excellent credit, while specialist lenders serving other sectors of the market are likely to look more at how profitable your business is.

Regardless of what type of business finance you apply for and which lender you apply to, it will need to be comfortably affordable given your business’s income and outgoings.

What information do I need to provide with my application?

As standard, you’ll need to provide proof of ID (passport, driving licence etc) and proof of address (utility bill, bank statement etc.) as well as your company registration number (CRN) if it’s a limited company, the registered address and details of company directors and finances.

You may additionally need to provide a business plan, bank statements, cash flow forecasts, management accounts and historic accounts.

Some larger financial institutions, like banks, may require you to make an appointment to go through an application in person. Newer online lenders automate much of the process, with the convenience of a completely online application. Business loans do typically require a little more underwriting than personal loans, and at the very least, you’ll normally need to speak to the lender over the phone.

Common business loan application mistakes

  • Making major changes to your business. Now may not be the best time to take big risks. Lenders want to see that you’re stable.
  • Forgetting to submit a comprehensive 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 often the first metric 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 to protect you from getting yourself into a financial situation you can’t afford.
  • Missing deadlines. It doesn’t look good if you can’t get your potential lender the documents they ask for on time since you are trying to convince a lender you can make payments on time.

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.

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