Small Business Loan Requirements

If you’re looking for a small business loan, it’s helpful to know the basic requirements that most lenders have. These include a credit score, annual revenue and cash flow.

Depending on the type of loan you’re applying for, additional documents may be needed as well. This can include your business plan, bank statements, EIN and other documentation.
Credit Score

Whether you’re looking for business financing from online lenders, banks or credit unions, the qualifications you must meet to get approved vary. Most of these criteria are based on the lender, but most lenders review personal and business credit scores (if available), time in business, industry, debt-to-income ratio, EIN, proof of collateral (real estate, equipment or cash), incorporation documents and more.

Typically, you must have at least a fair/average personal credit score of about 680 to qualify for most small business loans. You may also need to show a minimum amount of annual revenue to demonstrate that your business can support future debt payments.

You’ll often find higher minimum credit score requirements for SBA-backed loans and other large bank loans. Other types of financing may require more personal details like a signed personal guarantee or assets as collateral. These types of loan programs are more likely to be offered to established businesses or those with a strong track record of recurring revenues.
Personal Guarantee

Getting business funding often requires personal guarantees. A personal guarantee is an agreement that allows the lender to pursue the guarantor’s personal assets if the business fails to meet its loan payments. Lenders require this because they assume there is a direct relationship between the financial health of a business and the owner.

Typically, a personal guarantee is required for unsecured business loans or lines of credit. The guarantor’s credit score and business financial documents (such as profit and loss statements) will be reviewed to ensure the business is able to afford its debt.

While every lender has its own requirements, it’s important to understand the basics of what you’ll need to qualify for a small business loan. By preparing ahead of time, you can increase your approval odds and find the best financing solution for your business needs. For more information about the requirements for different lenders, visit our Fundid capital marketplace. There, you can connect with lenders that provide business loans based on three key criteria: experience, credit and cash flow.

For certain types of business loans, lenders may require that you pledge assets as collateral. This ensures that the lender will have something to take back in case you default on your loan agreement. Collateral can be physical, such as a personal or work vehicle; or non-physical, like accounts receivable or cash in the bank.

The type of collateral you need for a small business loan depends on the kind of financing you’re applying for. Some lenders will accept inventory or accounts receivable as collateral, though advance rates on these assets tend to be lower than if you offer other types of collateral.

Other types of alternative business funding don’t rely on collateral and instead use something called a factor rate to calculate your repayment obligation. This allows many businesses to qualify for financing even if they don’t meet the standard requirements for traditional business loans. This is especially helpful for newer or smaller businesses that may struggle to meet strict credit score or revenue requirements for traditional business loans.
Cash Flow

If your business is launching new products, services or expanding into a new market medium, a cash flow loan can help you cover the costs. In this type of financing, lenders focus on your business’s incoming and outgoing transaction data, historical revenue and projections to assess your company’s ability to repay the financing.

Your business’s DSCR (debt service coverage ratio) is another key factor that many lenders consider. This is the amount of your business’s annual operating income that can cover its debt payments, including a new loan.

Small business owners may have a great idea for a product or service, an identified target market and knockout marketing plans, but if they can’t secure funding, those ideas will never come to fruition. To ensure your company has a shot at qualifying for the right financing, prepare to share your credit score, personal guarantee, collateral and cash flow. Also, check out our complete guide to business loans.small business loan requirements

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