20 Small Business Loan Requirements

Learn the small business loan requirements essential to your application's success.
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Business Loan Requirements Overview

Figuring out what you need to get a small business loan—before you even start the application process—is certainly worthwhile if you need financing for your business. The small business loan requirements for any given form of commercial funding will vary widely, ultimately depending on the lender you work with and the type of financing you’re applying for. 

This being said, however, it’s worth understanding what small business loan requirements you’ll most likely see—as this will help streamline your application process and get you faster access to the funds you need.

In this guide, therefore, we’ll break down the most common business loan requirements, as well as review how to qualify and apply for a small business loan.

A Quick Guide to Business Loan Requirements

  1. Time in business
  2. Personal credit score
  3. Business credit score
  4. Annual business revenue and profit
  5. Bank statements
  6. Personal and business tax returns
  7. Loan purpose
  8. Desired loan amount
  9. Business plan
  10. Industry
  11. Entity type
  12. Business licenses and permits
  13. EIN
  14. Proof of collateral
  15. Balance sheet
  16. Copy of your commercial lease
  17. Disclosure of other debt
  18. Accounts receivable and accounts payable aging
  19. Ownership and affiliations
  20. Legal contracts and agreements
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Everything You Need to Qualify and Apply for a Business Loan

Before the 2007 recession, the local bank was pretty much the only lender a small business owner could go to for a loan. As a result, a pre-2007 list of small business loan requirements would have been pretty short and uniform—as the credentials and documents required for a business loan from a bank were pretty universal.

This being said, although banks are still the most common lenders for small businesses, the amount of capital going to small businesses fell significantly after the recession. To fill in those gaps, alternative lenders have popped up to serve small businesses. With these new lenders, businesses have access to much more capital to finance their company’s growth. However, with these new loan products, there is a much greater variety in applications and underwriting requirements.

Fortunately, though, there are still several requirements that small business lenders have in common. Although not all lenders will require this full list of small business loan requirements, it’s safe to assume that you’ll need to provide credentials such as your personal credit score, annual revenue, and time in business.

With this in mind then, let’s break down the qualifications you’ll likely need for your business loan application:

1. Time in Business

First, when you apply for a business loan, every lender will ask how long you have operated your business. The longer you’ve been in business, the better it is for your application because it shows a lender that your business has had long-term success.

Ultimately, the threshold that you should keep in mind is two years. If your business is under two years old, it doesn’t make it impossible to get a business loan, but it does limit your options.

Although banks may be less likely to lend to business under two years old, online lenders will often have more flexible requirements with regard to your time in business. This being said, if you have a newer business, the best thing you can do to strengthen your loan application is to have a solid business plan (more on this below) showing how you plan to grow revenues and profits in the next three to five years. Similarly, you’ll want to highlight other strong business loan application requirements you meet, such as a solid personal credit score and any collateral you can offer up.

2. Personal Credit Score

One of the most important business loan requirements you’ll need to qualify for financing is your personal credit score.

Lenders will ask for your personal credit history and financial information to assess the likelihood that you’ll pay back your loan—if your personal finances are strong, lenders assume this means you’ll be able to manage your business finances as well. This being said, your personal credit score will not only influence whether or not you’re approved for a loan, but it will also play a role in determining your interest rate.

Plus, if you’re a new business with no business credit history or limited business financials, lenders will look even more closely at your personal credit history when evaluating your business loan application.

With this in mind, as soon as you apply for a business loan, you should expect the lender to do a soft credit pull. This won’t harm your credit and will tell the lender only your credit score and a brief summary of your credit report—a soft credit pull will typically be sufficient for a lender to pre-approve your loan.

During loan underwriting, however, the lender will follow up with a hard credit pull. A hard credit pull will affect your credit score slightly and will show the lender your full credit report.

Ultimately, the better your personal credit score is, the more loan options you’ll have available to you. You’ll want to aim for a credit score of at least 600—and ideally, even higher, especially if you’re looking to qualify for a bank or SBA loan.

3. Business Credit Score

Similar to the way your personal credit score indicates your history as a borrower, your business credit score measures your business’s creditworthiness. Your business credit score is based on your business’s history of payments to suppliers and lenders. Your business’s industry, size, and revenue can also impact the score.

Many entrepreneurs are unaware that their business has a credit score—or even that it’s a common small business loan requirement. This being said, however, there are three main agencies that track business credit, and each has its own method for evaluating your business credit score. Additionally, many lenders use the FICO SBSS score to evaluate your loan application, as it’s based on a combination of your business credit score from the other three agencies, as well as your personal credit score and business’s financials.

