Business Loan Requirements: How To Apply For A Small Business Loan
This business loan requirements guide will take you through the documents you’ll need when asking for financing. Go through our list and get your documents in order so that you increase your chances of getting approved for a business loan.Apply for a loan today
10 Requirements To Get A Business Loan
These requirements for a business loan will determine if you get approved, so make sure you fully understand them before applying!
The Number Of Years That You Have Been In Business
Most lenders will ask you to be in operation for at least two years to qualify for a loan. This makes it difficult for smaller and newer businesses to get the funding they need.
Camino Financial only requires you to have an active registered business for at least 9 months.
The Type Of Industry That You Operate In
Some lenders may be unwilling to advance money to companies that work in specific industries or sectors.
This list could include gambling, pawnshops, real estate, cannabis, and adult entertainment.
Sometimes banks don’t lend to nonprofits either because they are dependent upon donations.
The Loan Amount That You Are Looking For
The amount of money you plan to borrow plays a crucial role in determining whether the bank will approve your application.
There are two reasons for the loan amount being among the most critical small business loan requirements:
Setting a maximum loan amount would ensure that there is a cap on the lender’s risk. Similarly, each lender’s internal rules would stipulate a floor below which it would not lend.
The reason is that every loan involves processing and underwriting costs as well as servicing expenses. These remain the same regardless of the size of the amount the lender advanced. Consequently, low-value loans can be uneconomical for the lender.
Business’s Cash Flow
The financial institution wants to be sure that your business could generate the required cash flow to repay the borrowed amount.
Before applying, you should work out the monthly installment that you can comfortably afford to pay.
Use a business calculator to arrive at your monthly installment. If you key in the loan amount, the payment term, and the monthly interest rate, our business loan calculator will tell you your installment amount.
The use You’ll Give The Money
The lender would like to know how you’ll spend the loan; they might even have use-of-proceeds restrictions.
You should be ready to provide an explanation that covers the following points:
- How will you use the funds?
- Will your investment give you a good ROI?
The loan term should match the period you will generate additional income.
You don’t want to be in a position where you are repaying a loan that you took for an asset that isn’t generating revenue any longer.
You can not use business loans for personal expenditures.
Your Credit Scores
Personal Credit Score
Most banks and financial institutions will take your personal credit score into account even when you apply for a business loan.
It provides them with information about how you meet your financial commitments.
If you are trying for an SBA or bank loan, you stand a better chance of receiving a positive reply if your credit score is at least 650 or more.
Other lenders accept lower personal credit scores.
Business Credit Score as a requirement
Many lenders will also check your business credit score to decide on your loan application.
Business credit scores range between 0 and 100, calculated by the three business credit bureaus: Experian, Equifax, and Dun & Bradstreet.
An excellent business credit score is above 80.
Discover if a business loan can affect your personal credit score.
Annual Sales Of Your Company
Some lenders consider your sales among the more critical small business loan requirements.
Rising sales indicate you will have the cash to repay your borrowed money.
With your sales, lenders can calculate the loan amount they will approve. For instance, a lender may be willing to advance between 10% and 12% of your revenue.
Although, if your profit margins are slim and most of your funds go towards buying raw materials and paying other expenses, you may not be able to get loan approval even if your sales volumes are rising.
One of the other critical business loan requirements is that your sales must be more than a particular threshold.
Some lenders stipulate that your company must have annual revenues of at least $100,000.
However, you can apply for a loan from Camino Financial if your company generates sales of $30,000 or $2,500 monthly.
Legal Contracts And Agreements
Many lenders will want to know if you have any contracts and agreements with other businesses, like:
- Contracts with suppliers
- Partnership agreements
- Corporate bylaws
All these documents help them understand if you are serious about doing business and what your present and future look like.
The Collateral You Bring To The Table
Some lenders will ask for an asset as security, also called collateral. If so, they’re offering secured small business loans.
The collateral assures them that they will not lose money if you default. If you fail to repay, they will sell the asset.
Some lenders don’t ask small business owners for collateral. If so, they offer unsecured business loans.
Our business loan requirements at Camino Financial don’t include the necessity of providing collateral.
Debt-Service Coverage Ratio
The debt-service coverage ratio (DSCR) measures how much cash flow you have available to pay the principal and interest of a loan.
Lenders will expect your DSCR to be two or higher.
Here’s how to calculate it:
DSCR = Net operating income / Total debt service
The debt-to-income ratio (DTI) measures your debt and whether you can pay for additional debts.
Lenders might also ask you to disclose all your other debts and to be current with them.
