Business Loan Requirements & Qualifications

To get a loan, you need to first meet a few basic business loan requirements. The exact business funding criteria will vary widely from lender to lender. But almost every lender will have some variation of the same set of requirements. Use this as a guide to figure out the basic pre-qualifications and factors that will get you funded. Beyond those requirements, there are specific factors that will disqualify you that you should be aware of.

I. The Basic Business Loan Requirements

Below we list the basic requirements for getting pre-approved and funded by a non-bank lender. We also list basic factors that could disqualify you from funding. Almost every lender we’ve partnered with will want to see the following.

1. Personal Credit Score

Your credit score is the single most important factor in getting a loan. Every mainstream lender, including the vast majority of alternative lenders, will want to see it. Business lenders will use your credit score to decide whether to approve you. After that, they will use your credit score as the most important factor towards the rates and terms they offer.

With a high credit score:

If your credit score is low, you will have fewer business loan choices. Banks will start to reject your applications and you will be offered worse rates. Many alternative lenders will still work with you, but your rates only grow worse the lower your credit score dips.

2. Time In Business

Business lenders feel safer lending money to business owners with more experience. This is for the simple reason that your time in business serves as proof that you know how to manage a business’s finances.

Your time in business isn’t as important as your credit score for determining approval or rates. But most business lenders will have a minimum requirement for time in business. Usually, more time in business will translate into higher loan sums.

3. Minimum Revenues

Almost all personal lenders will want proof of an individual’s income. Likewise, business lenders will want to look at your revenues to make sure you can pay them back. They will weigh their decisions based off your deposits reflected in your bank statements. As such, a connection to your bank account or accounting software may be requested. In any case, seeing your bank statements will be a necessity.

The higher your revenues are, the more lending options you will have access to. Business lenders will typically trust you with higher sums if you have a larger revenue to pay them back with.

II. Business Loan Requirements that Disqualify You

Whatever your basic qualifications, there are other business loan requirements that may hold you back from getting a loan.

1. Poor Loan Repayment History or Business Credit Score

Having a poor history of servicing debt could kill a deal for most lenders. While they may or may not pull a full history of your business credit score, they will look at your servicing history and determine internally if you are a good business credit or not.  But your personal credit score will be the one you see reflected under a lender’s “minimum requirements”, and a good personal credit score could outweigh a poor history of repayment.

Your personal and business credit scores are easy to differentiate. Your personal credit score will range from 300 to 850. Your business credit score will range from 1 to 100.

To find your business credit score, you can check with the two major scoring institutions:

  • Dun & Bradstreet PAYDEX
  • Intelliscore Plus SM from Experian

2. Banned Industry

Many lenders will only work with certain institutions. The most common restrictions you will see are restrictions against not-for-profit businesses. But even for-profit businesses will be subject to restrictions. For example, lending businesses are restricted by many lenders, as are some other business sectors such as:

  • Adult entertainment
  • Construction
  • Financial services
  • Firearms
  • Cannabis

These are some business sectors that have more trouble than most getting a loan. But some lenders have restrictions for many other sectors. Make sure you do your research before starting the application process to avoid wasting time. Otherwise, go ahead and just let the lender know what industry your business operates in.

3. Improper Entity Type

Another important classification is the type of business you operate. Some lenders won’t work with Sole Proprietorships and partnerships. If you are a sole proprietor, your bank statement must say your name and “d/b/a [Business Name]”, for example John Does d/b/a John Doe’s Lawncare Service. While being a sole proprietor can hold you back from getting a loan, it’s not the be-all-end-all. Many lenders view sole proprietors as high-risk, so you just need to find an appropriate lender for you. Also, if you commingle personal expenses with business expenses, it may disqualify you. Make sure you treat your personal d/b/a bank account as a business account and keep the transactions in that account limited to business activity only.

Most lenders give preference to business entities like corporations or LLCs because of the increased financial protections they receive.

4. Entity not “Free & Clear” (Liens, Lawsuits, Bankruptcies)

Your business history will come into play as well. Lenders will want to conduct an entity search on your business. They will just want to assess the risk of providing you with a loan. If they find lawsuits or liens against your business, it will likely kill the deal.

