Financing Guide

Business Loan Requirements

14 Min Read

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.


Information Requirements to Start Your Business Loan Application

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

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

This information may seem trivial, but it’s used to perform a background check and vet you.

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 (EIN)

If you aren’t exempt from needing one, an IRS-provided 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.

Industry

Your industry can play a large role in being approved for a small business loan. For instance, some 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 need to include.

Two businessmen in an office setting discussing a topic of interest as they review paperwork

Ownership or Partnership Information

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

Time in Business

One of the main requirements for your business loan is proof of how long you’ve been in operation.

Startups have limited options. For example, bank and SBA loan requirements for business purchases generally call for companies to have been in operation for at least 2 years.

Lenders like to see a history of success. Such businesses are less likely to falter and default on a loan.

Do you need a loan for your small business?

Documents Required for Business Loans

Lenders will also require certain documents from you. Below are some of the statements and documentation you may have to submit with your loan application.

Corporate Documents

If you own a corporation, you’ll have to submit the documents created when you filed for incorporation.

These include:

  • Articles of incorporation
  • Bylaws
  • Franchising information
  • Stock ledgers (if publicly traded)
  • Board member information

Deed or Lease for Commercial Property

You’ll need to show proof that you own or lease commercial property for your business. This information shows the address where you do business, which can be important for retailers that rely on location to attract and retain customers.

It can also make a lender think twice about the long-term success of your business if the lease on your space is coming up for renewal and you aren’t sure whether you’ll be able to extend it. Stability in all aspects of your business limits a lender’s risk.

Business Licenses and Permits

Depending on your industry, business entity and location, you may need specific licenses and permits from local, state and federal agencies.

To meet business loan requirements to apply for a loan, you’ll need to show proof that you’re up to date on everything you need to run your business legally. This indicates there will be no obstacles that can halt performance. It also reduces the risk of legal action against your company, which can affect your ability to repay a loan.

Business Plan

A solid, executable business plan can help lenders assess your creditworthiness, though it’s not always a small business loan requirement.

Applicants with strong sales, projected revenues and business plans are considered stronger candidates by lenders.

You’ll want to include the following in your business plan:

  • Your mission statement
  • Your value proposition
  • Target market and customer information
  • Information on your products/services
  • Financial projections
  • Current and future marketing and advertising strategies

Add any unique details that would be important in evaluating the long-term potential of your business.

Tax Returns

Personal and business tax returns show the total of how much revenue you bring in during a given year, providing lenders with an overview of your finances.

If you have a pass-through business entity, like a sole proprietorship or partnership, your business taxes are done on your personal return.

Corporate owners file separately but will sometimes need to provide personal returns.

You’ll be required to provide at least 2 years of tax returns for most business loan applications.

Bank Statements

The main goal of a lender is to assess your ability to repay a loan. Bank statements give them a picture of how you manage money.

They can also see how much cash you have available at the time you apply. If you don’t have a lot of money in the bank, that shows lenders that you don’t have a cushion in case sales decline.

Having a good chunk of cash in a business account assures your lender that you have the ability to repay your debt in the case of an emergency. This helps your chances of approval.

If possible, it’s best to give the lender 4 to 6 months’ worth of bank statements.

Balance Sheets

A balance sheet shows what your company owns (assets) against what it owes (liabilities). This helps lenders determine if your company can handle its current and/or future debt obligation.

The balance sheet equation is: Assets = Liabilities + Equity

Cash, investments, inventory and accounts receivables are put into the assets side of the balance sheet. Any costs, including mortgage or rent payments, loan payments and shareholder equity, go on the liabilities side.

Balance sheets are common small business loan requirements because they prove that you generate enough revenue to equal or, preferably, trump the costs you have.

Be prepared to supply at least a year-to-date balance sheet.

Profit-and-Loss Statements

Most lenders have requirements for annual revenue to be approved for loans.

U.S. bank business loan requirements for a company’s revenue can be high because they provide larger loans and prefer to work with more established, profitable borrowers.

A profit-and-loss statement proves your company’s ability to generate revenue. Showing a consistent rise in revenue can get you approved for better financing terms.

Be prepared to provide both a quarterly and year-to-date profit-and-loss statement with your application. Some lenders may require you to provide a few years’ worth to assess your ability to generate income.

