Understanding Small Business Loan Requirements

Need a business loan?

Every business needs financial resources in order to operate, grow, invest in futures, and so on. With LendingTree’s network of business loan lenders we can help you get the money you need, and give you the power to choose the best terms and lowest rates. Find out what business loan requirements you need to meet in order to qualify.

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Business loans

If you have an idea for a start-up business, or a plan for expanding an existing business, your ability to pursue your goals is could well depend on your ability to get financing. A clear understanding of small business loan requirements can give you the edge you need to clear this crucial hurdle.

Your Business and You

While a business loan is different from a personal loan, you are likely to find that your ability to secure small business financing depends very much on your personal characteristics and history.

For one thing, in the absence of an established track record for a business, a lender’s willingness to extend your company credit is going to depend very much on your financial situation. This includes your current debt load and history of paying your debts. It may also include your ability to provide personal assets as collateral.

Another way a small business loan may depend on you personally is your ability to convince the lender that your plan for the business is viable. This comes down to your education, your experience, your ability to put together a well-conceived plan and your credibility in presenting it.

A small business loan may be a commercial transaction, but like many small businesses themselves, it is often highly personal to the business owners.

Typical Small Business Loan Requirements

So what will lenders ask for when considering a loan for your business? The following are some typical small business loan requirements:
  1. Your credit history Unless you have a profitable, well-established business, your personal credit history may have to make up for the absence of a company financial history. So, before you try applying for small business loans, check your credit score so you know where you stand and can address any problems.
  2. Business plan Your company's ability to repay the loan will probably depend on the success of the business, so lenders are going to want to see your business plan. This should be a detailed strategic document which includes a marketing plan, competitive analysis and well-researched data on cost factors and price points.
  3. Balance sheet Lenders need to see a list of the company's assets and liabilities so they can determine how well-resourced the business is and whether or not it is over-extended financially.
  4. Cash flow history and projections A balance sheet is the equivalent of a financial snapshot at one point in time, but a cash flow statement is a more dynamic representation of whether a company is growing or stagnating, succeeding or failing. It is helpful if your business is well-established enough to have built up a cash flow history, but if not you will have to present credible projections that give the lender confidence in the company's ability to repay the loan.
  5. Resource management The details of how your company processes payments and accounts payable shows a potential lender that you are (or are not) well-organized enough to make effective use of your resources.
  6. Collateral Lenders are going to look for assets they can claim if you fail to repay the loan. It's best if the company itself has assets of sufficient value, but if not you may have to put up personal possessions as collateral.
  7. Skin in the game Don't expect a lender to risk its money unless you also have invested significantly in the business.

Remember, the application process is largely about getting a lender to believe in you and your business. It is not just the substance of the above criteria, but also your thoroughness and organization in presenting them that can make a difference.

Business Loan Requirements Set by the SBA

If you are turned down for a conventional loan, you may qualify for a Small Business Administration (SBA) loan. The SBA is a United States federal agency that does not make loans itself, but guarantees loans made through approved private lenders. That government backing gives lenders the confidence to approve loans they would otherwise reject. You can only be considered for an SBA loan if you demonstrate that you have exhausted your options for obtaining other possible sources of financing. Here are some of the SBA's business loan requirements:
  • The business must operate for a profit.
  • The company cannot exceed SBA size limits. These limits vary by industry, and may be defined in dollars or the number of employees. See the SBA’s website for details on the size limits for each industry.
  • Business must be conducted within the United States or its territorial possessions.
  • There must be a reasonable base of invested equity.
  • The applicant must demonstrate a need for the money and a legitimate business purpose for using it.
  • The applicant must not be delinquent on any existing debt obligations to the U.S. government.

Whether you choose an SBA loan or private financing, applying for small business loans requires careful planning and documentation. The rigor of going through this detailed examination of your business plan and resources may be almost as useful as the financing itself in putting your business in a position to succeed.

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Types of Small Business Loans

Category Amount Interest Repayment Time to Funding
SBA Loans $25K-$5M < 10% 7+ years 7-75 days
Short Term Loans $5K-$5M > 5% 3+ months 1-7 days
Term Loans $1K-$5M > 5% 1+ years 1-21 days
Business Line of Credit $2K-$500K > 1.5% 1+ years 1-30 days
Working Capital Loans $5K-$500K > 10% 3+ months 1-3 days
Equipment Financing $1K-$5M > 5% 1+ years 1-14 days
Receivable Financing 85% of AR > 9% 1+ months 1-7 days