Therefore, before applying for a small business loan, it’s important to have a sense of what your business credit score looks like. Although not all lenders will check this score, those that do may pull it at any time during underwriting.

4. Annual Business Revenue and Profit

Your business’s annual revenue and profits will also be one of the most common small business loan requirements you see across different lenders. In order to evaluate this information, lenders will ask you to provide your profit and loss statements as part of your application.

Typically, lenders will want to see both a year-to-date profit and loss statement, updated within the past 60 days, and statements from the previous two years.

This being said, however, the ability to qualify for a loan based on your revenue and profits will likely vary across lenders. Overall, banks will want to see that your business is profitable in order to approve you for financing. Alternative lenders, on the other hand, will not often require profitability, but will usually have annual revenue minimums. 

Ultimately, regardless of the specific lender’s requirement, the stronger your business financials (as shown through your annual revenue and profits) the more likely you will be to qualify for financing, and business financing with the most affordable rates.

5. Bank Statements

Another way a lender will evaluate your business’s financials in your loan application will be using your bank statements.

Lenders will use your bank statements to determine if you can afford your loan and will be able to pay it back. Bank statements can also give lenders some insight into how well you manage the cash coming into your business.

Therefore, at a minimum, lenders will usually ask for four months of business bank statements to support the claims you’re making about your company’s financial history. If you’re applying for an SBA loan or conventional bank loan, you should be prepared to provide even more bank statements.

6. Personal and Business Tax Returns

Personal and business tax returns will be among the small business loan requirements that you can expect to see across most lenders.

Just like your personal and business credit scores, lenders will use your tax returns to evaluate the health of your personal and business finances, and therefore, your ability to afford and pay back a business loan.

Generally, you’ll need to provide at least the past two years of your personal tax returns. These documents will be especially important if you have a pass-through entity (a sole proprietorship, partnership, or S corp), where you report your business’s profits and losses on your personal tax return. This being said, your business tax returns will be particularly influential if you have a corporation or an LLC that’s taxed as a corporation. In these cases, the lender will use your last two years of business tax returns to verify your revenue, profit, and expenses.

7. Loan Purpose

It may seem obvious, but a typical small business loan requirement will be a statement describing what you plan to use the loan funds for.

In this statement, you’ll want to be as specific as possible—generally, lenders allow a variety of loan uses, they want to make sure, however, that the amount of money you’re requesting matches up with the purpose for the loan.

This being said, figuring out the intended use of your loan will actually be helpful for you—it will give you an opportunity to plan out your debt, and most important, decide which type of loan is best for your small business. For example, if you need extra funds because your customers aren’t paying their invoices on time, you’ll probably want to consider invoice financing. On the other hand, if you need a cushion for cash flow during your business’s slow months—a business line of credit might be the right option for you.

8. Loan Amount

Directly related to the loan purpose, you’ll need to also specify your loan amount—in other words, how much money you want to borrow from the lender.

On the whole, every lender will have limits with their loan amounts, so you’ll want to keep this in mind when applying for financing. Generally, banks have access to the most capital and can issue loans that are six and seven figures. Therefore, if you need a smaller amount of money (less than $250,000), banks will usually not be the best route. For smaller amounts of funding, you’ll likely want to turn to alternative lenders, and in some cases, SBA loans.

With this business loan requirement, it’s important to be straightforward and clear about how much financing you require (as well as how you’ll use it)—and of course, you don’t want to ask for more than you can afford.

9. Business Plan

A business plan or loan proposal won’t always be on the list of the documents required for business loan applications, but it will be for some.

For traditional term loans and SBA loans, for example, you’ll definitely need to provide a business plan for funding. Plus, even if your lender doesn’t specifically require your business to submit one, it’s a good idea to prepare a business plan anyway.

Within your business plan, you’ll have an opportunity to lay out both your financial goals—future sales, profits, income, cash flow, etc.—and your qualitative business goals. You’ll want to use this document to show your lender that you’ve thought about all the potential opportunities and challenges for your business and how you’re going to grow a successful company.

 

10. Industry

Next, most small business loan applications will ask you to identify your industry. Your industry can affect your eligibility to get a business loan because every industry has a different level of risk.

