Business loan requirements explained

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

The good news is that business owners today have many more options when it comes to finding funding than they did years ago.

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 6 months. Your typical bank could require you to be in business for at least 2 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.

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.

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.