When it comes to eligibility criteria, securing large business financing is not the same as applying for a small business loan - a bigger loan amount is typically associated with more documentation, a longer application process, and stricter requirements.Applying for a large business loan with a traditional bank is particularly challenging, as they have higher credit score thresholds, less flexibility, and are more risk-averse compared with online lenders.While eligibility criteria may differ between lenders and types of loans, this comprehensive guide will give you a clearer perspective on what to expect when applying for large business financing - as well as your chances of getting approved for it. Let’s take a look:
What Is the Eligibility Criteria of Large Business Financing?
1. Credit Score of at Least 680
If you are applying for large business financing, keep in mind that credit score is one of the 1 most important eligibility criteria that lenders will look at when reviewing your application. A high credit score demonstrates that your business has responsibly handled credit in the past and is unlikely to mismanage it in the future. It indicates that:
You have a history of timely payments
Your debt levels are low compared to your credit limits
You are managing your credit responsibly
You don’t have delinquent accounts
Depending on the type of loan, you should be able to show a credit score of at least 680, although it may be higher if you are asking for a higher credit amount, such as $5 million or $10 million - in which case a 750 might be required.Credit scores are divided into the following categories:
Excellent Credit Score - 800-850, considered highly creditworthy
Good Credit Score - 670-799, indicating a strong credit history
Fair Credit Score - 580-669, typically associated with credit issues
You can check your credit score through credit reporting agencies such as Equifax, Experian, and TransUnion. Make sure to check for any discrepancies and errors that may be lowering your score.
2. Good Financial Health
Another qualification to keep in mind if you are applying for large business financing is good business financial health. You have to show lenders that you are in good financial standing and capable of repaying the loan in timely payments.What does good financial health look like? As we mentioned earlier, this may vary greatly by lender, but it can be typically summed in the following:
Annual Revenue - Financial institutions often look for a minimum annual revenue of at least $500,000, which shows that you generate sufficient cash flow to meet your debt obligations.
Profitability - Lenders will also assess whether you have a positive cash flow, which ensures that you can cover your operating expenses, reinvest, and repay your loans. They will also review your net profit, gross profit margin, and other metrics.
Financial Statements - When applying for large business financing, make sure to compile your financial statements, including your profit and loss statement, your balance sheet, and your cash flow statement.
Credit Utilization - You should also demonstrate responsible use of credit, and timely repayments on existing debts.
Showing lenders that you are in good financial health will increase your chances of getting approved for large business financing, as well as securing more favorable terms and rates.
3. At Least 2 Years of Operating History
Another requirement for large business financing is having a solid operating history, usually at least 2 years of running your business and effectively sustaining its operations.However, if you are applying for a large business loan through National Business Capital, in most cases +1 year in business will be enough. A long-term operating history provides evidence that your business is stable and able to sustain itself over time, withstanding market fluctuations and operational challenges. It also has more financial data that lenders can base their decision on.
4. Collateral for Secured Loans
Large business financing comes in two main types - secured and unsecured. Secured business loans allow you to get funds with collateral, which means that you will have to offer an asset - such as real estate or equipment - to obtain the loan.If you default on the loan, the lender will have the right to seize the collateral in order to recover the outstanding loan amount.You can also opt for an unsecured business loan, which gives you the opportunity to secure funding without having to provide collateral. However, this type of loan is typically associated with higher interest rates and lower loan amounts.What can you offer as collateral for large business financing?Let’s take a look:
Real Estate - Including commercial properties, land that your business owns, warehouses, retail spaces, office buildings and more.
Equipment - Equipment is often valuable collateral, and it can be in the form of machinery, vehicles, construction equipment, company trucks, etc.
Inventory - You can also present goods and products held for sale or production, such as raw materials, finished products, as well as parts and supplies.
Accounts Receivable - Another form of collateral for large business financing includes money that customers owe you for delivered goods or services.
Intellectual Property - In some cases, intellectual property - such as patents, trademarks, copyrights and other assets can also count as collateral.
5. Comprehensive Documentation
Speaking of eligibility criteria for large business financing, we can’t forget to mention documentation - which has to be particularly comprehensive for traditional banks and less stringent if you are applying for a loan with an online lender.Some of the most common documents required by lenders include:
Financial Statements - Such as Profit and Loss Statement, Balance sheet, as well as your Cash Flow statement.
Tax Returns - Lenders will also ask for your tax returns as a business owner, most specifically for the past 1-3 years. Business tax returns will also be required.
Bank Statements - When applying for large business financing, be prepared to show recent bank statements, typically from the past 3-6 months.
Detailed Business Plan - Make sure to include key elements such as an executive summary, business description, market analysis, and financial projections.
Legal Documents - Lenders will also ask for your business licenses and permits, as well as an Article of Incorporation or Organization.
Collateral Documentation - This should include the valuation of your asset, proof of ownership, as well as title and deed documents associated with it.
Personal Financial Statements - All business owners should also present their personal financial statements, including assets, liabilities, income, and expenses.
Credit Reports - While lenders will carefully assess your credit score, we recommend having your personal and business credit reports on hand.
6. Debt-to-Income Ratio Below 40%
Securing large business financing means that you will have to manage it responsibly and ensure that you are not taking out too much debt for your business. For this reason, financial institutions will often ask for a DTI (Debt-to-Income)Ratio of below 40%.The Debt-to-Income (DTI) ratio is a measure of the amount of your income that goes towards paying debts, and it is expressed as a percentage. To calculate it, simply divide your total monthly debt payments by your gross monthly income. Showing a low DTI is important because it indicates to lenders that you are capable of managing your debt responsibly and you have enough income to cover additional debt payments. It reduces the perceived risk of lending by indicating financial stability. Lower Debt-to-Income ratio also increases your chances of approval for large business financing - if your ratio is too high, you may end up getting rejected.
7. Personal Guarantee
You don’t always have to provide a personal guarantee for large business financing, but it may be required depending on various factors, including the policies of the lender, your financial health, the type of the loan, as well as the loan amount.Having a personal guarantee can make it easier for you to secure large business financing, and you may also receive more favorable interest rates and terms. However, it also has its disadvantages - including putting the guarantor’s personal assets at risk if you default on the loan.
Qualifying for Large Business Financing With NBC
If you want to qualify for large business financing, look no further than National Business Capital. With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.Are you ready to get started?Apply here.
ABOUT THE AUTHOR
Phil Fernandes
Chief Operating Officer
Phil Fernandes serves as Chief Operating Officer for National Business Capital. He boasts 15 years of experience in sales and 10+ years of management experience as National’s VP of Financing/Analytics. Phil is also an excellent writer who's completed the Applied Business Analytics executive program at MIT and regularly contributes articles to National Business Capital’s blog.