Lenders will expect your DTI to be 28% or lower.
DTI = Monthly debt payments / Gross monthly income
Requirements For A Business Loan For New Businesses
Traditional commercial loans generally require you to have been in business for at least two years. So, if you have a new business, you wouldn’t qualify.
Many financial institutions see startups as high-risk ventures.
Data from the Small Business Administration (SBA) reveals that about two-thirds of new businesses close down within two years of being open. And only half of those survive after five years.
Startup loans are the alternative you need because they have more lenient requirements:
- Have a new business or a business idea (you’ll require a business plan)
- Personal bank account and tax returns
- Good personal or business credit score
- Business registration and licenses (if you’ve already started the business)
- Employer identification number
- A minimum income (the amount they’ll require depends on the lender)
- Collateral (if you want a secured loan)
- EIN and SSN
- Minimum credit score
At Camino Financial, we offer startup loans with even fewer requirements:
- SSN or ITIN
- A government-issued photo ID
- A bank account (active for at least six months)
- Minimum monthly income of $1,500
- Be current with outstanding debt
- Debt-to-income ratio is required for approval, although not for application.
How To Apply For A Business Loan
These are the basic steps to completing a loan application.
- Decide on a loan amount. The amount needs to meet your business needs in a range you can repay comfortably.
- Get the required documents before you apply. Typical documents include personal and business tax returns, government-issued ID, EIN, financial statements, business documents, bank statements, and your SSN. Some lenders like Camino Financial will accept your ITIN only if you don’t have an SSN.
- Select a lender. Search for a financial institution with requirements you can meet. For example, there is no collateral to secure the loan, a minimum revenue matching your business sales, or a minimum credit score.
- Apply for the loan. Most lending institutions allow borrowers to apply online, while others require you to apply in person.
- Complete basic information. All applications ask for personal and business information, such as your legal name, business address, EIN, SSN, or ITIN, in case you don’t have the prior two. They will also request your phone numbers, information regarding your business legal structure, and the years you have been in business.
- Fill in information relating to the loan. This includes the type of loan, loan amount, and the loan’s purpose.
- Submit the documentation. If the lender pre-qualified you, they would ask for some additional documents. If you applied with an online lender, you’d be able to send them electronically.
- Go through the qualification phase. Once you have been pre-approved and submitted the documents, the lender will go through an in-depth qualification process to ensure that you comply with the requirements for the loan.
- Sign the contract and receive the capital. The lender will send you a loan proposal. If you agree with the terms, sign the documents and wait to receive your funds.
Choose An Alternative With Fewer Small Business Loan Qualifications and Requirements
Many small business owners get discouraged when they learn they have to arrange for documentation from various sources. This takes time and effort.
Fortunately, Camino Financial has minimal requirements.
Discover how Camino Financial business loans work!
- You can apply with your SSN, and if you don’t have one, your ITIN
- Your business needs to have been active and registered for at least nine months
- A minimum annual net operating income of $30,000
- Be current with outstanding debt
Check out the chart below to compare the list of business loans requirements asked by most traditional lenders and by Camino Financial:
|Business loan requirements: other lenders vs. Camino Financial|
|Requirement||Traditional Lenders||Camino Financial|
|Time in business||✔️ (2 years)||✔️ (9 months: registered and active)|
|The loan amount||✔️||✔️|
|The use you’ll give the money||✔️||✔️|
|Annual sales||✔️ ($100,000)||✔️ ($35,000)|
|Legal Contracts and Agreements||✔️||✔️|
|Debt-Service Coverage Ratio||✔️||✔️|
10 Documents Needed for A Business Loan
Here are the most common business loan documents lenders will ask a small business owner.
As you read, consider that you can cut this list in half (saving yourself the time, paperwork, and the occasional headache) by approaching an alternative lender like Camino Financial.
It’s a great idea to keep digital copies of these documents and save them on a cloud drive like Dropbox or Google Drive. This way you can access them quickly anywhere, anytime.
Your lender will want to know how much money you deposit into your bank every month and how you use it.
They will also look for:
- The official name of your business on your bank statement (you shouldn’t use a personal bank account).
- The figures in your business bank statements and other financial statements should be consistent. If there is a difference between the two, you should be in a position to explain why.
At Camino Financial, you won’t need to visit your branch to get your reports or print and fax documents.
You must securely connect your bank account with Plaid so we can review the last six months of your banking activity.
You will have to provide both business and personal tax returns. They are very important requirements because they help the lender better understand your financial situation.
