Introduction
What’s the #1 reason why small business loan applications get rejected? Hint: It’s not always about revenue. Lenders prioritize specific criteria, and missing just one can derail your chances. In this guide, we’ll break down the essential requirements for a small business loan; it will help to create a strong application.
Key Requirements for Small Business Loan
1. Strong Credit History
Your credit score is a snapshot of your financial responsibility. Here’s what lenders want:
- Minimum Scores: Most banks require a personal FICO score of 680+, while online lenders may accept 600+. Startups often need a score of 700+ for unsecured loans.
- Business Credit: Dun & Bradstreet scores (e.g., PAYDEX) above 80 indicate reliability.
- Quick Fixes: Pay down debts, correct report errors, and avoid new credit inquiries before applying.
Stat Alert: 34% of small businesses are denied loans due to low credit scores, per a 2023 Federal Reserve report.
2. Clear Business Plan & Loan Purpose
Lenders want to see how you’ll use the funds and repay them. Your plan should include:
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Executive Summary: Mission, vision, and key objectives.
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Market Opportunity: Cite industry growth (e.g., “The U.S. e-commerce sector will hit $1.3 trillion by 2025”).
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Repayment Strategy: Explain cash flow projections and revenue streams.
Example: GreenTech Solutions secured a $100k SBA loan by showcasing a 3-year plan to expand solar installations in a booming market.
3. Organized Financial Documents
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Be ready to provide:
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2+ years of business tax returns (or personal returns for startups).
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6 months of bank statements (business and personal accounts).
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Balance sheets and profit & loss statements.
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Legal paperwork: Articles of incorporation, licenses, or commercial leases.
Pro Tip: Use accounting software like QuickBooks to automate record-keeping and impress lenders with polished reports.
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4. Collateral & Industry Risk
Lenders mitigate risk by assessing your business’s stability:
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Collateral Options: Equipment, real estate, or inventory. SBA loans often require collateral for amounts over $25k.
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Industry Risks: Restaurants and retail face higher scrutiny; tech or healthcare may get better terms.
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Time in Business: 90% of approved loans go to companies operational for 2+ years, says Fundera.
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Conclusion
Securing a small business loan hinges on four pillars: creditworthiness, a compelling plan, organized finances, and risk management. Ready to take action? Start your application today.
