Business loan

How to qualify for a small business loan in 5 steps

Obtain a small business loan can be a time consuming process. By knowing in advance if you meet a lender’s qualifications, you can avoid potential frustration.

Here are five steps to help you qualify for a small business loan.

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1. Establish personal and professional credit scores

Personal credit scores indicate your ability to pay off personal debts, such as credit cards, car loans, and a mortgage. Small business lenders need a personal credit score because they want to see how you manage your debt.

FICO scores, commonly used in loan decisions, range from 300 to 850 (the higher, the better). You can get a free credit score on NerdWallet and a free copy of your credit reports on

More established companies will have business credit ratings (which typically range from 0 or 1 to 100) with credit bureaus such as Experian, Equifax, and Dun & Bradstreet. Steps to follow credit to construction companies include establishing business lines and maintaining public records.

You will likely need excellent business credit and good personal credit to qualify for a government-supported program. SBA loan or traditional small business bank loan. Online lenders can be more lenient with credit scores, focusing instead on your business’s cash flow and track record.

2. Know the qualifications and minimum requirements of the lender

You will usually need to meet minimum criteria regarding credit scores, annual income, and years of activity to be eligible for a business loan, although some lenders may be flexible if you underperform in one area but outperform in one. other.

  • For loans guaranteed by the US Small Business Administration: Your business must meet the SBA’s definition of “small”, operate as a for-profit business, and cannot be an ineligible business such as life insurance companies and financial businesses such as banks. You should also be up to date on all government loans with no past default – you’ll be disqualified if you’ve been behind on a federal student loan or government guaranteed mortgage, for example.

  • For bank loans and online business loans. Banks and online lenders Usually take out loans based on traditional factors, but online loans come with less stringent requirements. For example, some online lenders offer business loans for bad credit or can approve businesses that have not been in business for that long. On the other hand, this ease of qualification is generally accompanied by a more expensive loan.

3. Gather financial and legal documents

Banks and other traditional lenders generally require a wide variety of documents when you apply for a small business loan. Financial and legal documents you might need for a small business loan include:

  • Income tax returns for individuals and companies.

  • Balance sheet and income statement.

  • Personal and professional bank statements.

  • A photo of your driver’s license.

  • Articles of incorporation.

  • A curriculum vitae that shows relevant management or business experience.

  • Financial projections if you have a limited operating history.

Online lenders can provide a streamlined application process with fewer documents and faster underwriting. If you have good credit and finances for your business, some online lenders may offer you rates comparable to bank loans.

When get a business loan, be sure to compare the options to find the cheapest loan that fits your business needs.

4. Develop a solid business plan

Lenders will want to know how you plan to use the money and see that you have a strong repayment capacity. They may require a solid business plan which details the purpose of the loan and how you expect it to increase profits.

Your business plan should also include the following:

  • Description of the product and / or service.

  • Plan of facilities and operations.

  • Current and projected financial data.

  • Promotional, marketing and sales strategy.

  • SWOT analysis (strengths, weaknesses, opportunities, threats).

Your business plan should clearly demonstrate that you will have enough cash on hand to cover current business expenses and new loan repayments. This can give the lender more confidence in your business, thus increasing your chances of getting approved for a loan.

Use NerdWallet’s Business Loan Calculator to estimate your monthly loan payments:

To qualify for a small business loan, you may need to provide collateral to secure the loan. Commercial collateral is property, such as equipment, real estate, or inventory, that can be seized and sold by the lender if you cannot make your payments. It’s a way for lenders to get their money back if your business goes bankrupt.

For example, SBA 7 (a) loans over $ 25,000 require collateral plus a personal guarantee from each owner of 20% or more of the business. A personal guarantee puts your credit score and your personal assets on the hook.

Some online lenders do not require collateral, but may want personal collateral. Others may also take a general lien on your business assets – essentially another form of collateral – giving the lender the right to take business assets (real estate, inventory, equipment) to collect an unpaid loan. Each lender has their own rules, so ask questions if you are unsure of what is required.

If you don’t have collateral to get a loan or don’t want to run the risk of losing personal or business property, unsecured business loans may be a better option.

Compare small business loans

NerdWallet has put together a list of the best small business loans to meet your needs and goals. We evaluated lender reliability and user experience, among other factors, and categorized lenders that include your income and how long you’ve been in business.