Key takeaways

  • Business loan requirements are not the same for every lender
  • Annual revenue, credit score and years in business are a few factors that impact loan qualification
  • When submitting a loan application, businesses will have to provide certain documents like tax returns and profit and loss statements

Recent data from the Federal Reserve revealed lenders continue to tighten loan standards. This can lead to an increase in denials and lower approved loan amounts.

Although approval for small business loans can be challenging, especially for startups and businesses with bad credit, there are steps you can take to increase your odds of approval and avoid rejection. To help you qualify for a business loan, we’ve identified eight common requirements for a business loan.

1. Annual revenue requirement

Loans from both banks and online lenders often come with set annual or monthly revenue requirements that your business needs to meet. These vary by lender, but in general, most will want to ensure you have appropriate cash flow — after other financial obligations — to handle a new loan.

For example, OnDeck has a minimum annual revenue requirement of $100,000. But its average borrower has an annual revenue of $300,000 or more. Online lenders may set lower revenue requirements than traditional ones, but this isn’t always the case.

You may need to consider alternative lending if you do not meet the annual or monthly revenue requirement. These can include merchant cash advances, invoice financing and invoice factoring. They are more expensive, but since they use your accounts receivables as collateral, many do not have a minimum revenue requirement. 

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Bankrate insight

Most lenders will require you to show your monthly or annual revenue consistently being deposited in a business checking account.

2. Business plan

A business plan is essential to many business loan applications. Lenders will want to understand what your business does, how it makes its money and how it will continue to succeed. Most importantly, a lender will want to know what your plans are for financing. 

You can work with a business advisor or a Small Business Development Center (SBDC) to shape your business plan. You should also include the resumes of each owner and how they will contribute to the business’s success.

Your business plan should include the following: 

  • Executive summary
  • Company description
  • Market analysis
  • Organization and management information
  • Service or product line descriptions
  • Marketing and sales information
  • Funding request
  • Financial projections

However, only some lenders require a business plan. Smaller lenders and nontraditional lenders may only need to see proof that you have sufficient revenue and cash flow to handle the loan, no matter how your business plans on using it.

3. Business credit score requirement

Similar to a personal credit score, your business credit score expresses your business’s creditworthiness. The higher the score, the more likely your business is to receive a loan and, potentially, at a better interest rate. Business credit reports may include information on the number of employees, account information, past payment history and amounts owed.

It’s okay if you haven’t had time to build business credit. Many small business lenders — especially online lenders and those that work with startups — are more concerned with your personal credit score. But if you’re working with a traditional lender or requesting a particularly large amount, your business score may matter.

You can check your score with the main business credit bureaus. These include

If you have previously taken on other debt and failed to repay it, it may be more difficult to secure funding. But a history of on-time payment for your debt obligations will be an asset when your lender is reviewing your application.

4. Personal financial history

Each owner’s personal finances play a role in their ability to get business financing, especially if you’re launching a startup. Business lenders frequently require a personal guarantee, which makes you and your co-owners (if you have any) personally responsible for paying back any borrowed funds if your business cannot pay.

Because of this, lenders often check your personal credit score. If you have poor credit, you may not be able to secure a competitive rate on a business loan. Many lenders won’t approve your loan if you’ve had a bankruptcy in the last few years. 

Credit score requirements vary not only by the type of loan you’re seeking but also by the type of lending institution.

Banks and credit unions usually require credit scores of 670 or higher for business loans. But online lenders offer more flexible criteria, providing options for bad credit business loans to businesses with scores ranging from 550 to 625. It may even be possible to find a lender willing to assist entrepreneurs with personal credit scores as low as 450.

5. Years in business requirement

Your time in business matters to lenders — if you’ve been open for multiple years, that sends a message of stability. Nearly 20 percent of small businesses fail in their first year. Lenders know if your business fails, you may be unable to repay them, so you may not qualify for a loan with some lenders until you have completed one to two years in business.

There are some exceptions to the rule. Lenders specializing in startup loans often have more lenient requirements, only asking for six months in business. And some specific loan types like equipment loans may have no minimum time in business requirement.

6. Industry requirement

Industry also plays into success — and your ability to qualify for a loan. Businesses in profitable and stable industries are more likely to appeal to lenders.

Likewise, many lenders have a list of industries they won’t work with, which you can typically find on their website. Gambling, adult entertainment or services and cannabis are frequently ineligible for traditional financing. 

7. Loan proposal

For traditional term loans and Small Business Administration loans, a proposal is key. A loan proposal is similar to a business plan and may be included in one. It outlines:

  • Why you need the funding
  • How you will use the loan
  • How you will pay back your loan
  • How it will benefit your business 

It isn’t a requirement for every type of loan — and not every lender will want to see one. But you should still have one prepared when you are ready to apply.

8. Other debts and obligations

You will need to list your business’s debts and other financial obligations for your lender. This includes other loans you may have, business credit cards, regular bills and payroll numbers. A lender will want to confirm you have enough cash flow to manage a new loan payment. 

Even if your business is profitable, it doesn’t mean you can handle more debt. A lender will consider your debt-to-asset ratio when you apply. This tells lenders how much of your revenue is paid towards your current debts. The higher the figure, the harder it may be to qualify for a business loan.

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Bankrate insight

Debt-service coverage ratio (DSCR) may be used to compare a company’s cash flow against debts. When a business applies for a loan, lenders use this information to assess risk and determine if the business has the capacity to repay the loan. The ratio varies from lender to lender, but a DSCR of 1.25 or higher is ideal.

Other small business loan requirements

In addition to these eight categories, other documents you may be asked to submit when you apply for a business loan include:

    • Profit and loss statements
    • Proof of ownership
    • Bank statements
    • Business licenses and registration
    • Employee identification number (EIN) 
    • Tax returns
    • Balance sheets
    • Business insurance
    • Payroll records
    • Financial projections
    • Driver’s license or other photo ID
    • Commercial lease agreement
    • Accounts receivable and accounts payable

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The bottom line

Every lender — and loan — has its own requirements. While these are the most common business loan requirements, you may be asked for more or less documentation to prove your business can handle a loan. 

Prepare the information you will likely be asked to submit ahead of time, then compare lenders to find one that meets your business’s needs.

Frequently asked questions about business loan requirements

  • Lenders will look to see that a small business can meet certain conditions to qualify for a business loan. The most important factors can include meeting the lender’s minimum credit score, time in business and annual revenue requirements and having a business checking account.
  • Business may be asked to submit the following business documents along with their loan applications:
    • Accounts receivable and accounts payable
    • Balance sheets
    • Bank statements
    • Business insurance
    • Business licenses and registration
    • Commercial lease agreement
    • Driver’s license or other photo ID
    • Employee identification number (EIN)
    • Financial projectionsProfit and loss statements
    • Proof of ownership
    • Payroll records
    • Tax returns
  • Getting a business loan can take anywhere from a few hours to a few weeks, but this depends on the lender and loan type. Banks and credit unions may take the longest but may offer better rates to business owners with excellent credit. Online lenders tend to have more relaxed eligibility requirements and may also offer fast loans that can be deposited in your business checking account within one to three days.