This blog post was originally published on December 18, 2019. It has been updated to include new information about what you need to be eligible for a small business loan.
For many small businesses, loans are a necessity. Only 48% have all the funding they need, and 29% fail due to lack of cash. Although approvals from institutional lenders are on the rise, applying is still a long and detailed process. But what do you need to be eligible for a small business loan?
Researching lender requirements upfront can point you to the loans for which you’re most likely to qualify, saving you the frustration of being rejected after weeks or months of waiting.
What do you need for a small business loan? The answer depends on the type of lender.
Banks, SBA lenders and fintech lenders have different application requirements. Other factors can affect both your eligibility and the documentation you’ll be asked to submit.
In short: applying through a bank can take forever and result in a rejection, while Fintech lenders (like National) have much simpler requirements and can approve loans in as little as 24 hours.
Here’s how you can skip the mounds of paperwork and hone in on your best options for funding.
Small business loan requirements for nonbank lenders are less restrictive than institutional lenders, and this can open doors for business owners who fall short of qualifying for traditional funding.
Even if you’ve had credit or personal finance challenges, you may still be eligible for funding through a fintech lender. It’s not necessary for your business to show a profit, either—most fintech lenders focus on your potential to excel, rather than your history.
These are the minimum requirements that you need to be eligible for a small business loan. If you’re applying for a larger loan, then lenders may request additional paperwork.
Qualification requirements may be stricter for larger loans, or lenders may ask for additional paperwork to perform a more thorough evaluation of your company’s financial standing.
A low personal credit score and previous bank rejections aren’t the only reasons to contact a fintech lender. It’s generally easier and faster to qualify, so a nonbank option could be your best chance to get funding to resolve challenges or pursue opportunities.
Many fintech lenders offer financing without real estate or other collateral requirements. However, you will have to give a personal guarantee, or agree to pay back the loan in the event that your business closes.
Bad credit or prior rejection for a bank loan aren’t the only reasons to try a fintech lender. Because it’s easier and faster to apply and qualify, a nonbank option could be your best chance of getting the money you need to handle an emergency or meet a tight deadline for investing in a growth opportunity.
The requirements won’t change drastically for other financing options, like merchant cash advances and business lines of credit. However, keep in mind that interest rates are calculated based on
A lot goes into a lender’s decision to approve or deny business funding. Traditional lending institutions look at:
These factors allow lenders to properly identify which businesses are capable of paying back the loan in the designated amount of time.
However, not all requirements are cut and dry—they can vary significantly depending on the type of lender. Generally, online lenders are more easygoing with requirements, where banks are far more strict.
Banks are particularly notorious for being picky about approving loans. For your application to be among the 66% that get approved, you’ll need to do a lot of work to show your business is reliable and creditworthy.
Your credit report has a significant influence on your chances of qualifying. Banks generally look for a FICO score of at least 640 when you apply for a loan; however, you’re more likely to get a loan if you can show a score of 700 or more.
Even if you have amazing credit, the bank will want to see further proof of financial stability. In addition to an application, prepare to submit the following when applying for a small business loan:
As you can imagine, it takes time to collect and prepare the required documentation. If you don’t already have a business plan and clear financial projections, it could be months before everything is ready.
Falling short in any one category could reduce your chances of qualifying by a wide margin. If the underwriters find anything that causes concern, then your file could be rejected without a second thought.
It may take an additional month or more to find out whether or not you’re approved once your application—and the extra paperwork accompanying it—has been submitted. Some small business owners wait over six months for a decision.
Due to this lengthy wait time, you have to know your funding requirements well in advance of when you plan to use the money.
Loans backed by the Small Business Administration require much of the same documentation as bank loans. Your business must also conform to the SBA’s qualifications, which include:
Because SBA loans have long terms, lenders take extra care to ensure that you’re qualified.
Credit score, collateral and documentation requirements are set by SBA lenders, not the SBA itself. Prepare to wait two to three months for SBA funding to come through if you qualify.
Businesses looking for faster approval and funding can try the SBA 7(a) Express program, or look into specialized options like the Hybridge SBA loan from National Business Capital & Services. This program gets you bridge funding right away, and an SBA loan pre-approval, with funding in as little as 45 days.
As a fintech marketplace, National Business Capital & Services keeps loan requirements simple. Small business owners have multiple options for funding, including working capital loans, lines of credit and equipment financing. To qualify for a basic small business loan, all you need is:
There’s no set FICO requirement, and additional paperwork is minimal. You won’t be asked to risk business assets as collateral. After you receive funding, you can put it toward anything that will help your business!
A business financing advisor will guide you through the application process to ensure your small business gets connected with the best financing options from National’s global marketplace of over 75 lenders. This diversity allows National to support a wide range of industries and provide personalized funding to meet the unique needs of small business owners.
Get started today by applying through National and learn about your options right away!
National Business Capital & Services is the #1 FinTech marketplace offering small business loans and services. Harnessing the power of smart technology and even smarter people, we’ve streamlined the approval process to secure over $1 billion in financing for small business owners to date.
Our expert Business Financing Advisors work within our 75+ Lender Marketplace in real time to give you easy access to the best low-interest SBA loans, short and long-term loans and business lines of credit, as well as a full suite of revenue-driving business services.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Megan is passionate about helping business owners along their journey - providing them with relevant content they can use in their day-to-day operations.