5. Significant Sums of Business Debt

Many lenders will want to know your current debt situation. Many will also have restrictions surrounding them. Fortunately, you can deal with this issue by simply providing a disclosure. A business debt schedule can be used to confirm your other debts or lack thereof.

Unfortunately, if you have too much existing debt, most lenders will decline your application.

6. Criminal Background

Lenders will often run a quick criminal background check, for obvious reasons. If you have a history of white-collar crimes or have been a convicted felon you will likely be disqualified.

Now that you’re aware of what it takes to get pre-qualified and not get disqualified, here are the common stipulations and documents you will have to provide in order to actually close with the lender and receive funds.

III. Business Loan Requirements to Funding

Now that you know what it takes to get qualified, what do you need to get funded? Generally, lenders ask for more stipulations before they fund you. Here is the usual checklist for most business lenders.

1. Personal & Business Tax Returns

Most business lenders will want to look at both your personal and business tax returns. This will help them assess your personal and business financial health. They will weigh the implications of your tax returns on their risk. If your finances look especially risky, that could be a deal-breaker.

The typical requirements will be at least two years’ tax returns for both yourself and your business.

2. Relevant Licenses – Owner ID, State, Local, Federal

A lender will definitely ask for your drivers license so they can run a background check on you and verify the info on your application. If you need any licenses to operate your business, business lenders need to look at them. This is a simple step that can be handled quickly by sending a copy of any needed licenses. These are licenses required and provided by all levels of government including city, county, state and Federal.

3. EIN Number

Your Employer Identification Number is one of the more basic requirements you will be asked for. This is because your EIN is essentially the social security number of your business. So, you will be asked to provide it for most business loans.

If you don’t already have an EIN, you can get one easily from the IRS online. Having one makes IRS compliance easier. It also helps separate your personal and business finances while further legitimizing your business for lenders.

4. Lease / Landlord Verification

Brick and mortar businesses usually need to provide a copy of their commercial lease and will verify you’ve been making your payments. This will let the lender know that you will be able to operate your business for the duration of your loan term. Alternatively, many lenders will accept a letter from your landlord verifying your lease and that you are in good standing. A copy of your commercial lease is the simplest way to prove you have a valid lease, and a lenders will check your bank statements to make sure you’ve been paying.

5. Proof Of Collateral

When you’re applying for a secured loan, you will need to provide proof that you have collateral.

Collateral requirements vary widely by lender. For example, SBA loans will require you to state the kinds of collateral you can offer. They will also want to know the value of your collateral..

Alternative lenders are a bit simpler when it comes to collateral. They often won’t require physical collateral, but may ask for a personal guarantee.

6. Financial Statements

Your business bank statements can serve as proof of your revenues. You will be asked to either send the lender copies of your bank statements or to fax or mail them. If your business lender is your business bank, this step is not necessary. But many alternative lenders can easily and securely be connected with your bank accounts to make their assessments very fast and easy.

If the loan you are trying to get is big enough (typically over $75-100k), the lender may want more financial information. The business loan requirements for large loans often include furnishing balance sheets and profit and loss reports.

7. A/R & A/P Aging Schedules

Some lenders will want to see your accounts receivable aging & accounts payable aging. This gives them an idea of money coming in from customers, versus money going out to vendors. These will be used by the lender to assess your business’s short-term cash flow stability. They will help the lender see how well your business receives and provides payment on its bills.

Your accounts receivable will show how many invoices you’ve sent and are owed by customers. Your accounts payable is the opposite, showing how many invoices you must pay to vendors. If a lender sees that your A/R aging is greater than your A/P aging, they may kill the deal or adjust the offer downward. The reason why is that this can signal potential cash flow issues.

8. Funding call

Most lenders will require you to do a “funding call” or interview. This is often times the first human touch point they’ll have with you, as most business is done online. They simply ask that you understand the terms of the loan, ask what you plan to do with the funds, and get a feel for their new client. It’s absolutely imperative you speak with transparency and honesty.

IV. State Your Business Loan Requirements

1. Desired Amount

You will need to let your lender know how much money you want to borrow. Having a higher credit score, higher revenues, and more time in business will net you access to higher borrowing amounts.

So, when you apply for a business loan you simply need to let the lender know how much you want. They will get back to you when they’ve made a decision.

