Unlike standard personal loans, business loans come with increased risk for lenders, so these loans have longer applications and more stringent eligibility requirements. You would need ample preparation to gather relevant financial details and documents to submit to potential lenders.
Fortunately, you now have countless options for funding your business. However, eligibility requirements vary significantly from one lender to another. Nevertheless, below are standard business loan requirements you need to prepare when you apply for a loan:
The Age of Your Business
To be eligible for a business loan, most lenders require borrowers to be in business for one to two years. But if you’re taking out a business loan to fund a franchise you’ll need to give potential lenders relevant information about the franchise you’re looking to buy. You could find this information—the initial and operating costs of running the business—in your Franchise Disclosure Document, says an experienced franchise consultant from one of the franchise consulting firms in the area.
Your Personal Credit Score
In general, lenders require that borrowers have a credit score of 650. If you’ve already started a business, you likewise need to submit your company’s credit report.
If you’re looking to take out a secured business loan, you need to have collateral, such as real estate, inventory, or equipment, that the lender could use should you default on your loan. If you don’t have anything to offer as collateral, you might need to opt for an unsecured business loan.
Lenders usually require that businesses have annual revenue of at least $50,000.
Your Personal Income
To make certain that you could repay your business loan, some lenders require that your overall income is around 1.25 times higher than the expected total expenses of your business.
How You’ll Use The Money
You have to specify how you intend to use the loan because some lenders limit how borrowers spend their funds.
It’s difficult to determine which factor lenders deem most crucial when figuring out whether to give a business loan as each lender weighs criteria differently. Ultimately, you need to speak with different lenders, shop around for different loan products, and submit your application along with all the requirements to help increase your chances of securing funding for your business.