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15 Business loan requirements by lender market

Business loan requirements can vary depending on the lender and the type of loan you’re seeking, but generally, here are the common criteria and documents lenders expect:

1. Credit Score:

• Personal Credit Score: If your business is relatively new or you’re a sole proprietor, your personal credit score will be heavily considered. A score of 680 or higher is typically preferred.
• Business Credit Score: Established businesses might also have a business credit score (FICO SBSS, Paydex, etc.). A score of 75 or above is typically considered good.

2. Time in Business:

• Most lenders prefer businesses that have been operational for at least 1 to 2 years. For newer businesses, lenders may impose stricter requirements or offer lower loan amounts.

3. Annual Revenue:

• Lenders usually require a minimum level of annual revenue, which can vary based on the lender and loan type. For example, some lenders may require $100,000 in annual revenue, while others may demand more or less.

4. Debt-to-Income Ratio (DTI) or Debt Service Coverage Ratio (DSCR):

• Lenders assess your ability to service debt. A common metric is the DSCR, which measures your business’s cash flow against its debt obligations. A DSCR of 1.25 or higher is often preferred.

5. Business Plan (for startups or newer businesses):

• If your business is a startup or younger than a year, some lenders may request a detailed business plan that outlines your goals, projected revenue, market analysis, and strategy for repayment.

6. Collateral (for Secured Loans):

• Some business loans are secured, meaning you’ll need to provide collateral like real estate, inventory, equipment, or accounts receivable. Unsecured loans don’t require collateral but often have higher interest rates.

7. Profit and Loss (P&L) Statement:

• This financial statement shows your business’s revenue, costs, and profits. Lenders use it to determine if your business is profitable and sustainable.

8. Balance Sheet:

• A balance sheet provides a snapshot of your business’s assets, liabilities, and equity. Lenders will evaluate your company’s financial health using this information.

9. Cash Flow Statement:

• Lenders often review your business’s cash flow to assess if you have sufficient income to cover loan repayments. Positive, steady cash flow improves your chances of approval.

10. Bank Statements:

• You may be required to provide several months’ worth of business bank statements to demonstrate your cash flow and banking history.

11. Tax Returns:

• Lenders often ask for both business and personal tax returns (usually the past 2-3 years). This helps verify income and profitability.

12. Legal Documents:

• Depending on the loan, you may need to provide business licenses, articles of incorporation, operating agreements, or franchise agreements to verify your business’s legitimacy.

13. Business Debt Schedule:

• This is a list of all your current debts and obligations, showing your outstanding balances, monthly payments, and lenders.

14. Personal Guarantee:

• Many lenders, especially for small businesses or startups, may require the business owner to personally guarantee the loan, meaning you’ll be responsible for repaying the loan if the business can’t.

15. Purpose of the Loan:

• Lenders often ask why you need the loan (e.g., working capital, equipment purchase, expansion). Certain types of loans are specifically for certain purposes, such as equipment financing or commercial real estate.

Meeting these requirements increases your chances of being approved for a business loan, but the exact criteria will depend on the lender and type of loan you’re applying for.