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Business Loan Requirements

Business Loan Requirements You Have to Comply With


Business Loan Requirements

Term Loans

When applying for a loan, especially if you need a bigger amount you can use for your business, you are required to submit small business loan requirements. Traditional lenders and other lending companies have their respective requirements and criteria that a borrower has to satisfy before they can qualify for a loan and have their application approved.

What Are the Top Requirements You Need?

Every lending company and type of loan varies when it comes to the requirements needed. But in most part, here are the usual set of requirements that you have to submit:

  • Loan Amount and Loan Purpose
    As with any loan application for both personal and business loans, the very first step is for you to determine the loan amount. How much do you need for your business? The next thing to identify is where you need to use the money. This is very essential as this will also help you narrow your choices when it comes to loan options.
  • Business Plan
    For startup business financing or businesses that have been operational for a few years, most lenders will require you to submit a business plan. This may not always be included as one of the main requirements. But you have to prepare your business plan as some lenders require it. In your business plan, you can include information and details about the financial goals of your company like projected sales, profit, cash flow, etc. along with the steps and methods of how your business is going to achieve these goals. Lenders want to see the potential opportunities as well as the key challenges that your business has to face.A business plan is about 30 to 50 pages long. It should contain the following information:

    • Mission Statement
    • Company Profile
    • Information about the target market and value proposition of the business
    • Products/services that you sell
    • Marketing strategy
    • Financial projections
    • Description of facilities, equipment, etc.
    • Executive summary
  • Time in Business
    When applying for a business loan, all lenders will ask you how long your business has been operational. The longer time in business and the more established, the better since it shows that you have good record of managing a business. Hence, you can also manage your loans. Usually, lenders will require you to be in business for 2 years or more.What if you have just started or it is less than 2 years? You can still get a loan. But if you are planning to get a business loan from banks, this may be a difficult option for you. You may want to try SBA loans since banks are not as strict. These are government-backed loans. Just be prepared with the requirements and the long application process that you have to undergo through. For a fast application and processing of loan, online loans are your best bet.
  • Personal/ Business Credit Score
    Most lenders will look at your personal and business credit score. This explains why borrowers with poor credit score often have a hard time applying for a loan especially from traditional lenders. The loan options that you have if you have poor credit score are quite narrow. So, why do they use your credit score as one of the requirements? Lenders always have to factor in the risk involved whenever they lend money. With a borrower’s credit score, borrowers get to evaluate the likelihood that the borrower will pay back the loan. A person with bad credit score has trouble paying back the loan. From the side of the lender, it is risky. However, it does not mean that you can no longer get any loan. It is just that the options are limited.
  • Financial Statements and Other Documents
    Every lender will assess your capacity to pay based on the history and current financial standing of the company. All lenders will require you to submit financial statements which include annual business revenue and profit, bank statements, balance sheet, and cash flow. If your business has been incurring losses and in debt, your loan application is more likely to be rejected. With these documents, lenders evaluate your business’ capacity to pay. They always look at the business’ financials to see if the borrower can afford the loan.
  • Personal and Business Assets
    Although lending companies do not necessarily require that you itemize your personal assets or your business assets, it helps that you are able to show that your business has valuable assets. If you are applying for a secured business loan where you have to use collaterals, then you really need your assets. It is much easier for your loan application to be approved if the lender can see that you have assets that you can use as collateral.
  • Personal and Business Tax Returns
    Since lenders look closely at the business financials, they need personal and business tax returns in addition to the financial statements submitted. Most of the lending companies will require you to have at least 2 years of personal tax returns. If it is a corporation or an LLC, you have to submit business tax returns. These tax returns are used to verify the profit, revenue, and expenses incurred by the business.These are just some of the main requirements that you need to know and should be prepared to submit. Every lender differs when it comes to the set of requirements. Prior to applying for any type of loan, you should know what requirements and other documents are required from you. This is important so you can increase your chances of your loan being approved.