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 your best terms and lowest rates. Find out what business loan requirements you need to meet in order to qualify.

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Understanding business loan requirements

Applying for financing for your small business may seem daunting. But understanding small business loan requirements, which may include strong personal credit, collateral and extended time in business, could ease the process and increase your chances of getting approved for funding. Continue reading to learn more about what would be expected of you when applying for a business loan.

Typical small business loan requirements

The documents and details you’d need to share would depend on the type of financing you’re seeking and the lender you’re working with. In addition to basic details about your business, including your tax ID and industry, generally, you could expect to hand over the following information:
  1. Credit score. Business owners have two credit scores to monitor — their personal credit score and business credit score. It takes time to build up credit history for your business, so your personal credit score carries more weight in the meantime. Expect lenders to review your personal credit history when considering your loan application. You may want to wait to apply until your credit is in good shape to boost your chances of approval. You can use LendingTree to check your personal credit score for free. You can also request a business credit report from one of the business credit bureaus, such as Dun & Bradstreet.
  2. Time in business. Most lenders prefer to work with businesses that have been operational for several months, often requiring at least six months to a year in business; banks may look for two to three years in business. Lending to startups is considered risky, as newer businesses don’t have a proven track record of repaying debt. Before applying for financing, check the lender’s time in business requirements to make sure you meet the minimum.
  3. Business plan. Your business plan should encompass all aspects of your business, including a description of your product or service, your expenses and how you generate a profit. Lenders would likely be most interested in the financial portions of your business plan, including financial statements that we’ll discuss below. Still, the business plan as a whole would indicate to lenders that you have strong management skills, an understanding of the marketplace and the ability to pay back a loan.
  4. Balance sheet. The business’s assets, liability and owner equity would be illustrated on your balance sheet. Organizing this data in one document would show the business’s financial standing at any given point in time. You would need to deduct your current liabilities from your current assets to show what the company is worth. The balance sheet would help lenders determine how well-resourced the business is and whether it is over-extended financially.
  5. Cash flow history and projections. Free cash flow represents the amount of money available to a business after paying standard daily expenses. A cash flow analysis is another tool lenders use to determine a business’s ability to repay debt. Breaking out your cash flow history and projections would show lenders how much debt your business could handle and how much cash would be left over to reinvest in your business.
  6. Accounts receivable and accounts payable reports. Accounts receivable is the amount of money customers owe you for completed projects and services. On the other hand, accounts payable is the unpaid amounts that you owe to vendors. 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.
  7. Collateral. Borrowers can pledge assets to act as collateral to secure a business loan, giving the lender the ability to seize those assets if the business defaults on payments. Not all lenders require collateral, but if they do, the loan amount would depend on the value of the collateral. Acceptable assets could include property, inventory, equipment, invoices or accounts receivable.

Online loan requirements vs. bank loan requirements for business

Online business lenders typically fund loans faster than banks because they usually review fewer documents from applicants. Most prioritize credit score, annual revenue, time in business and profitability. Instead of requesting the reports above, they may ask for bank statements or access to your bank account or accounting software.

However, speed comes at a price — online lenders may have more lenient requirements, but they often charge higher rates and issue smaller loans.

Banks are typically stricter and require many of the documents discussed above. But if you’re approved for a bank loan, you could receive a larger amount with a lower, competitive rate.

SBA loan application requirements

The U.S. Small Business Administration partners with lenders to guarantee loans made to small businesses. The SBA doesn’t directly loan money, but instead insures a portion of the loan amount to reduce risk for the lender.

If you are turned down for a conventional loan, you may qualify for an SBA loan, though 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. You must also meet the following criteria:

  • The business must operate for-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 U.S. 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.

SBA loans typically have low rates and fees and favorable repayment terms, though the application requirements differ slightly from those of standard business loans. Here are the additional requirements you could expect when seeking an SBA loan:

  • Personal background and financial statement
  • Business certificates and licenses
  • Income tax returns from the previous three years
  • Resumes for all business owners
  • Statement describing business overview and why SBA assistance is needed
  • Copy of business lease

The SBA could take a few weeks to review your documents and compile a loan offer. During the underwriting process, you may be asked to submit more information to further illustrate your circumstances.

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

How to get approved for a small business loan

Depending on the lender you choose, it may take a few days or a few weeks to be approved for financing. Being well-prepared could help you access funds faster when it’s time to apply. Here are a few tips to follow:

  • Gather documents early. Research what your selected lender may require in the loan application and have those documents ready when you apply. Missing information or an incomplete application could delay approval.
  • Improve your credit. Because lenders may heavily consider your credit history when you apply for a loan, make sure your credit profile is in good shape beforehand. You can improve your personal and business credit through on-time bill payments and debt consolidation. Boosting your credit would help you get approved for funding.
  • Stay organized. If you plan to apply for funding at any point, keep your books and financial documents up to date and organized. Expect lenders to ask for detailed information regarding your company’s history, results and future plans.

Be sure to shop around and compare lenders before settling on a loan for your small business. Look for a lender with minimum requirements that your business meets, as well as rates and terms you can handle.