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.

The Core Requirements: What You Need to be Eligible for a Small Business Loan (Fintech Lender)

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.

• Six months in business: You just need six months in history as a business to qualify for potential programs
• 120K in annual sales: There are no profit requirements, but you do need annual sales above $120K
• No minimum credit score: We offer financing to businesses with great credit, bad credit, and everything in between

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

What Factors Do Lenders Consider When Reviewing Applications?

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 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.

Bank Loan Requirements for Small Businesses

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:

•  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. 

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.

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

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. This program gets you bridge funding right away, and an SBA loan pre-approval, with funding in as little as 45 days.

How to Qualify for National’s Small Business Loans

As a fintech marketplace, National Business Capital 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:

• Six 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. 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!