Growing Your Income

Business Loan Requirements: What You’ll Need To Qualify

Business loan applications are not standardized — but they often request the same type of information. You can prepare the needed information before applying to save time and simplify the process. 

Business loans tend to have a low approval rate. Big banks only approved 14.9 percent of small business loan requests in October 2022, according to Biz2Credit. But you may help your odds by knowing what you will need to submit.

1. Annual revenue

Traditional loans from both banks and online lenders often come with set annual or monthly revenue requirements that your business needs to meet. These vary by lender, but in general, most will want to ensure you have appropriate cash flow — after other financial obligations — to handle a new loan.

For example, OnDeck has a minimum annual revenue requirement of $100,000. But its average borrower has an annual revenue of $300,000 or more

You may need to consider alternative lending if you do not meet the annual or monthly revenue requirement. These can include merchant cash advances, invoice financing and invoice factoring. They are more expensive, but since they use your accounts receivables as collateral, many do not have a minimum revenue requirement.

2. Business plan

A business plan is essential to many business loan applications. Lenders will want to understand what your business does, how it makes its money and how it will continue to succeed. Most importantly, a lender will want to know what your plans are for financing. 

You can work with a business advisor or a Small Business Development Center (SBDC) to shape your business plan. You should also include the resumes of each owner and how they will contribute to the business’s success.

Not every lender requires a business plan. Smaller lenders and nontraditional lenders may only need to see proof that you have sufficient revenue and cash flow to handle the loan, no matter how your business plans on using it.

3. Business credit score

Not every lender will need you to have an established business credit score. However, you should still check your Dun & Bradstreet score before you apply. Lenders will also look at your personal credit score and history.

If you have previously taken on other debt and failed to repay it, it may be more difficult to secure funding. But a history of on-time payment for your debt obligations will be an asset when your lender is reviewing your application.

4. Years in business

Your time in business matters to lenders — if you’ve been open for longer, it signals stability. Nearly 20 percent of small businesses fail in their first year. Lenders know that if your business fails, you may be unable to repay them, so you may not be eligible for a loan until you have achieved one to two years in business.

There are some exceptions to the rule. Nontraditional loan options for businesses may have a less strict requirement for how long you’ve been open. Still, you will rarely find options outside of microloans that offer funding to businesses under six months old. In this case, it may be better to cover your initial business expenses with a personal loan.

5. Industry

Industry also plays into success — and your ability to qualify for a loan. Businesses in profitable and stable industries are more likely to appeal to lenders.

Likewise, many lenders have a list of industries they won’t work with, which you can typically find on their website. Gambling, adult entertainment or services and cannabis are frequently ineligible for traditional financing. 

6. Loan proposal

For traditional term loans, Small Business Administration loans and secured loans, a proposal is key. A loan proposal is similar to a business plan and may be included in one. It outlines:

  • Why you need the funding.
  • How you will use the loan.
  • How you will pay back your loan.
  • How it will benefit your business.

It isn’t a requirement for every type of loan — and not every lender will want to see one. But you should still have one prepared when you are ready to apply.

7. Other debts and obligations

You will need to list your business’s debts and other financial obligations for your lender. This includes other loans you may have, business credit cards, regular bills and payroll numbers. A lender will want to confirm you have enough cash flow to manage a new loan payment. 

Even if your business is profitable, it doesn’t mean you can handle more debt. A lender will consider your debt-to-asset ratio when you apply.

8. Personal financial history

Each owner’s personal finances play a role in your ability to get financing, especially if you are launching a startup. Lenders frequently require a personal guarantee for unsecured business loans. A personal guarantee makes you and your co-owners (if you have any) responsible for paying back any borrowed funds if your business cannot pay.

Because of this, lenders often check your personal credit score. If you have poor credit, you may not be able to secure a competitive rate on a business loan. Lenders may have a set minimum credit score — often in the mid-500s to mid-600s. Many lenders won’t approve your loan if you’ve had a bankruptcy in the last few years. 

Other documents you may need

These categories don’t cover all the information a lender might require from your business. There are other documents and paperwork you may be asked to submit when you apply for a business loan, including: 

  • Profit / loss statements
  • Proof of ownership
  • Bank statements
  • Business license
  • Employee identification number (EIN) 
  • Tax returns
  • Balance sheets
  • Business insurance
  • Payroll records
  • Financial projections
  • Driver’s license or other photo ID
  • Commercial lease agreement
  • Accounts receivable and accounts payable

The bottom line

Every lender — and loan — has its own requirements. While these are the most common requirements, you may be asked for more or less documentation to prove your business can handle a loan. 

Prepare the information you will likely be asked to submit ahead of time, then compare lenders to find one that meets your business’s needs.