Business Loan Requirements: What You’ll Need To Qualify

There are more options for small business loans than ever before. Knowing where to look for the right business funding in a sea of for-profit traditional lenders, online lenders, non-profit lenders and crowdfunders can be confusing. Finding the right lender is where you want to begin, but that’s just step one. The next step is applying.

Small business loan requirements vary by loan type and lender. OnDeck’s loan qualifications, for instance, include a number of minimum eligibility requirements. Understanding the basic qualification criteria of the different types of business loans can help you narrow down the right fit. Ready to start?

We’ll cover the general eligibility requirements for a business loan, some of the most common business financing options, and where you’ll find them.

What’s Required to Apply for a Small Business Loan?

Each business lender is different and many require different types and amounts of documentation. These six important financial documents will help you prepare for just about any small business loan application:

1. Your business’s financial statements: These are the documents the lender will look at to confirm you can repay the loan. These should include a current business balance sheet detailing your assets and liabilities, a profit & loss (P&L) statement current within 90 days of your application, and any supplementary schedules from the last three fiscal years. You should also include a detailed projection of income and expenses along with a written plan explaining how you plan to achieve those objectives. Most online lenders make it a little easier. In addition to your annual revenue, many (including OnDeck) will only ask to see the last three months of your business bank statements.

2. Your personal financial information: Most lenders are going to look at your personal financial history as well as your business financial history. This is particularly true if your business isn’t very old or is very small. You should also expect to sign a personal guarantee if you are offered a loan. The U.S. Small Business Administration, for example, might not require you to completely collateralize a loan, but they will want all the collateral you have — including your home and personal property.

3. Income tax returns: Make sure you have the last three years of signed personal and business federal tax returns at your fingertips. This will include the returns for all the principals in your business.

4. Ownership and affiliations: Be prepared to disclose any other businesses you have a financial interest in. And, if you have partners, they will need to sign any documents related to the loan you’re applying for.

5. Business certificate/license: You’ll want to have your business license handy. If your business is a corporation, then it will be your corporate seal. Many online lenders will only need proof of a business checking account.

6. A copy of your business lease: Include a copy of the lease agreement if you are renting space or leasing any equipment critical to doing business.

Although there are lenders that won’t require all of this information, these are a great place to start. Some lenders will ask for even more. Regardless of whether or not you will need all this documentation for any particular loan application, it’s a good idea to have this information ready because it will help you understand some of the key questions every lender will likely ask. Therefore knowing small business loan requirements will not only help you understand what’s happening within your business, it might even improve your chances of getting approved for funding.

How Important Is My Business Credit Score for Getting a Small Business Loan?

A business credit score can also be a deciding factor in whether or not a business receives loan approval. Business credit bureaus such as Experian and Dun & Bradstreet can provide entrepreneurs with a business credit report detailing the business credit history and credit score. Furthermore, business credit can help separate a business owner’s personal finances from the business.

How to Qualify for a Business Loan

Business loan requirements vary by lender, and by loan type. We’ve covered what lenders will typically ask for when considering an applicant for a business loan. Now let’s take a look at the qualification criteria of some of the most popular types of business loans.

Bank Term Loan

A business bank loan, commonly just referred to as a business “term loan” or “small business loan,” is a form of funding in which borrowers receive an upfront sum of money. They then repay the loan amount, along with interest, over a specified period of several months or years.

Common qualification criteria:

• 680+ personal credit score
• 2+ years in business
• Requires collateral such as real estate, equipment, etc.

Where to find them:

• Banks (commonly the one where the borrower has a business bank account)

SBA Loan

An SBA loan doesn’t refer to a loan issued by the U.S. Small Business Administration, but rather to a government loan program that guarantees loans (issued by a financial institution such as a bank or credit union) to approved small business owners. In addition to having a challenging application process, this type of loan is known to be among one of the most difficult to qualify for. If approved, however, the loans will come with very good interest rates and favorable repayment terms.

Common qualification criteria:

• 640+ personal credit score, but varies based on the specific SBA loan
• Business plan and projections
• Good financial records
• Usually requires collateral

Where to find them:

• U.S. Small Business Administration
• Banks
• Credit unions

Online Business Term Loan

A business term loan is a type of financing for businesses that need fast and streamlined funding to cover immediate business needs. They may also be a good option for borrowers that have difficulty getting approval for other types of business funding.

Common qualification criteria:

• 625+ personal credit score
• 1+ years in business
• $100,000 in annual revenue
• Collateral usually not required

Where to find them:

• Online lenders

Business Line of Credit

An application for a business line of credit will be evaluated differently than other forms of business credit. This is because the small business owner is approved for a specific amount they can draw from and put to use at any time. As they repay what they’ve borrowed, the amount becomes available to use again. This flexibility is attractive to businesses that experience regular cash flow challenges and seasonal ebbs and flows.

Common qualification criteria:

• 625+ personal credit score
•  6+ months in business
• $25,000 in annual revenue
• Collateral may sometimes be required

Where to find them:

• Banks
• Credit unions
• Online lenders

Merchant Cash Advance

Merchant cash advances are a good way for businesses to obtain working capital without having to worry as much about how to repay. With a merchant cash advance, the cash advance is repaid gradually with a percentage of the business’s daily credit card sales. So the loan is only repaid incrementally as money flows into the business.

Common qualification criteria:

• 500+ personal credit score
• 6+ months in business
• $5,000/month credit card sales
• Collateral not required

Where to find them:

• Online providers

Invoice Factoring

Invoice factoring is a unique type of business funding in which a business “sells” its accounts receivable (its outstanding invoices) in exchange for an upfront payment (commonly 85% of the value of the invoices). The business then pays a processing fee along with weekly interest until the invoice is paid. At that time, the remaining 15% of the invoice’s value is generally paid back out to the borrower.

Common qualification criteria:

• 500+ personal credit score
• 1+ years in business
• Proven, steady cash flow
• Collateral not required

Where to find it:

• Invoice financing companies

Equipment Financing

Equipment financing allows companies seeking a loan for equipment to use the purchased equipment as collateral for the loan. Similar to the business term loan, the business will make periodic payments to the lender including interest and principal. Once the equipment is paid in full, the business owns the equipment free of any lien.

Common qualification criteria:

• 600+ personal credit score
• 1+ years in business
• $100,000 in annual revenue
• The equipment purchased serves as collateral

Where to find it:

• Equipment dealers
• Banks
• Online lenders