2. Required Legal Contracts & Agreements

Business lenders will often want to see any legal contracts your business already has. Any franchising or operating agreements, or any other kinds of agreements should be disclosed. Be sure to list out any affiliated entities as well.

If you are a board member for another company, be sure to disclose that information. Any factor that could present a conflict of interest should be clearly stated.

3. Look For Any Other Specific Business Loan Requirements

Lenders will usually state their exact requirements rather plainly. It may sometimes be hard to find exactly what they need from you right away. But each lenders’ application process should reveal everything the lender needs.

V. How Do You Move Forward?

Now that you know what it takes to get qualified and funded, how do you go about doing it?

Ultimately, it’s you that must make the choices when it comes to your loan’s specifics. The lender just decides whether to approve your loan. You just need to make sure the lender can meet your requirements for a loan. This step is where you provide the specifics of what you need in your business loan.

But before you are approved, most lenders will inquire about the following:

1. Know Your Use of Funds Beforehand

The first step is quite simple. You’ll need to state why you need a business loan.

Most lenders will want to know how you plan on using the money they’re lending you. This step isn’t very difficult, but you will need to provide a summary of your reason for getting a loan and how you’ll use the funds. It’s not necessary a business loan requirement, but often times lenders find it as useful information to have, so be prepared.

2. Decide What Kind Of Loan You Need

There are many business financing options. You will need to choose the kind that best suites your business and your current expenses. You should take some time to think about this and decide the best option for your business.

3. Determine How Much You Can Afford

Business loans aren’t cheap. By the end of your loan, you’ll have paid a percentage of the loan’s balance in interest or a flat rate fee. Make sure you know how large a loan you can afford. When assessing “affordability”, it’s important you look at two factors:

  • Impact on cash flow
  • Total cost over of the life of the repayment schedule

Whether you can afford a loan or not, it’s important that it doesn’t negatively impair your cash flow to the point you can’t operate your business. This is known as “debt service coverage” – can you actually service the debt with cash flow? If not, do not proceed. If yes, you should then ask yourself if you’re willing to pay the fees or interest associated with it.

Once you’ve determined your use of funds, that will determine which type of loan best fits your needs. Once you determine the type of loan that best fits your needs, you can calculate repayment and figure out if you can afford it.

VI. Shop, Compare, Save with LendingBuilder

1. Compare Your Options

It is important to take your time to consider the options you have. We allow you the ability to shop around and do business loan comparisons. There are many ways you can do this. First, you can apply to different lenders and see what they are willing to offer you.

You could also sign up with a business loan marketplace platform. These platforms will take some of the information we’ve discussed and use it to prequalify you with their partner lenders.

Lender Minimum Revenue Time in Business Minimum Credit Next Steps
$100K/year 1 year 600+ See if you qualify
$10,000/mo 3 mo. n/a See if you qualify
$10,000/mo 3 mo. n/a See if you qualify
$75,000/yr 24 mo. 620+ Request Intro
Varies Varies 560+ See if you qualify

In any case, due diligence is important and constantly necessary. Even if you have bad credit, there should be multiple loan options to choose from.

2. Apply Based On Minimum Business Loan Requirements

You can apply for a loan with any lender you meet the minimum business loan requirements for. Meeting the minimum requirements won’t guarantee your approval. But you can find out by applying for pre-approval, typically without a hard pull on your credit.

Lender Minimum Revenue Time in Business Minimum Credit Next Steps
$50,000/yr 1 year 560+ See if you qualify
$100,000/yr 1 year 600+ Request Intro
$25,000/yr 3 mo. 500+ See if you qualify
$42,000/yr 9 mo. 550+ See if you qualify
$75,000/yr 2 years 620+ Request Intro
$10,000/mo 3 mo. n/a See if you qualify
$10,000/mo 1 year n/a See if you qualify
$15,000/mo 6 mo. n/a See if you qualify
Varies Varies Varies See if you qualify
$100,000/yr 1 year 500+ See if you qualify
$100,000/yr 6 mo. 600+ See if you qualify
$10,000/mo 3 mo. n/a+ See if you qualify
$100K/year 1 year 600+ See if you qualify
$10,000/mo 6 mo. 500+ See if you qualify

Not sure where to go for a business loan? Read these quick & helpful guides: