Operating a business isn’t easy– it takes a vision of success, the right team, and a continued thirst for growth. And at some point, all businesses require funding to shape these dreams into a reality. Knowing how to qualify for a small business loan before you begin the application process can be quite helpful.

Small business loan requirements can vary greatly depending upon a few factors, including yearly revenue, time in business, and for some types of loans, credit score. Business loan qualifications can also vary quite significantly depending on the type of lender.

This small business loan qualifications checklist will tell you everything you may (or may not) need as you begin exploring your options for financing!

How to Qualify for a Small Business Loan

Download Qualification Checklist

You’ll rarely need to meet all of these business loan qualifications. But, this comprehensive list contains every potential requirement you could encounter as you search for capital to grow.

If you apply for a loan through National, a financing advisor can walk you through the process to ensure that you complete each necessary step.

8-Step Small Business Loan Requirements Checklist

In the pre-recession era of the early 2000s, banks were the only feasible option for small business owners to receive financing. And the requirements to get a business loan from a bank were extensive, catering only to well-established businesses.

Alternative financers quickly filled this void by creating affordable loan options for all business owners. By cutting down this once-lengthy application from months to days, alternative lenders have streamlined this process, and opened the door for opportunity in doing so.

Requirements can vary greatly depending on the specific lender, and other unique aspects of the deal. Nonetheless, many lenders still require that applicants complete several of the steps below.

1. Calculate Your Required Loan Amount and Determine Your Goal(s)

One of the most basic (yet important) small business loan qualifications is calculating the amount of money you need to borrow. The desired amount can make or break your request.

Contrary to popular belief, bigger can actually be better.

Typically, banks tend to issue the largest loans, in the six figure range and above. For enterprise-sized businesses, this arrangement is perfect.

In fact, banks can be reluctant to give small business owners a reasonable loan they’re comfortable repaying. Smaller loans require the same processing and services as larger loans, so banks generally favor larger amounts to maintain a high profit margin.

But, small business owners often must look elsewhere, especially without the collateral to secure such a large loan. Generally, small business owners can qualify for a loan through alternative financing, even (and especially) when banks say no. With shorter terms than traditional bank loans, business owners are not beholden to lenders for the same long period of time.

Your goal in applying and qualifying for a small business loan should be the driving factor behind calculating this amount. But, clearly articulating the purpose of the loan to the lender is imperative too. Doing so conveys that you have a plan of action for implementing change in your business, and earning enough revenue to repay the lender.

Be as specific as you can when describing the purpose of your small business loan in the application. For example, if you’re purchasing new equipment to replace an older, outdated machine, then be sure to note what equipment you’re buying. Adding new employees to your existing team? Outline how many people you’re hiring and what you’re paying them, as well as how these new hires will improve your day-to-day operations. Looking to take your business from $1 million in annual sales to the $5 million threshold? Describe your goals, and how you plan to take your business there.

A business financing advisor will recommend specific loan options, depending on the purpose of your loan. If you have ongoing and spontaneous expenses as you grow your business, then a revolving line of credit gives you the flexibility your wallet needs.

Beyond understanding the purpose of the loan, lenders will also want to confirm that they’re providing enough to accomplish your goal. Rather than funding a half-measure, lenders are eager to see that you’re accomplishing your goals!

2. Prepare For Personal and Business Credit Checks

Your credit score is one of the most important qualifications for a business loan in the eyes of traditional lenders. Alternative lenders, however, may not consider credit scores as important.

Depending on how your business is structured, lenders may look at your personal credit score, your business credit score, or both. These scores can play a significant part in signaling how likely you are to repay your loan in the agreed upon terms. It can also set the interest rate.

Personal Credit Score

Even for LLCs and corporations, personal credit score is one of the most important business loan application qualifications. Lenders may ask for your personal credit history, along with other personal financial information. While it may seem unrelated to your business, your history of handling personal financial matters can indicate how reliable you will be in handling a loan. And for start-ups searching for initial funding, the personal credit score can be even more important.

During the initial assessment, lenders will do a soft credit pull. This gives the lender everything they need in the early stages: your score, and a brief summary. Once you’re pre-qualified for a loan, diligent lender may also perform a hard credit pull.

