With the latest numbers indicating 32.5 million small businesses in the U.S., many entrepreneurs are looking for stable funding.

Whether you need working capital, are looking to purchase equipment or inventory, or seeking to finance a significant expansion, a small business loan can provide the necessary funds to help you achieve your goals.

This blog post will explore how to qualify for a small business loan. These loans have numerous benefits, including:

  • Access to Capital: Whether you’re looking to purchase inventory, hire new employees, or drive expansion, a small business loan can provide the funds you need to make your development a reality.
  • Flexibility: Small business loans come in various forms, including term loans, lines of credit, and SBA loans.
  • Improved Credit Score: A small business loan can also help improve your credit score if you make your payments on time. This improvement can open up new opportunities for your business, such as better terms on future loans or the ability to secure more extensive lines of credit.
  • Tax Benefits: Some small business loans, like those backed by the Small Business Administration (SBA), may offer tax benefits, such as deducting the interest paid.
  • Opportunity to Expand: With access to the capital you need to invest in your business, a small business loan can help you take advantage of new opportunities and expand your operations. This potential growth can lead to increased revenue and growth for your business in the long run.

Let’s dive right in!


The Right Personal and business credit scores to Secure a Small Business Loan

You’ll need good personal or exceptional business credit for a government-backed SBA loan or a small business loan from a typical bank.

Online lenders could be more forgiving with credit scores, focusing instead on your company’s cash flow and track record. In addition, your personal credit score provides insight into your capacity to pay back personal debts, including credit card balances, auto loans, and mortgages.


Small-business lenders require a personal credit score. This rating allows potential lenders to see how creditworthy you are. FICO ratings, commonly used in lending decisions, can be as low as 300 and up to 850 (the higher, the better). In addition, you can find online options to secure your free credit report.

More established businesses will have business credit ratings with credit bureaus like Experian, Equifax, and Dun & Bradstreet, which typically range from 0 or 1 to 100.

Obtaining trade lines and maintaining accurate public documents are steps to establishing business credit.

A Small Business Loan needs the Support of Robust Annual Revenue


Many lenders will only consider businesses doing a minimum monthly or annual revenue. However, at around $46,978 per year, the average yearly revenue for companies will be a consideration for many financial institutions.

The lender you choose will influence how much cash flow you’ll need. For example, online lenders may carry business loan requirements of a predetermined amount in annual revenue to qualify for a line of credit. On the other hand, if you need a business loan despite low revenue, you could rely on alternative financing options, like invoice factoring or funds from angel investing.

Financial Institutions Consider your Years in Business when Offering a Small Business Loan


Small business owners often require a high credit score and a lengthy business history to be approved for a standard business loan from a bank. Although this can vary depending on the bank and the type of loan, most banks demand at least two years in operation to be eligible for a loan.

Banks use a company’s history when determining its creditworthiness because it gives them a sense of stability and dependability. On the other hand, online business loans typically have less strict credit standards and more flexible conditions.

Many internet lenders don’t have business loan requirements of a certain amount of time in business, and some may even lend to start-ups.

Most businesses still need at least six months in operation to qualify for a small business loan. In addition, small business owners need to understand that while online business loans may offer more flexible requirements, they also often come with higher interest rates and fees.

These higher rates can make them less ideal for long-term financing needs and more appropriate for short-term working capital or emergency funding. Therefore, before applying for a business loan, it’s important to compare options and carefully consider the costs and benefits to ensure that you’re getting the best deal for your business.


Scope and Scale of your Business Industry Weighs on Qualifying for a Small Business Loan


Loans backed by the U.S. Government from the U.S. Small Business Administration carry specific
business loan requirements. You’ll need to cover your bases to qualify for these SBA loans. Your business must meet the SBA’s “small” business definition. This definition can vary by industry, so find yours on the SBA’s website. In addition, your business must be a for-profit entity. Some industries, like gambling or religious activities, would not qualify under this guideline.

Of course, you must also be current on any existing government loans. Before applying for an SBA loan, small business owners should thoroughly research the prerequisites and ensure their enterprise satisfies all standards.

SBA loans offer some of the most advantageous terms and conditions for small business finance, despite being extremely competitive and challenging to get.


Small Business Loans, your Business Plan, and Well-Crafted Loan Proposals

Lenders want to see where the funds are going. They will also want to be sure you can repay the loan. For example, they may require a business plan explaining your business goals and action plan. A business loan proposal could be a business loan requirements depending on your lending institution. This document details the purpose of the loan and how you intend to handle the repayment.

These documents will show you can cover ongoing business expenses and loan repayment. This explanation can give the lender more confidence in your business, increasing your chances of loan approval.

Some lenders may request a business loan proposal in addition to a business plan, including the specifics of the loan and how you intend to repay it. An explanation of the loan money’s purpose, terms, and anticipated repayment schedule should be available in detail in the loan proposal.

Additionally, you should outline how the loan funds will serve your business objectives and how they will affect your financial projections in the proposal.

Collateral Or Personal Guarantee to Back Your Small Business Loan

Providing collateral to back your loan is a requirement for some funding solutions. This collateral may come in the form of equipment, real estate, or inventory that the lender can seize and sell if you can’t make your payments. Collateral is a security measure. This security measure is a way lenders can recover their money if your business should fail.

For example, SBA 7(a) loans above $350,000 require collateralization when qualifying for a business loan. In addition, a personal guarantee from every owner of 20% or more of the business is necessary. This arrangement says your private assets will cover the loan if the company cannot.

Some lenders offer unsecured business loans. These options don’t require collateral, though they will likely come with a personal guarantee as part of their business loan requirement.

Lenders may also opt for a blanket lien on your business assets. This lien serves as additional protection for the lender. It supplies the lender the right to claim business assets to recoup an unpaid loan.

Each lender has its rules, so ask questions if you need clarification on what’s required.


Supporting business and financial documentation for your Small Business Loan

Before applying for a small-business loan, you should have all of your business and financial documentation in order. This documentation can include your business plan, financial statements, tax returns, and any other relevant financial documents.

Lenders will use this information to assess the financial health of your business, including your income, expenses, and projected revenue. Therefore, having all of your business and financial documentation in order before applying for a small-business loan is essential. It shows you are organized, prepared, and serious about your business.

This documentation will give lenders a comprehensive picture of your business operations, financial status, and growth prospects.



Qualifying for a a business loan can seem daunting but understanding the requirements and being prepared can increase your chances of getting approved.

Obtaining a small business loan requires consideration of various factors such as credit score, annual revenue, years in operation, and the scale and scope of your business industry. Consider the benefits and costs of various loan options and ensure your business meets the requirements before applying.

The professionals at Small Business Bank can help answer questions and navigate the benefits and requirements of an outstanding small business loan. Log on today to learn more!