You will only need to share personal tax returns if you own a pass-through entity (like an S corporation, a sole proprietorship, or a partnership).
Business Registration/Entity Type
You will have to tell the lender how you structure your business. Most small ventures fall into one of four categories:
- sole proprietorship
- limited liability company
Documentation for different types of business structure
|Type of business structure||Documentation required|
|Sole proprietorship||Proof of DBA Registration|
|Partnership||Business partnership agreement|
|Limited liability company (LLC)||Articles of organization and the LLC operating agreement|
|Corporation||Articles of incorporation, Bylaws, Written Action of Incorporator, Agreements between shareholders|
Business Licenses And Permits
These documents are critical as they help establish if you comply with the law. They tell your lender that you can legally operate the business. They also show proof of ownership.
Ensure that your business licenses and permits have not expired.
It’s a good idea to put a little effort into finding out about your business’s different licenses. Noncompliance could lead to the lender refusing your small business loan application. It could also expose your company to penalties as well as legal liability.
Employer Identification Number (EIN)
This is a nine-digit number assigned by the Internal Revenue Service (IRS). It is also called the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number.
Corporations and partnerships need to obtain the EINs.
Sole proprietorships need an EIN only if they have employees.
Social Security Number (SSN)
Most lenders will ask for your SSN.
If you don’t qualify for an SSN, some lenders accept ITIN.
ITIN stands for “Individual Taxpayer Identification Number”: it’s generally used by immigrants who do not meet the requirements to have an SSN and need to file returns and pay taxes.
The Government issues the ITIN regardless of immigration status.
Just know that not all financial institutions accept this alternative number.
Fortunately, Camino Financial does accept an ITIN number only if you do not have an SSN.
One of the business loan requirements that you have to fulfill is to share your financial statements.
Don’t confuse financial statements with bank statements.
These documents will provide details about your company’s financial performance in the past. Prepare to share 2-years’ worth of these documents.
- Profit and loss statement
- Balance sheet
- Cash flow statement
A lender could also ask you to provide financial projections.
Accounts Receivable Aging And Accounts Payable Aging
These two reports are particularly interesting to the lender because they provide information about managing your working capital.
Lenders will require accounts receivable aging only for a firm that operates in the business-to-business (B2B) segment.
If your clients delay payments regularly, that will affect your cash flow and profitability.
Your accounts payable aging report provides the lender with information about the number of days of credit you receive from your suppliers.
It is to your advantage if your suppliers allow you generous credit terms. However, if you regularly delay payments beyond the stipulated credit period, it will reflect poorly on your company.
Details Of Your Other Debts
The lender will require you to provide information about other current debts.
Most financial institutions consider this one of the key loan requirements because it tells them if you are in a position to meet all your obligations.
They will likely turn your loan application down if they think your debt burden is higher than you can handle.
Many lenders ask for a business plan as part of their loan requirements.
A good business plan is a document that details your business goals and how you plan to meet them.
The document should include a brief description of your business, how you market your products or services, and how you plan to increase sales volumes.
Here are some of the specific details most business plans have:
- Your product’s or service’s attributes. What are you selling? How is it better than what the competition offers? You need to convince the lender about the merits of your product and its ability to retain or increase its market share.
- Customer analysis. Describe your current market and how you plan to increase sales.
- Supply chain. How do you source your raw materials and supplies? Could prices rise and affect your profitability?
- Industry analysis. Entrepreneurs should be familiar with the sector in which they operate.
- Your finances. How will you raise the money for your expansion? How much money have you invested in the business?
- Cash flow. Most lenders want to know how you use your company’s money from business operations and other sources.
Even if the lender of your choice doesn’t ask for a business plan, it’s a good practice to prepare yours. It will help you calculate precisely how much you need to borrow. It also enables you to calculate the Return On Investment (ROI)
Choose A Lender That Requires Fewer Documents
At Camino Financial, we have a paperless application.
- SSN, or ITIN if you do not have an SSN
- A bank account (active for at least six months)
- Minimum monthly income of $1,500
- Be current with outstanding debt
- Debt-to-income ratio is required for approval, although not for application.
Compare how many documents other lenders require:
|Required documents: other lenders vs. Camino Financial|
|Document||Traditional Lenders||Camino Financial|
|Bank Statements||✔️||✔️ (electronically through Plaid)|
|Business Registration/Entity Type||✔️||✔️ (you can register your business during our process if you haven’t yet)|
|Business Licenses and Permits||✔️||✔️|
|SSN||✔️||❌ (Only if you do not have one you can apply with your ITIN)|
|Debt-to-income ratio||✔️||✔️ (Required to be approved)|
|Accounts Receivable and Account Payable||✔️||✔️*|
|Details of Your Other Debts||✔️||✔️|
Business Loan Application Checklist
Use this checklist to get that commercial loan you need.