To qualify for a small business loan, it’s helpful (but not mandatory) to have a minimum credit score of 600. A score of 700 or above will open the door for plenty of financing options.

However, that’s not to say that credit challenges score eliminates your chances of qualifying for a small business loan. In fact, there are several financing options for business owners who have experienced previous difficulties with managing credit.

Business Credit Score

In addition to your personal credit score, many lenders will look to your business credit score as a way to assess whether or not your business can repay a loan punctually.

Like your personal credit score, your business credit score is influenced by your history of repaying loans– but there are other factors at play. Your company’s size, annual revenue, and industry can impact your business credit score, too.

In the early stages, business credit score tends to be one of the last small business loan qualifications people consider. In fact, many are unaware that their business even has a credit score. But even if you haven’t been notified of this score, or made an inquiry in the past, your business probably has a credit score. This score is created by business credit agencies whenever you:

Unlike personal credit, the scale for measuring business credit can vary by tracking agency, and the three main agencies each use a different scale:

  • Dun & Bradstreet uses the Paydex Score, which ranges from 1 to 100.
  • Experian uses the Intelligence Plus model, which also ranges from 1 to 100. 
  • Equifax evaluates businesses using three credit scores. The Payment Index, which measures previous payments, ranges from 1 to 100. The Business Credit Risk Score measures the potential for your business making late payments, and ranges from 101 to 992. The Business Failure Score measures the chances of your business closing over the next year.

A credit report from one, two or all three of these agencies is one of the most popular small business loan requirements.

Additionally, the FICO Small Business Scoring Service, which ranges from 0 to 300, calculates a score based on all of the above scores, as well as your personal credit score and recent financials.

3. Report Time in Business

How long have you and your team been at it?

Your answer to this question is one of the most important small business loan qualifications. In the eyes of many lenders, you’re only qualified to receive a small business loan if you meet the standard threshold– two years. Two years of continuous operation is enough to make most lenders comfortable with your abilities, but is not mandatory.

One way many newer businesses receive financing is through alternative lenders, who often only require one year in business.

If you’ve been in business under two years, then be sure to demonstrate the value and potential in your business in other parts of your application, like the business plan!

4. Write (Or Update) Your Business Plan

A thorough business plan can serve as your roadmap toward success and growth, but it’s also one of the most important small business loan requirements.

This business loan qualification is most important when you’re applying for traditional loans, as well as SBA loans. Regardless of whether or not your small business loan application requires a business plan, including one can only improve your chances.

An effective business plan should outline your existing strategy, and give the lender an idea of what your future sales, profit, income, and cash flow goals are. It should also describe your plan to get there.

Hard data– like statistics about target sales and yearly revenue– is important when you’re qualifying for a small business loan, but lenders also appreciate resourceful and opportunistic qualities. The more passion you have for growing and driven you are to chase opportunity, the more likely a lender will be to approve a loan.

Writing a business plan can seem like a daunting small business loan requirement to fulfill, but not all of this content must be original. In fact, much of this process is simply inputting information, which should be readily available. Most business plans will range from 30-50 pages, which generally includes:

  • Your business’ mission statement
  • A breakdown of company owners and key employees or executives, which generally includes resumes and/or a description of experience
  • Outline of target market, prominent competitors, and a value proposition, or how your business plans to compete
  • Your offerings, including a complete list of products that you sell, and/or services that you provide
  • Your marketing strategy
  • Projected revenue and expenses for the next three to five years, which can be supplemented by historical financials if the company has been around for a few years
  • The number of employees on your team
  • The location(s) of your business, along with a description of the facilities or office space(s) in which you conduct business

In addition to these components, your business plan should also include an executive summary, which briefly outlines all of this information.

The best business owners passionately believe in the value of their companies; creating a business plan is really just turning this conviction into words!

5. Classify Your Business’s Industry and Entity Correctly

Your company’s industry and entity are two of the most important small business loan qualifications. Both of these sections give the lender an immediate idea about the profit potential of your industry, and other relevant financial details.

When filling out a small business loan application, be sure to classify both the industry and entity correctly– even minor mistakes can prove to be major setbacks.

