Business Loan Requirements

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

While loan requirements differ by lender and financing type, be prepared to provide the following personal, business and financial information. 

Beginning the Process

Personal Information

Lenders will begin the application process by asking a little bit about you and other co-owners of your small business. 

Some basic info 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 as part of the application process.

Business Information

After learning about you and any other owner(s) personally, it’s time for lenders to assess the viability of your business.

Full Business Name

Lenders need your business’s full name (including a DBA, if applicable) so they can search public records for info on your company. This includes 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.

Some industries, like commercial trucking and used car dealerships, have higher failure rates and are more risky to lenders. 

Business Entity

Lenders assess sole proprietorships, partnerships, LLCs and corporations differently. 

The structure will also determine what additional information you need to include.

Ownership or Partnership Info

If you aren’t the sole owner, you’ll need to provide information on your 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. 

Corporate Info

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

This includes:

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

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. Preferred bank and SBA loans aren’t generally available to businesses open less than two years.

The longer you’ve been in business, the better. Lenders like to see a history of success. Such businesses are less likely to falter and default on a loan. 

Deed or Lease for Commercial Property

Whether you own or lease commercial property for your business, you’ll need to show proof within your loan application.

This info 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 and you aren’t sure whether you’ll be able to extend it. Stability in all aspects of your business limits the risk they take.

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.

Business loan applications require you to show proof that you’re up-to-date on everything you’re required to run your business legally. It indicates there will be no obstacles that can halt performance, and reduces the risk of legal action against your company that can affect your ability to repay a loan.

Business Plan

A solid, executable business plan can be the most important piece of information you provide about your company, though it’s not always a small business loan requirement.

Applicants with strong sales, projected revenues and plans will be considered stronger candidates by lenders.

You’ll want to include:

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

You’re also free to add any unique info that you believe would be important in evaluating the long-term potential of your business.

Business Loan Info Requirements

When applying for a business loan, one requirement is of course info on the loan itself. You’ll need to know all of the details about what you’re looking for and why before reaching out to a lender.

Loan Amount

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

What you need may disqualify you for certain types of loans and lenders. For example, banks don’t typically offer microloans, and instead, focus on loans over $50,000. On the other hand, online lenders have set maximums they won’t exceed. 

When approaching a lender, they may ask you to contribute a down payment. Many require up to 20% down, but you can find small business loans with no down payment requirements.

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 basic info on it. This can be an address, square footage and pictures for an office space or mileage, repair history and dealership info for equipment like a commercial truck.

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

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

Proof of Collateral

Many small business loans require collateral. You’ll need to offer assets like property, equipment or vehicles to secure the loan.

You’ll need to provide proof of ownership via deed, title or any other qualifying document.

If you don’t have assets, you can apply for unsecured small business loans. 

Financial Info

The financial info you give a lender will be the ultimate deciding factor in what loan amounts, interest rates and repayment terms you qualify for.

The documents required for your business loan will vary, but it’s a good idea to dig up as much as you can no matter what you’re applying for.

Personal Credit Score

Although you’re borrowing money for your business, your personal credit score can play a large part in your fundability.

If you’re applying for an unsecured business loan that doesn’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 credit history will be used to vet you as an owner, 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 credit has been excellent.

Business Credit Score

Your business credit score is possibly the most scrutinized small business loan requirement of all.

Depending on your preferred small business loan, credit score requirements will vary (more on this later).

Having an excellent credit score will help get you approved for term loans with large amounts and low rates through banks and SBA lenders.

A good score will keep your rates and terms very affordable. SBA loans are popular for businesses in this range, as they offer excellent terms and support from the federal government.

Finding bad credit business loans isn’t as difficult as it used to be with the emergence of online lenders. 

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

Tax Returns

Personal and business tax returns show the total of how much you bring in during a given year, providing lenders 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 still sometimes need to provide personal returns.

You’ll be required to provide at least two years of tax returns for most business loan applications, but feel free to include more to make your case.

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 them that you don’t have a cushion in case sales decline.

Having a good chunk of cash in a business savings account assures your ability to repay in an emergency, helping your chances of approval.

If possible, it’s best to give the lender at least a few years worth of bank statements. This allows them to see a positive trend in your money-management skills.

Balance Sheets

A balance sheet shows what your company owns (assets) against what it owes (liabilities). This gives a lender an idea of how much cash you’ll have at any given point to repay their loan.

All of the revenues, investments and loans you take out will be 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.

Bank loan requirements for a business’s revenue can be high — into the millions — because they provide larger loans and prefer to work with more established, profitable borrowers.

Online lenders may offer funding to businesses with $75,000 in annual revenue.

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.

Accounts Receivable and Accounts Payable Statements

Although it’s sometimes overlooked, 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, it doesn’t show lenders the ability to take payments quickly enough to stabilize your revenue.

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 will assume you won’t be able to pay them on time, either.

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 vs. what you bring in.

DSCR is an important business loan requirement because it judges 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 another small business loan. 

How Each Business Loan Affects Requirements

Most small business lenders don’t require you to provide every bit of information listed above. Instead, they streamline the process by asking for the necessities, and requesting more if they need to later.

Since banks and the SBA are more strict regarding who they lend to, they will generally require you to provide all of the information 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, a completed application and your last 4 bank statements may be all you need to provide to receive an approval.

Minimum Requirements to Obtain a Loan

No matter what amount of documentation they require, qualifications for each loan come down to three minimum requirements:

• Time in business
• Annual revenue
• Credit score

Bank Loans

Minimum bank loan requirements for businesses are the most strict. You’ll need high revenues and credit scores, as well as multiple years in business.

To qualify, you’ll need:

• Credit score above 700
• 2+ years in business
• Hundreds of thousands in profits

SBA Loans

Backed by the SBA, these loans are designed for business owners who don’t qualify for bank loans but still have strong creditworthiness.

To qualify, you’ll need:

• Credit score above 650
• 2+ years in business
• $75,000+ annual revenue
  

Business Lines of Credit

A business line of credit offers you revolving funding that can be used and paid back only when you need it, similarly to a business credit card. They don’t have as high of requirements as term loans, making them a great option for younger businesses who have ongoing working capital needs.

To qualify, you’ll need:

• Credit score above 575
• 6+ months in business
• $160,000+ annual revenue

Equipment Financing

Equipment loans are secured by the equipment you’re financing, which lowers both the documentation and financial requirements.

To qualify, you’ll need:

• Credit score above 620
• 2+ years in business
• $160,000+ annual revenue

Accounts Receivable Financing

Accounts receivable, or invoice financing, uses your future receivables to secure a loan. Simply put, the lender is repaid directly from customers who owe you for unpaid invoices. 

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 customers secure them, minimum requirements are comparatively low.

To qualify, you’ll need:

• Credit score above 600
• 1+ years in business
• $150,000 annual revenue

Merchant Cash Advance

A merchant cash advance is secured by your future revenues. They’re repaid daily, weekly or monthly through either a percentage of your credit card sales or ACH payments taken directly from your bank account.

They offer the lowest minimum qualifications of any alternative lending product.

To qualify, you’ll need:

• Credit score above 500
• 6+ months in business
• $75,000+ annual revenue

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 the specific type of loan you’re looking for.

If you’re approved, great, and if not, don’t worry. There are other options available. Fast Capital 360 offers a marketplace where you can be matched with the best lenders, providing rates and terms that work with your goals.

To find fast, affordable funding, contact a Business Advisor today.