Top 17 Small Business Loan Requirements
There are a number of options available to access small business funding. In order to receive the very best funding solution for your business, you need to be aware of all of the options. The next step is to prepare your business for the process as you complete the loan application. However, there are some small business loan requirements which you need to understand prior to applying for the loan. Listed below, we breakdown the 17 typical requirements for each small business loan which you should think about prior to making an application.
- The Loan Amount
One of the very first things that that your lender will want to know as you apply for a loan is the amount of funding required for your business. Traditional banks are well suited for more substantial loan amounts often in the ranges of 7-digits. Alternatively, if you are interested in less significant amounts, then you’d need to look at options for alternative lenders. Alternative lenders will be the speediest financing options for small amounts of less than $500,000. Through the application lending process online, it’s a far more convenient and fast financing and useful resource. But alternative loan lenders may charge higher rates of interest on loans which are short term. As a result, you will need to contemplate while applying for a small business loan.
- The Loan Purpose
You need to provide the lender with a good explanation for why you need a small business loan. So you should be considerably more particular regarding the loans purpose, as an example if you wish to make use of the amount borrowed for investment purposes such as cashflow, then you should indicate that to the loan provider. Also, there are a few lending companies which permit a number of uses for the loan, and they just need to confirm that the business loan amount requested, matches your specified purpose.
- Personal Credit Rating
Whenever you apply for a business loan, most loan providers request access to review your personal credit score as well as the businesses credit history. They may also want to see other financial information related to the business to be able to determine the likelihood that you will be able to pay the loan back. So your personal credit could be an important element with the approval or denial of an application for a small business loan.
- Your Business Credit Rating
The credit history from your business is also a factor which can measure the creditworthiness of your business. Your organization’s credit history is determined by the track record of your repayments to your suppliers and lenders. A lot of the companies are not aware of business credit histories, but credit reporting agencies actually do take that into account.
Don’t assume all that every loan company verifies business credit history. But, business loan providers that verify credit, will usually run your credit score through the process of underwriting. Consequently, it’s advocated as a way to enhance the credit score of your business prior to you applying for a loan.
- The Length of Time Your Business Has Been in Operation
Once you apply for a small business loan, most lenders will want to know the length of time that your business has been operating. If your business has been running for a longer time, it’s better and implies that your company has already established a great deal of success over the long-term. They require at least two years in business as a minimum. If you’re operating your company for two years or less, it might be difficult to get pretty much any kind of business financing. Alternative loan providers typically need only a one year track record of owning your small business.
- Your Business Plan
The business plan is not a mandatory requirement in order to qualify for a loan, but there are a few lenders that would like to review it. Even if the lender doesn’t ask for one initially, it’s advisible to have one ready just in case.
The plan consists of a mission statement for your business’, future sales, profits, finance objectives, earnings or cashflow, the management team,who’s your target market, what are your services, the competition, what is your marketing strategy, what financial goals does the business have for the next 3-5 years, etc. Generally, lenders of small businesses want to review your P&L statements to monitor any revenue and sales for your business.
- Your Industry
Many lenders will require specifics about your business sector and marketplace. The market can make a huge difference to the eligibility for the loan as there are a few loan companies which may have specific market sectors which they are not willing to provide loans for. Industries such as gambling, firearms, adult or other blacklisted markets. So by providing financing for these market sectors could drastically damage reputation of the lender.
- The Structure of Your Business
The main 4 structure forms for business are: partnership, LLC or limited liability company, sole proprietorship, or the corporation. The majority of small business loan providers want to understand what structure your business has been setup as. As they become aware of how your business is structured, they’ll have a much better idea about the insights of your business and the way coordinate and operate your business. But , it isn’t a requirement that is essential.
- Permits & Business Licenses
Nearly all busiensses within the United States, are required to obtain a permit or a license in order for their business to operate. Certain requirements can change and is determined by your operating state and market. So, you’ll also need to add the license for the business on small business loan list of requirements. Some of the lenders might examine these details.
- Your EIN Number
Your employer identity number (EIN) is comparable to a social, but specifically for a small business. This EIN is used to monitor your business activities for IRS business tax purposes. Yet, although it’s not a requirement to get approved for a small business loan, it is good to have one available.
- Assets or Collateral
So assets and or collateral is a business asset or a personal asset, that can be everything which range from a house to your automobile or any equipment for the business. Some loan companies around that prefer if you would give up collateral as a means of securing financing through them. These assets can taken from you in the event that you neglect to repay your loan obligation. Nevertheless the majority of alternative loans companies will not ask for any assets or collateral, yet for those of you that apply for a loan through the SBA, will need to put up some sort of assets or collateral to be able receive financing.
- P&L Statements
As part of the application process the loan provider will also ask for the statements for your profit and loss as a way to track the revenue for your business. It’s a critical document which you need to give to your loan provider. Typically, most lenders require at minimum the previous years profit and loss statements, however could differ.
- Bank Statements for the Business
In order to get your loan application approved the loan provider needs to the financials for your business. Regardless, these lenders want to measure your potential for repaying the loan with interest. For this reason, most lenders will ask for a copy of the bank statements. The statements can also give the lender an idea of your money management abilities.
- The Balance Sheet
The balance sheet can be looked at as a snapshot of your business’s health financially. It informs the lender about the flow of your business. The requirement for these small businesses to see how the financials are over a period of time. It is a simple prerequisite for a loan and to show the businesses financial status. The loan providers just really need to know that you have sufficient assets to protect any expenses relating to the business will be able to repay accordingly.
- Statements for Tax Return both Business & Personal
Tax returns are also on the list of requirements for the business both personal and business returns. The lenders review the financials for the small business prior to approving the loan. The lenders usually look for the previous 2 years of tax returns from the individual. For those that own an LLC, Corporation, a business tax return would be essential. The lender will usually ask for around 2 yrs worth of taxes for the business in order to justify the earnings as well as any business related expenses..
- Commercial Lease Document Copy if Available
For those with brick and mortar businesses, they will also request a copy of your loan documents and lease. The lease agreement for the business demonstrates that your business make use of the premises up to the end of lease. Being removed from your properties leased isn’t good business for both parties and you get satisfaction knowing that you are able to remain throughout the lease.
- The Debt Schedule
Simply through assessing the debt schedule for your business, the lender should be aware of any loans outstanding, debts, or any loans taken previously or any other borrowing histories. The lenders tend to be more careful with financing to companies which have existing loans outstanding. Therefore, it’s suggested to settle any and all debts prior to making an application for a new small business loan.