Small Business Loan Requirements: The Ultimate Guide

You’ve decided to apply for a business loan, but where do you begin and what information do you need to get started? 

Understanding a lender’s business loan requirements before you apply can help fast-track your application and the underwriting process.

When you’re applying for a business loan, there are several requirements you must meet to be considered for financing. These factors play into qualifying for a small business loan. They also affect the loan amount, interest rate and repayment term for which you may qualify. 

Although specific requirements vary by institution and type of financing, lenders generally evaluate you based on the following factors:

• Time in business
• Annual revenue
• Credit score and debt load
• Cash flow
• Industry
• Collateral
• Business documentation

Let’s look at these in a bit more detail.

Time in Business

One of the main requirements for your business is to have been in operation for a certain length of time. Typically, lenders like to see a history of success, and established businesses are less likely to falter and default on a loan.

As such, startups have limited options. For example, bank and Small Business Administration (SBA) loan requirements for business purchases generally call for companies to have been in operation for at least 2 years.

That said, alternative financing options, such as merchant cash advances, can be found with just a few months of business under your belt.

Annual Revenue

Annual revenue requirements will vary by loan type and lender. A lender may require a minimum of $50,000 annually for an SBA loan, while you may need $200,000 or more in revenue to qualify for a business term loan. 

Some lenders will list specific revenue requirements on their website’s respective loan product page. 

Bank of America, for example, requires a minimum of $250,000 in annual revenue for a secured business line of credit, secured term loan and commercial real estate loan, while its unsecured loans are available to businesses with at least $100,000 in yearly revenue.

Cash Flow 

In addition to revenue, lenders will look at your cash flow, which is an indicator of your ability to repay the loan you’re requesting. 

Think about it: You could have high revenue, but if your expenses are also high, your cash flow may be insufficient to afford a loan. The higher your revenue and cash flow, the higher the likelihood you’ll be able to obtain funding.

Credit Score and Debt Load

Credit score, which takes into account your credit history and debt load, is another factor lenders take into consideration when evaluating you for loan approval. The higher your credit scores and the lower your debt load, the better.

Personal Credit Score

Although you’re borrowing money for your business, your personal credit score can impact your fundability. 

Banks may require a personal credit score of at least 700, while SBA lenders may accept a score of 650 and alternative lenders may consider applicants with scores in the 500s.

Your personal credit history will be used to vet you as an owner, with lenders assessing your money management skills outside of your business.

Showing a personal history of delinquencies or bankruptcies will worry a lender, even if your business’s financials are strong.

Business Credit Score

Your business credit score is another factor lenders take into consideration. Depending on your preferred business financing, small business loan credit score requirements will vary. However, a score of more than 80 on a scale of 0-100 is considered very good.

Having an excellent credit score will help get you approved with banks and SBA lenders for term loans with high amounts and low rates. SBA loans are popular for businesses with good credit, as they offer competitive terms and are partially guaranteed by the federal government.

If you don’t have a good credit score, don’t worry. With the emergence of online lenders, finding bad credit small business loans isn’t as difficult as it used to be.

Debt Service Coverage Ratio 

A large part of assessing your risk includes looking at current debts.

To do this, lenders calculate your debt service coverage ratio (DSCR) based on what you owe compared to what you bring in.

DSCR is an important business loan requirement because it allows lenders to judge what you’re capable of paying.

If you have multiple loans and other payments that cut too far into your revenue, you’ll be unable to take on another loan payment.

If you have a current debt that will soon be paid off, it may be best to wait before applying for a small business loan.

Industry 

In some cases, companies in a certain industry may have a more difficult time qualifying for a business loan. 

For instance, businesses involved in any of the following are ineligible for SBA loans:

• Gambling
• Loan packaging
• Speculation
• Investments 
• Lending
• Leasing
• Insurance
• Pyramid sales plans
• Religious organizations
• Rare coin and stamp dealers

Other industries, like commercial trucking and used car dealerships, have higher failure rates and are riskier to lenders.

Also, it’s important to note that lenders assess sole proprietorships, partnerships, LLCs and corporations differently. Your business structure will determine what additional information you’ll need to include with your loan application.

Collateral

If you’re applying for a secured bank loan or loan backed by the SBA, you’ll likely need to offer collateral to secure the loan. 

A collateral-backed loan is less risky for lenders. Collateral could be in the form of money, inventory, real estate, equipment or accounts receivables. Loans secured by collateral usually have lower interest rates than those that aren’t.

If you’re applying for unsecured business loans, which don’t require collateral, you’ll usually need to provide a personal guarantee. In some cases, collateral-backed loans also may require a personal guarantee. This means you’re personally liable to pay the lender back if your company is unable to.

Business Documentation

To assess your business qualification, such as annual revenue and cash flow, lenders will ask for certain documents to demonstrate the health of your business. 

Some nonbank lenders may accept several months of your most recent bank statements if you meet credit score, time in business and revenue requirements. However, conventional lenders may have the following business loan application requirements, and could request up to 2 years of financial documentation.

