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Small Business and Loan Requirements


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It is not easy to list out the small business loan requirements. The reason behind this is these loan requirements can vary based on small business funding. It is always dependent on the lender chosen by the small business owner. Small business loan requirements may also vary based on the type of financing applied by the entrepreneur.

Small Business Loan Requirements

Let’s list out some of the common small business loan requirements.

  • Time in business
  • Business credit score
  • Personal credit score
  • Bank statements
  • Annual business revenue and profit
  • Business plan

Other than this, there are many more loan requirements for a small business loan. Some of them are personal and business tax returns, industry, desired amount, loan purpose, balance sheet, EIN, business permits and licenses, entity type, proof of collateral, legal contracts and agreements, Copy of your commercial lease, affiliations, and ownership, disclosure of other debt, and accounts receivable, and accounts payable aging.

Time in Business

Time in business is nothing but how long you are operating in the business. Every lender will ask this question about time in business. The longer time you are in business, it is better and that helps your application easily get approved. When the business is operating for a longer duration, the lender understands that it is in long-term success.

But, always keep in mind that the threshold should be more than two years. So, if the business you are running is two years old, it is possible to get a small business loan. But, it may limit many options but there is a chance that you will get approval. In most cases, banks are less likely to approve or lend business loans that are under two years old. But, in most cases, online lenders come with flexible requirements. So, online lenders are better if the business is two years old or under two years.

In case if the business is less than two years old, it is very important to strengthen your loan application in other terms. For example, make create a strong business plan and show your plans. You need to explain in a clear way that how you are planning to grow your business.

Business Credit Score

To explain the creditworthiness of your business, you need to submit the business credit score. Business’s history of payments made to your lenders and suppliers decides business credit score. A business credit score is also impacted by revenue, business size, and industry of the business.

Personal Credit Score

This is one of the most important business loan requirements and without a good personal credit score it is not possible to get qualified for a business loan. Lenders will always ask for your financial information and personal credit history. This will help them to access your future paybacks of the loan. If the personal finance history is strong, then they assume that you can easily manage your business finance as well. One thing is personal credit score helps in getting approval for a small business loan. Along with that it also influences interest rates applied for the loan.

Bank Statements

Bank statements are involved in the evaluation of the business’s financials. Lenders utilize these bank statements for determining your affordability of the loan. Through this, they will decide whether you can pay back your loan or not. More than this, through the bank statements lenders, will also analyze how you are managing your financials and incoming cash in the business. This is the reason, usually, for small business loans, lenders may request for at least 3-4 months of statements from the bank. This will support the financial history claims you have made in the loan application. Both for SBA loans and conventional bank loans it is compulsory to submit some more bank statements.

Annual Business Revenue and Profit

Revenue and profit of the business are the most important loan requirements. This loan requirement is most common as well and lenders will enquire about this irrespective of any other requirement. Business’s profit and revenue are usually decided through profit and loss statements. In most cases, lenders will analyze both loss statements and year-to-date profit. This statement is needed for at least the past 60 days and they will also check for profit and loss statements for at least two years.

You need to understand that, ability to get qualified for a business loan always depends on revenue and profits and this may vary depending on lenders. If you consider banks, then they will see the profitability of your business before approving a loan. But, alternative lenders may not analyze profitability for approving a loan. But, even these lenders may have a check on annual revenue minimums. Irrespective of lender requirements, it is always better to maintain stronger business financials. When you maintain stronger financials, you will better get qualified for any type of business loan.

Business Plan

A loan proposal or business plan is one of the most critical business loan requirements. The business plan comes on top of the list when you list out business documents for applying for a business loan. Both for SBA loans and traditional term loans, it is very important to submit a business plan. Even though the lender never asks for a business plan, it is better to prepare and submit it anyway. In the business plan, you can explore your financial goals, profits, future sales, cash flow, and income. Along with these, you can also include qualitative business goals in the same business plan. Through the business plan, you can portray that being a business owner you have thought about all the possible opportunities and even challenges in your business. Along with that, it also makes lenders understand that how you have planned to grow your business.

Conclusion

These are some of the common and most important loan requirements. But, usually, loan requirements depend on the type of loan product and it may vary based on the lender. When you understand loan requirements, you can ease up the loan application process. A list of loan requirements will help you in getting prepared for the loan application and it also increases the chances of getting qualified for the business loan.