Some lenders set restrictions on the types of industries they will lend to for a few reasons. First, funding some taboo industries can damage the lender’s reputation. Other restrictions might relate to industry regulations. Most lenders don’t broadcast these restrictions, so it’s worthwhile to apply for a small business loan– especially if they choose to make an exception on your behalf.

When filling out your small business loan application, be sure that you have identified your industry according to the lender’s terms. The NAICS code provides instructions about how applicants should classify their businesses– and this code can differ from the way that you classify yourself. For example, delis belong in the meat markets category, not the supermarkets category.

Your business’s entity, or the way that it is structured, is also a qualification for a small business loan. Lenders evaluate applications from sole proprietorships, partnerships ,LLCs, and corporations differently.

Some lenders are more likely to lend to either a corporation or LLC, as these structures provide greater protection against potential financial or legal troubles. However, businesses of all structures can find affordable financing options through alternative lenders.

6. Get Your Paperwork in Order: Bank Statements, Tax Returns, and More

One of the first things that often comes to mind as far as small business loan qualifications is paperwork. Business owners dread this time-consuming process, especially during growth periods when attention must be split between keeping operations smooth and expansion.

Not all lenders require applicants to fill out heaps of paperwork. In fact, many business owners have turned to alternative financing for this reason.

But depending on the type of loan that you apply for, you may be asked to submit the following paperwork:

  • Business Licenses and Permits: To operate legally, many businesses require licenses and/or permits, which lenders will want to see in order to confirm the legitimacy of your operation. In dangerous industries like construction, lenders may also request fire, zoning, and health department permits.
  • Employer Identification Number: Your EIN, or employer identification number, is a unique code that functions as your business’s social security number, given by the IRS. If your business is a registered corporation, has employees, or has a multi-member LLC, it likely has an EIN. Supplying a lender with an EIN will also show how you distinguish between business and personal finances.
  • Income Statements: Income statements, formally called profit and loss statements, are a popular small business loan qualification. Thorough lenders will require an annual income statement, as well as income statements from years prior. When lenders can visually see how much cash your business is bringing in, it can quickly prove your profitability. Income statements are a must for bank loans, but are not required for some alternative financing options.
  • Bank Statements: Bank statements can be insightful in showing not only how much income your business draws in, but also how it uses that revenue. This small business loan application requirement can prove not only your business’s ability to pay back the loan, but also to manage payments with operations costs. Required monthly bank statements can range from zero for alternative lenders, to four for SBA and traditional loans.
  • Balance Sheet: When it comes time to qualify for a small business loan, the balance sheet can provide great insight into your business’s financial health. This document shows your assets, or everything that your business has, as compared to your liabilities, everything that your business owes. Obviously, having more assets than liabilities works in your favor. Like other documents on this list, alternative lenders might not consider the balance sheet a small business loan qualification.
  • Personal & Business Tax Returns: Tax returns are imperative for accessing small business funding, but the entity type will dictate which type of tax return you must provide. Non-corporations like sole proprietorships and partnerships generally provide personal tax returns as a small business loan qualification, because they report profits and losses on the personal tax return. For corporations and LLCs, business tax returns are a small business loan requirement, because the business, not the individual, is taxed.
  • Copy of Commercial Lease: Businesses that rely on a physical location, like retailers, restaurants, auto mechanics, must provide a copy of their commercial lease. This copy is a small business loan requirement because it proves your business can continue to occupy the space, and consequently drive profits. It also proves the stability of your day-to-day operations. However, this step won’t be necessary for eCommerce stores, and other businesses that don’t need a brick-and-mortar location.
  • Business Debt Schedule: Most lenders are reluctant to fund business owners juggling multiple loans. A debt schedule, which outlines your fixed payments, can give lenders a more specific idea of everything you owe. With this information, lenders will calculate a debt service coverage ratio, comparing your existing debts (including interest payments) with your cash flow. The higher the DSCR, the more cash you have to spend, and the better the likelihood a lender will issue a loan. The standard rules for a DSCR might not apply if you’re looking to refinance a loan that your business took out a while ago, though.
  • Accounts Receivable Aging and Accounts Payable Aging: These reports are both common small business loan qualifications, as they demonstrate how quickly you’re receiving payments from customers and paying bills or debts. Both of these reports contain data identical to the standard reports, but are organized by the length of time the loan/payment is overdue by. To qualify for a small business loan, you’ll ideally have minimal overdue payments and invoices.
  • Payroll from the Past 6 Months: While not all lenders require this, payroll documentation can substantiate operating costs, and show your honesty.
  • Paperwork Proving Entity Structure: In addition to listing your business entity structure, some lenders may also require that you prove this entity type with corresponding paperwork. Based on the structure of your business, this might be the articles of organization, the articles of incorporation, the franchise agreement, or partnership. Expedited alternative financing might enable you to navigate around this requirement.
  • Certificate of Good Standing: This document may be required at various stages throughout a business’s life, like expanding to a national or international company,  opening a bank account, and especially when applying for a small business loan.
  • Sales Agreement, Financials: If you applied for a loan to acquire another business, then you might need to provide documents pertaining to the transaction. This generally includes the sales agreement, financials, and other information about the soon-to-be purchased business.
  • Contracts With Suppliers: Lenders will want to know if you’re contractually obligated to spend a certain amount of money with specific suppliers in your network.
  • Corporate Bylaws or Other Operating Procedures: Your corporation’s bylaws can provide great insight into how you make decisions about day-to-day and long-term matters.
  • Purchase Agreements: When you’re applying for a loan to purchase either equipment or real estate, the purchase agreement will be a crucial loan qualification.