This being said, most lenders have certain industries that they won’t lend to—such as firearms businesses and adult entertainment businesses—that could impact the lender’s reputation. However, some lenders also have less obvious restrictions. For instance, some lenders bar child care businesses, health care businesses, law offices, apparel companies, and financial companies.

Therefore, in order to ensure you’ll meet a lender’s industry requirement, you’ll want to check with them regarding any ineligible industries before submitting your application.

With this in mind, you’ll also want to make sure that you have correctly identified your business’s industry in your loan application—a small mistake could delay your application or even cause a lender to mistakenly reject it. There are two main industry code systems—Standard Industrial Classification (SIC) and North American Industry Classification System (NAICS). You can look up your code on the NAICS website.

11. Entity Type

Perhaps one of the simplest business loan requirements, a lender will likely ask you to report your business entity type.

From your lender’s perspective, knowing how your company is organized can give them insight into how you manage and operate your small business. Additionally, although it’s rare, some lenders won’t lend to sole proprietorships and partnerships. These lenders prefer working with LLCs and corporations because these businesses have more legal protections and are less likely to fold if the owner faces a lawsuit or financial setback.

This being said, if you have a registered business entity (LLC or corporation), the lender will also ask for the state where you’ve registered as well as official documents proving that your business is authorized to operate in the state (e.g. articles of incorporation, articles of organization, or certificate of good standing).

12. Business Licenses and Permits

Similar to your business entity information, another common business loan requirement is your business license or permit.

As you probably know, most states and localities require small businesses to get permits or licenses before they can start operating. The exact requirements, of course, will vary depending on your industry and the state you operate in. This being said, however, lenders will want to see your proof of ownership and license to operate a business.

Additionally, depending on the size, location, and type of business, you may also need to provide proof of any relevant fire permits, sign permits, zoning permissions, environmental, sales tax, and health department permits.

13. Employer Identification Number (EIN)

Your employer identification number (EIN) will be another of the simplest business loan requirements.

Although you may not need an EIN for every business loan application (or for your business, depending on your entity type), you should specify your EIN on an application if you have one.

Overall, an EIN is like a social security number for businesses—the IRS uses this unique, nine-digit number to track your business’s tax returns. You can quickly and easily apply for an EIN online, and once again, although this number may not be required for all businesses or all loan applications, it may be worth getting one nevertheless.

On the whole, having an EIN makes it easier to maintain separation between your personal and business finances and it helps show a lender that you have a legitimate business entity.

14. Proof of Collateral

Collateral is another business loan qualification that won’t actually be required for every lender. However, compared to some of the other non-essential qualifications on our list, collateral may be a little more complex.

In essence, collateral is a fixed asset—like property or equipment—that you put up in order to secure your loan with the lender. Therefore, if you default on the loan, the lender can seize your collateral and use it to make up for some of the money they’ve lost.

Again, not all lenders will require specific collateral—however, if you’re applying for an SBA loan or bank loan, for example, lenders will want to know what kind of collateral your small business has to offer, and the value of that collateral.

This being said, although alternative lenders typically won’t require physical collateral, they may require security in another form—such as a personal guarantee or blanket lien.

With this in mind, before you submit your application, you’ll want to determine how the lender handles collateral, as well as what type of agreement you’re comfortable making in order to secure your loan.

15. Balance Sheet

In addition to the other financial information we’ve discussed, many lenders will also ask to see your balance sheet as part of their small business loan requirements. Like your profit and loss statement, your balance sheet will help show a lender how your business functions and whether or not your financials are in good standing.

Essentially, a lender will want to use your balance sheet to see that you have enough assets to cover your business’s operating expenses and pay back your loan on time and in full. Therefore, you should have your year-to-date balance sheet and the last two years of balance sheets (if you’ve been in business that long) ready to go as part of your application.

16. Copy of Your Commercial Lease

If you have a brick and mortar business, you should include a copy of your lease along with your other commercial loan documents. A commercial lease proves that your business will be able to use the property for as long as the duration of the lease, no matter what happens to the landlord.

As you might imagine, being unable to access your storefront would not be good for you or your lender, and therefore, the lease gives the lender peace of mind that you can stay in your current place of business for the term of the lease—and thus, will be able to conduct business in order to pay back the loan.

17. Disclosure of Other Debt (Business Debt Schedule)

As you might have guessed, a business debt schedule lets lenders know the current state of any debt you owe. A business debt schedule will showcase your outstanding loan and credit amounts, and outline your monthly payments with interest and payment dates.

