Buy and Borrow

What’s Needed for a Business Loan?

Erin Palmer

October 17, 2019

Woman helping another female with business loan

Businesses take a lot of work. And that work takes capital. That’s why business lending is so important.

Business loans can help provide the financial support you need to invest in your business and prepare for growth, from commercial real estate loans for new office spaces or a line of credit for short-term needs.

Before you apply for a business loan, learn about the eligibility requirements and what is needed to qualify.

Eligibility Requirements for Business Loans

There are a number of factors that lenders consider when someone applies for a business loan. There are specific requirements that need to be met, depending on the specific loan.

Keep in mind that different financial institutions may have varying minimum requirements for commercial loans.

Here are some of the most common eligibility requirements for business loans:

  • Credit score - Most lenders will start with the borrower’s personal credit score. Some lenders may also look at your business credit score, though that is not always a requirement. The minimum credit score required will vary from one lender to the next, especially as part of the larger picture along with the other requirements.
  • Annual revenue and operating income - Lenders will consider how much revenue your business brings in. Higher revenue might help a borrower’s chance of approval, though it has to be balanced with the amount of debt and the net income for the business.
  • Business age - How long you have been in business is another important factor for lenders. Established businesses have more of the information that lenders need. That’s why it’s common for lenders to require a specific amount of time for you to be in business to be considered for a loan. The length of time depends on the type of loan that you’re applying for.
  • Purpose of loan - Lenders sometimes will need to know what you intend to do with the funds. Certain business loans are for specific things, so always make sure that you’re applying for the right loan for your needs.
  • Debt ratios - Lenders will often consider your debt-to-credit ratio and debt-to-income ratio while considering a business loan. Too much debt might make it more difficult to get approved for a loan. Too many sources of personal credit could also impact the decision.
  • Collateral - Backing up your loans with collateral could potentially help your chances of approval. This could help to alleviate some of the risk for lenders.

How to Qualify for a Business Loan

As your business continues to grow, you can get prepared for future funding needs. So it’s always a good idea to work on your personal and business credit scores to keep them in good standing.

When you’re ready to apply for a loan, it helps to be prepared. Gather up all of the necessary information to help expedite the process. This might include (but is not limited to):

  • Signed income tax returns (personal and business)
  • Current personal financial statement
  • Balance sheet
  • Profit and loss statement
  • Articles of incorporation, by-laws, stock certificate and/or partnership agreement
  • Financial projections and business plan
  • Narrative loan request/use of proceeds
  • Copy of driver’s license for all borrowers
  • DBA assumed name certificate and fictitious name filing with the state
  • Limited liability companies (LLC) articles of organization and membership agreement

Keep in mind that you might need additional financial information depending on the loan request and use of proceeds.

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