The chances that you’ll need to supply all of the above paperwork to your lender are slim to none, especially if you’re considering streamlined alternative financing. However, this full list of small business loan qualification paperwork can be quite helpful when you’re mobilizing to apply for a loan. Don’t waste your time by gathering paperwork beforehand, though– you may be pleasantly surprised by not-so-strict requirements!

7. Select Collateral for Your Small Business Loan, and Provide Proof

As with personal loans, collateral is one of the most important small business loan qualifications– at least when you’re going through traditional lenders.

Lenders reserves the right to seize this property in the event that you can’t repay the loan,. Collateral can vary depending on the type of loan– if you applied for an equipment or real estate loan, then the piece of equipment or property qualify as collateral. For retailers, collateral might be higher-valued inventory. As the loan is processed, an appraiser certifies the collateral’s value, ensuring that it meets the minimum required value.

While most lenders won’t necessarily place specific property or assets on their list of small business loan requirements, alternative lenders won’t require collateral at all.

Alternative financing has drastically altered the small business loan landscape by de-emphasizing the importance of collateral with unsecured loans, with the exception of government-insured options like SBA loans.

8. Be Upfront: Get Approval From Part-Owners, and Disclose Other Affiliations

Before qualifying for a small business loan, most lenders will want to know about other businesses you are involved in.

Specifically, lenders will be curious about any partnerships, affiliations, and executive board positions you might have. Even minimal involvement– such as a consultant position– could pose a conflict of interest for lenders. This small business loan requirement rarely prevents business owners from crossing the finish line, but it’s imperative to be thorough and honest nonetheless.

In the same vein, business owners with partial ownership must also be transparent with other part-owners in the business. Traditional lenders have varying policies regarding the percentage of owners that must approve a small business loan. SBA lenders can be especially strict– anyone with 20% or more ownership must undergo a background check, and give his or her stamp of approval. Other traditional lenders aren’t quite as diligent, and will be satisfied by 70%.

To push the small business loan application through, part-owners must provide a resume, personal credit score, copy of photo ID, and potentially more.

To qualify for a small business loan through an alternative financing program, though, the requirements aren’t quite as strict. Alternative lenders make qualifying for a small business loan a simple process by only requiring approval from 50% of the ownership. In many small businesses, this means approval from one or two people, rather than several.

How to Qualify For a Small Business Loan: An Option-By-Option Breakdown

Download Qualification Checklist

Fulfilling all of these small business loan qualifications would be a nightmare, but fortunately, the chances you’ll have to do so when applying for a loan are slim to none.

There’s no cookie-cutter answer when it comes to finding the right loan type, and you’ll find that small business loan requirements can be drastically different.

These are the most common small business loans types that entrepreneurs apply for, and the corresponding qualifications.