Small business lenders are very careful about lending to business owners who already have other loans as they don’t want to offer you financing if you can’t afford your current loan payments. This being said, to calculate whether you can afford a loan, lenders often calculate your debt service coverage ratio (DSCR).

The ratio illustrates your current debt and interest payments in relation to your current incoming cash flow. If your DSCR isn’t high enough, the lender may reject your application or ask you to reapply later after you’ve further paid down existing debt.

18. Accounts Receivable Aging and Accounts Payable Aging

Some lenders, particularly banks, will ask for current accounts receivable (A/R) and accounts payable (A/P) aging reports. A/R and A/P aging reports are common business loan requirements because they show a lender how efficient your business is at receiving payment for goods and services and paying bills of its own.

The A/R report indicates the number of invoices you’ve sent to clients that are overdue and the length of time by which they are overdue. If this report shows too many accounts, it means your business hasn’t been very effective at collecting payments. On the other hand, if your A/R report has few overdue accounts, it means your repayment collection methods are effective, you extend credit to the right kind of customers, and your customers pay off debt quickly.

The A/P report is the opposite—showing the number of invoices from other businesses that you haven’t paid. A high number of delinquent accounts indicates that you’re not good at managing your expenses. You ideally will want to have a low number (or zero) overdue accounts on your A/P report.

19. Ownership and Affiliations

When you’re applying for a business loan, you should be prepared to disclose any ownership that you or your partners have in other businesses as well as any affiliations, such as being a board member or consultant in another business. This information discloses any potential conflicts of interest that the lender may have with issuing the loan and any synergies that your business may have with other companies.

This being said, it can be more difficult to apply for a loan if your business has multiple owners. Different lenders have different rules on how many owners need to approve a loan request. The SBA, for example, checks the personal financial information of anyone who owns 20% or more of the business and requires a personal guarantee from all of these owners. Other lenders may require approval from just 50% or 70% of overall ownership.

You’ll want to ensure that you understand the requirements of your lender and get all owners on board who need to sign the loan agreement and turn over their personal financial information. With this in mind, anyone who needs to authorize the loan will need to provide a copy of their photo ID, a resume, a personal credit score, and other personal financial information that the lender requests.

20. Legal Contracts and Agreements

Finally, the last of the most common business loan requirements you’ll be asked to provide will be legal contracts and agreements that your business already has. Along these lines, lenders might ask to see any of the following:

  • Contracts with major suppliers or other third parties
  • Corporate bylaws
  • LLC operating agreement
  • Partnership agreement
  • Franchise agreement
  • Sales agreement, financials, and information about the business you’re purchasing (if you’re using the loan to buy another business)
  • Commercial real estate purchase agreement or equipment purchase agreement (if the loan is being used for purchasing commercial real estate or equipment)

These agreements may impact your business’s financial position or create legal issues for your business down the line, so the lender will want to consider these documents when evaluating your loan application.


How to Qualify and Apply for a Small Business Loan: 5 Simple Steps

As you can see, the requirements that are necessary to qualify and apply for a business loan are extremely varied.

Although this list may seem overwhelming, depending on your lender, you may not need every one of these qualifications for your loan application. Ultimately, because small business loan requirements are so variable, it’s important to consult a lender about their process before actually submitting an application—this way, you’ll be prepared ahead of time to gather any documents or information you’ll need to submit, and therefore, optimize the process and hopefully, increase your chances for approval.

This being said, it’s helpful to remember that banks and SBA loans will require the most documentation, whereas alternative lenders will likely have more flexible requirements, as well as a more automated application process.

With all of this in mind, let’s continue our discussion by reviewing the basic steps you’ll want to follow to get a small business loan.

Step 1: Determine Why You Need a Small Business Loan

First, you’ll want to identify a specific reason why you need a business loan. As we mentioned above, the purpose of the loan will affect the types of loans you’re eligible for, as well as what types of products will be best suited for your business.

For example, if you need startup funding, your best lending options are going to be very different than if you have a five-year-old business and are looking to purchase real estate.

Step 2: Calculate What You Can Afford

Once you know why you need a business loan, the next step you’ll want to take is to figure out how much funding you should apply for.

business loan calculator can help you figure out how much any loan will cost—including the size of your loan payment, the annual interest you’ll pay, and any fees associated with the loan.

By using one of these tools, you’ll be able to determine if you can afford a certain loan amount given your business’s current cash flow. In addition to using a business calculator, you can also calculate your debt service coverage ratio (DSCR) if you already have outstanding debt. As we mentioned briefly above, your DSCR will help you determine whether you have enough cash coming in to cover all of your debt, and if you can afford to take more on.