You may need to provide copies of these: 

• Business plan
• Balance sheets
• Commercial property lease or deed
• Business licenses and permits
• Personal and business tax returns
• Profit-and-loss statements
• Accounts receivable and accounts payable statements
• Corporate documents (e.g., articles of incorporation, bylaws)

When you’re researching the loan application process and what’s required for a small business loan, it’s important to understand that loan requirements differ by lender and financing type. 

Here’s what you can expect.

Bank Loan Requirements for Businesses

Minimum bank loan requirements for businesses are the most stringent.

To qualify, you’ll likely need to meet the following:

Do you qualify?

SBA Loan Requirements

SBA-backed loans are designed for small business owners who don’t meet bank loan requirements for business loans but still have strong creditworthiness.

To qualify for an SBA loan through Fast Capital 360, you’ll need:

Do you qualify?

Business Lines of Credit Requirements

A business line of credit offers revolving funding that you can use only when you need it and then pay it back in installments, similar to a business credit card. Business lines of credit don’t have as high requirements as term loans, making them a great option for younger businesses who have ongoing working capital needs.

To qualify through Fast Capital 360, you’ll need the following:

Do you qualify?

Equipment Financing Requirements

Equipment loans are secured by the equipment you’re financing, which can make them easier to qualify for. 

With Fast Capital 360, you’ll need to meet the following business loan requirements:

Do you qualify?

Accounts Receivable Financing Qualifications

Accounts receivable financing, also referred to as invoice financing, is an advance on your future receivables. This is where your accounts receivable aging statements come in handy, showing the lenders how quickly they can expect to receive repayment from your customers. Since your invoices secure the advance, minimum requirements are comparatively low.

To qualify through Fast Capital 360, you’ll need the following:

Do you qualify?

Merchant Cash Advance Requirements

A merchant cash advance (MCA) is secured by your future revenues. You’ll usually repay your advance on a daily or weekly basis through either a percentage of your credit card sales or ACH payments taken directly from your bank account.

MCAs have the lowest minimum qualifications of any alternative lending product.

To qualify for an MCA through Fast Capital 360, you’ll need to meet these minimum requirements:

Do you qualify?

That being said, be prepared to provide the following personal and business information and documentation to get things rolling.

Personal Information

One of the first small business loan requirements lenders will request is your personal information. They’ll begin the application process by asking a little bit about you and other co-owners of your small business.

Some basic information they need:

• Full name
• Social Security number
• Address
• Marital status

Business Information

After learning about you and any other owner(s), it’s time for lenders to assess the viability of your business. Here’s some information that lenders may ask you to provide.

Full Business Name

One commercial business loan requirement is to provide lenders with your business’s full name (including a DBA, “doing business as” name, if applicable) so they can search public records for details about your company. This includes Uniform Commercial Code (UCC) liens filed through the Secretary of State office. An active lien indicates there are claims other lenders have against your assets.

Employer Identification Number

If you aren’t exempt from needing one, an IRS-provided employer identification number (EIN) acts like a Social Security number for your business. A lender will use it to perform a background check to verify the information you provide about your company.

Ownership or Partnership Information

If you aren’t the sole owner, you’ll need to provide information on your business partners. This allows a lender to get a full view of how your company runs, what responsibilities each owner has and how their credit scores and assets impact terms.

When applying for financing, another business loan requirement is, of course, information about the loan itself.

Loan Amount

One of the first questions a lender asks is “How much do you need to borrow?”

The loan amount you need may disqualify you from certain lenders. For example, banks don’t typically offer microloans, and instead, focus on business loans greater than $50,000. On the other hand, online lenders have set maximums they won’t exceed.

For some business loans a down payment is required. Many lenders require up to 20% down, but you can find small business loans with no down payment needed.

Loan Use

It’s essential to explain precisely how you’ll use the funding to grow your business.

If you’re buying a tangible asset, such as commercial real estate or equipment, you’ll need to provide basic information about it. This can be an address, square footage and pictures for an office space. Or if you’re buying equipment, such as a commercial truck, you’ll often need to provide mileage, repair history and dealership information.

If you’re applying for a working capital loan to invest in multiple aspects of your business, you’ll need to know ahead of time what you’ll use that funding for.

Lenders use this to determine if returns are likely and how that will impact your ability to repay the loan.

Banks and the SBA are stricter regarding who they lend to. There are, however, many small business lenders that have more flexible business loan requirements. They can also offer a streamlined application and funding process, with fewer business documents required for loan approval.

Specifically, funding products offered by online lenders generally require less documentation. Their focus on speed cuts out a lot of the need to pore over financial statements that won’t have as much importance in their final decision.

Once you’re ready to apply for a business loan, determine what type of financing you need and which choice may be best for your company.

When you’ve decided which direction to go, contact the lender. They’ll ask you to fill out an application and submit the personal, business and financial documents required for a business loan.

If you apply with a conventional bank and you don’t meet their business loan requirements for approval, don’t worry. There are other options available.

Fast Capital 360 offers a marketplace where you can be matched with top lenders who can provide rates and terms that work with your goals. Simply, apply online and submit your last 4 business bank statements to find out what you qualify for, quickly and easily.

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