What Do You Need for a Small Business Loan: The Minimum Requirements
For many small businesses, loans are necessities. 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 for a small business loan?
Researching the requirements up front 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.
What Factors Do Lenders Consider When Making Loans?
A lot goes into a lender’s decision to approve or deny business funding. Traditional lending institutions look at:
- Personal and business credit scores
- Length of time in business
- Requested loan amount
- Intended loan use
- Owner’s industry experience and/or job history
- Cash flow history and projections
- Ratio of income to expenses
- Debt-to-credit ratio
- Number and type of credit accounts or lines
- Type and value of potential collateral
- Liquidity of available assets
- Financial history, including bankruptcies, judgments and liens
- History of on-time and/or late payments
- Industry risk level
- Growth potential
These factors allow lenders to properly identify which businesses are capable of paying back the loan in the proper amount of time. However, not all requirements are cut and dry—they can vary significantly depending on the type of lender. Generally, fintech lenders are more easygoing with requirements, where banks are far more strict.
Bank Loan Requirements for Business
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.
Credit score has a significant influence on your chances of qualifying. Banks generally look for a FICO score of at least 640; however, you’re more likely to get a loan if you can show a number of 700 or more.
Even if you have amazing credit, the bank will want to see further proof of financial stability. In addition to a loan application, be prepared to submit:
- At least one full year of business bank statements
- Two most recent business tax returns
- Balance sheets
- Cash flow statement
- Profit and loss statement
- Business debt schedule, if applicable
- Details of accounts receivable and accounts payable
- Description of and proof of ownership for collateral
- Proof of business insurance
- Licenses, permits, articles of incorporation and other legal documents
- Business certificate
- Detailed personal financial information
- Complete business plan, including a description of your business, products or services, structure, management and marketing plan, as well as financial projections
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.
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.
SBA Loan Requirements
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:
- Being a for-profit company based and operating in the U.S.
- Doing business in an approved industry
- Meeting size requirements to qualify as a “small business” in your industry
- No past delinquencies or defaults on government loans
- Owner equity invested in the business
- No personal criminal record or current involvement in illegal activities
- Inability to qualify for or obtain funding from other sources
Credit score, collateral and documentation requirements are set by SBA lenders, not the SBA itself. Be prepared 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.
Qualifying for Fintech Financing
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.
Some fintech lenders—like National—use a marketplace structure to give businesses access to more funding options than direct lenders can provide.
Depending on the loan amount and type, a fintech lender may require:
- A minimum FICO score, which is usually lower than bank requirements if it’s considered at all
- Minimum time in business, usually 6 to 12 months for lenders that don’t work with startups
- Minimum monthly or annual revenue
- Proof of business income
- Proof of identity
- Security for the loan in the form of collateral, a UCC lien or a personal guarantee
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.
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.
How to Qualify for National’s Small Business Loans
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:
- Three or more months in business
- $120,000 or more in annual gross sales
There’s no set FICO requirement, and additional paperwork is minimal. You won’t be asked to risk business assets as collateral, and National puts no restrictions on how funds are used.
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 financing 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!