1. SBA Loans

Unlike the other loans on this list, SBA loans are insured by the government. With this security comes the need for to supply more paperwork than in other loans. The process won’t be as long or convoluted as going through a bank, but SBA loan requirements for existing businesses can be more demanding than other options.

2. True Revolving Line of Credit

While the process can vary depending on your financials and lender, most business lines of credit have fairly lenient small business loan qualifications. A soft credit pull (which does not leave an inquiry on your record, or ding your score) and bank statements are often all you’ll need. Higher lines of credit (with more desirable terms) might require a few extra documents.

In most cases, getting this minimal paperwork together is worth the effort. This initial step can open up the door for continuous cash infusions as you gradually withdraw from your line of credit. Having this cash on hand can get you through growth periods, seasonal slumps, and new hiring phases!

3. Short-Term Loans

Short-term loans have one of the simplest small business loan qualifications processes. You can avoid gathering piles of paperwork, and instead include only your bank statements, personal and business tax returns, and credit score. Like most other alternative loan types, though, the credit check will be a soft pull, rather than a hard inquiry.

4. Long-Term Loans

Long-term loans can be slightly more difficult to qualify for than other loan types, as lenders will want assurances that you will remain in business to pay back the loan. They’re generally for larger amounts of money than short-term loans and other loan types, too. For this reason, qualifying for a long-term loan normally involves putting up collateral, a higher-than-normal credit score, and slightly more paperwork to submit. However, if you do qualify, then you can make smaller payments as you go.

4. Invoice Financing

The unique process behind invoice financing makes the application process a breeze. The business owner sells the invoice to the lender, which then entitles the lender to collect this profit directly from the customer. Lenders can be more lenient, as they know customers are obligated to pay, and look most closely at the invoice itself. But, bank statements and credit score may play a part as well.

5. Merchant Cash Advance

Merchant cash advances are similar to invoice financing in that the direct customer-to-lender payment process streamlines the application process. After a lender issues a loan, a percentage of customer credit card payments are put directly toward repaying the loan.

This simple process generally only involves the business credit score, processing statements from credit cards, bank statements, and tax returns.

6. Equipment Financing

As we mentioned previously, equipment loans are secured by the equipment itself, and the option to claim the equipment satisfies many of the requirements. But, you may also need to get a price quote from a manufacturer, as well as supply bank statements, tax returns and a credit score.

7. Hybridge SBA Loan

This loan option was pioneered by National Business Capital to simultaneously solve short-term financing issues and help business owners achieve long-term success. First, the lender provides a short-term cash infusion to tackle any immediate needs. Shortly after, business owners receive access to SBA loans, and the terms that come with them. It’s the best of both worlds: it makes cash available immediately, with stellar rates.

Qualifying for the small business loan portion of the Hybridge SBA loan is quick and easy, but the SBA loan requirements match exactly those of the standard process.

Getting Approved For New Business Loans: How National Makes it Easy

Alternative financing is empowering business owners to bypass many of the pitfalls of getting business loans from a bank, making it easier than ever to access financing, even for entrepreneurs who:

  • May not have good personal and/or business credit
  • Might only have a short operational history (1 year of operational history is typically fine for our loan approval)
  • May not have sufficient collateral to secure their new business loan (or have sufficient collateral, and do not want to pledge it)
  • Are aiming to launch their business in a sector that banks deem “too risky” (e.g. housing, cannabis, etc.)
  • Have a discharged bankruptcy in their history
  • Have an open tax lien

How to Qualify For a Small Business Loan Through Alternative Financing

Now, you may be wondering: how can this model be possible, as compared to the bank loans we’ve become accustomed to?

The answer is simple: alternative lenders don’t insist that borrowers assume all of the risk. With alternative financing, the risk is split between the borrower and the lender.

Learn Your Small Business Loan Qualifications And Get Started Finding Capital

The first step in qualifying for a small business loan is contacting one of our business financing advisors! Our passionate and experienced team is always here to help you find the right financing option.

Once we learn more about your needs, we’ll communicate with our network of 75+ lenders to find the right financing option. Then, we’ll touch base with you, and help you choose an affordable option that makes growth a realistic option at any stage!