A business owner is filling out small business loan application

Accounts Receivable and Accounts Payable Statements

Accounts receivable and accounts payable information often is required for a small business loan application.

An accounts receivable aging statement is used to assess how efficient your company is in collecting invoices. If it shows that you have multiple accounts that are long overdue, this may be a red flag to lenders.

On the other side, accounts payable statements show how quickly you pay off your debts to vendors. If you’re behind on your payments, lenders may assume you won’t be able to pay them on time either.


Financial Requirements Needed for a Business Loan

The financial information you give a lender will be the ultimate deciding factor in what loan amounts, interest rates and repayment terms you qualify for. In addition to reviewing your bank statements and other required documentation, lenders will want to take a look at the following.

 

Personal Credit Score

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

If you’re applying for unsecured business loans that don’t require collateral, you’ll usually need to provide a personal guarantee. Lenders, in this case, need to know you’ll personally be able to pay them back if your company is unable to.

In other cases, 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 possibly the most scrutinized small business loan requirement of all. Depending on your preferred business financing, small business loan credit score requirements will vary (more on this later).

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.

Fast Capital 360 can find you fast funding with a minimum score of 500.

Small business tip:

The best way to secure better rates and terms on your small business loan is by improving your creditworthiness. Being on time with payments and practicing better money management skills can repair your credit score and get you approved for affordable funding.

Debt Service Coverage Ratio (DSCR)

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

To do this, lenders calculate your 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.

How Much Can My Business Qualify For?

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Business Loan Details Lenders Require from You

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 also 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 like 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 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.

Collateral

If you’re wondering “Do small business loans require collateral?” the answer is some do and some don’t. For small business loans that require collateral, you’ll need to offer lenders assets to secure the loan, such as property, equipment or vehicles. You’ll also need to provide proof of ownership via deed, title or any other qualifying document required for business loan collateral.

In contrast, unsecured business loan requirements don’t call for collateral. So if you don’t have assets to offer lenders, consider applying for an unsecured small business loan.

Small business tip:

Refinancing can be a good way to lower your DSCR. If you borrowed financing as a startup or have raised your credit score since you took out a loan, you might consider refinancing for better terms.


How Business Loan Requirements Vary by Loan and Lender

Most small business lenders don’t require you to provide all of the business loan requirements listed above. Instead, they streamline the process by asking for the necessities, requesting more later if needed.

Since banks and the SBA are more strict regarding who they lend to, they will generally need you to meet all of the business loan requirements we’ve touched on, if not more.

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.

With Fast Capital 360, for example, a completed application and your last 4 bank statements may be the only documentation you need to receive an approval.

A small business owner is standing at the door of his storefront with a smile on his face.

Minimum Business Loan Requirements to Get Funding

Regardless of the business document requirements, qualifications for each loan come down to 3 minimum requirements:

  • Time in business
  • Annual revenue
  • Credit score

Bank Loans

Minimum bank loan requirements for businesses are the most stringent.

To qualify, you’ll likely need to meet the following bank business loan requirements:

Do you qualify?

  • Clock with blue dial Credit score above 700+
  • Time in Business 2 years +
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Revenues Consistently high

SBA Loans

SBA-backed loans are designed for 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?

  • Time in Business 2 years +
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Annaul Revenue $75,000+
  • Clock with blue dial Credit Score 650+

Business Lines of Credit

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?

  • Time in Business 6+ months
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Annaul Revenue $160,000+
  • Clock with blue dial Credit Score 575+

Equipment Financing

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?

  • Time in Business 2+ years
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Annaul Revenue $160,000+
  • Clock with blue dial Credit Score 620+

Accounts Receivable Financing

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?

  • Time in Business 1+ years
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Annaul Revenue $150,000+
  • Clock with blue dial Credit Score 600+

Merchant Cash Advance

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?

  • Time in Business 6+ months
  • Chart with bar graphs of different heights, with arrows pointing to a coin with dollar sign Annaul Revenue $75,000+
  • Clock with blue dial Credit Score 500+

Applying for a Small Business Loan

After you’ve gathered all of the documents and other small business loan requirements you need, you can begin the application process.

Since there are so many financing options available, first determine what you qualify for and which choice is best for you.

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’re approved, great, and if not, don’t worry. There are other options available, even if you don’t meet conventional banks’ business loan requirements. 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.

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