Step 3: Compare Your Loan Options

After you’ve determined why you need a business loan and how much funding you need, you’ll have considerably narrowed down your financing options.

At this point then, you can look at other factors as they relate to your business—such as credit score, time in business, industry, and more—to determine which lender and solution will likely work best for your needs.

Step 4: Gather Loan Documents and Paperwork

When you know what type of loan you want to apply for and which lenders offer that product, you’ll want to start preparing your application. You’ll only want to apply (at most) to two or three lenders at a time—as you don’t want to hurt your credit score by submitting too many applications at once.

This being said, once you’ve determined the lenders you’ll be applying with, you’ll want to find out what documents and information they’ll need. To expedite the process, you can compile all of your loan application documents in Cloud storage or in a single file on your computer.

Along these lines, it’s also important to note that after you submit initial documents, the lender might ask for additional paperwork or documentation. Overall, the faster and more responsive you can be, the quicker the lender can approve your loan and send the funds to your account.

Step 5: Apply for the Loan

Finally, once you have all your documents in order, you can actually apply for the loan. With the exception of banks, many of which still require physical, in-person applications, you should be able to upload your documents and apply for your business loan online.

Ultimately, you’ll want to be sure to read the application carefully, answer every question, and provide all the information the lender needs so that the loan process goes as quickly and smoothly as possible.

After applying for the loan, you’ll wait for the lender’s response. In some cases, a lender will be able to provide an initial offer and then will ask for additional information before final approval.

Once you’ve received an offer, you’ll want to review it carefully, ask any questions you have, and make sure you understand all the terms, conditions, and costs before signing and agreement. Moreover, you’ll want to compare offers you receive from different lenders to ensure that you’re getting the best rates, terms, and amounts possible.

On the other hand, if a lender rejects your application, you can use the reasoning they provide (such as a poor credit score) to improve your application and increase your likelihood of qualifying in the future.

Check Your Loan Options

The Bottom Line

At the end of the day, the requirements you need to meet to get a business loan will be specific to the loan product and the lender.

Although this may make the process more difficult, by understanding the most common business loan requirements, as we’ve discussed, you’ll be in the best place to gather the necessary documentation and quickly and accurately complete your business loan application.

This being said, as you compare your options and search for the right business funding solution, you’ll want to remember that banks and SBA loans will require the most documentation and highest qualifications, but will also offer the most desirable rates and terms.

Alternative lenders, on the other hand, will have simpler application processes and more lenient qualifications, but their products will generally have shorter terms, lower amounts, and higher interest rates.

Ultimately then, it will be up to you to decide what financing solution and lender can meet your needs, and consequently, what your business loan requirements and application will look like.


Business Loan Requirements: Frequently Asked Questions

What are common mistakes to avoid when applying for a business loan?

If you’re looking to streamline your business loan application, you may be wondering if there are common mistakes to avoid throughout the process.

As we’ve mentioned, simply by understanding the most common business loan requirements, you’ve taken an important step to optimize your application. This being said, however, there are some mistakes you’ll want to avoid—any of these mistakes can delay the process or even cause a lender to reject your application:

  • Submitting blurred out, illegible, or unreadable financial documents
  • Not being clear about the purpose of the loan
  • Providing tax returns and other financial documentation only for some years that the lender requests and not for others
  • Not providing enough information in your business plan or providing too much
  • Typos, such as providing the wrong industry code or wrong EIN number
  • Missing deadlines
  • Making major purchases or other major changes to your business while the loan application is pending

Although these may seem like simple errors, any one of them can be influential in the application process, so it’s worth taking the time to check and double-check your information and documents. Above all, though, the main thing to avoid is making any kind of false statements (either knowingly or unknowingly) on your loan application. If you have any doubts about any of the details or financials included in your application, you’ll want to consult your accountant or lawyer for advice.


How much do you need to put down for a business loan?

A down payment is another small business loan requirement that may be a part of your application process.

Although not all loans will need a down payment, some loans, like SBA loans, commercial real estate loans, and equipment financing, may be more likely to include this requirement.

This being said, if the loan you’re applying for does require a down payment, the exact amount you’ll need to put down will vary based on the type of loan, amount of the loan, purpose of the loan, as well as your financial qualifications. Generally, however, it’s safe to say that most down payments on business loans will fall between 10% and 20% of the loan amount.