- Confirm the number of years in business
- Verify preferred lender’s business industry requirements
- Decide on loan amount
- Establish the loan’s purpose
- Know your personal and business credit scores
- Confirm annual business revenue
- Have contracts with suppliers at hand
- List business assets you can use as collateral
- Calculate your DSCR and DTI
Camino Financial has minimal loan requirements that are very easy to meet.
Don’t forget to gather these documents:
- 6-12 months of bank statements (some lenders will ask you to link your bank account to apps like Plaid)
- 1-2 years of personal and business tax returns
- business registration, licenses, and permits
- document verifying tax ID number (EIN, SSN, or ITIN)
- 12 months of profit and loss
- balance sheet
- cash flow statements
- list of accounts receivables and payables
- list of existing loans and debts
- business plan
Camino Financial won’t ask you for this many documents, we offer a streamlined application.
Tips To Qualify And Get Approved For A Business Loan
Here are some tips for getting approved by small business lenders:
- Work hard to build both your personal and credit scores.
- Make sure your business meets the loan requirements before applying for a loan.
- Have all your documents beforehand.
- Write a strong business plan, even if the lender doesn’t ask for one.
- Review your credit reports and, if they have errors, contact the credit bureaus before applying for a loan to take steps to have them reviewed and removed.
- Don’t borrow more money than you can safely repay.
- Be transparent about the information you provide on an application. It’s better to give too much information than not enough.
Types Of Business Loans
These are the most common types of business loan options:
- SBA loans. Applicants can apply for government-backed loans at participating lenders. Generally, SBA loans have stricter regulations, flexible terms, and lower interest rates.
- Secured business loans. This financing option requires you to pledge collateral.
- Unsecured business loans. Such as Camino Financial’s Microloan, which doesn’t need collateral. Because the lender assumes more risk, they charge higher interest rates and offer smaller loan amounts.
- Loans for working capital. Borrowers can improve their cash flow by using the proceeds to pay for day-to-day expenses.
- Business lines of credit. Lines of credit are available through banks, credit unions, and online lenders. The borrower has a credit limit and can make withdrawals from a credit limit.
- Merchant cash advances. Also called MCAs, advance cash for a percentage of a business’s future credit and debit card sales. They charge a very high APR.
- Business credit cards. They’re not a small business loan per se, but they can help you finance certain expenses. Their requirements can be less strict.
- Startup business loans. Such as Camino Financial’s startup business loan. They have more lenient requirements because they’re for new businesses or people that want to start one.
Get The Capital You Need To Grow Your Business
If your business needs a cash infusion, consider taking a loan from Camino Financial. We offer:
- small business loans
- startup loans
We are more flexible than traditional lenders.
The application process to obtain small business loans from Camino Financial is simpler and faster than most online lenders.
In the time you take to gather all the documents other lenders require, you could have in hand the cash you need to grow your business by choosing Camino.
In some cases, you can receive your loan within 2 business days!
All you have to do to start is submit your loan application.
It will take only a few minutes, and you will receive an instant prequalification.Grow your business by applying for a loan
How hard is it to get a business loan?
Qualifying for a loan depends on the type of loan you apply for and lender requirements.
Lenders look at a business’s credit history, how many years they’ve been in business, and other factors before approving a loan.
Their rates, charges, and loan amounts are directly proportional to the degree of risk they assume and go up and down accordingly.
Is collateral needed for a business loan?
Secured loan business loan requirements state that you must provide collateral. On the other hand, unsecured business loans do not.
Borrowers should review lender requirements before applying for a business loan. Most lenders do not require collateral for short-term loans, lines of credit, and credit cards.
In place of collateral, a lender may request a personal guarantee which means the applicant will personally repay the loan if the business defaults on loan payments.
Do business loans require a down payment?
Lenders offering online loans generally do not require a down payment.
Be careful if a lender asks you to pay a fee in advance or will charge you a certain amount to approve you. They could be fraudulent lenders going after your money.
How to take out a business loan?
Determine how much money you need and for what purpose. Find a lender that is willing to work with you.
Put together a loan package that includes your financial statements and a business plan. Once approved for the loan, you will need to make sure that you make your monthly payments on time.
Taking out a business loan can be a great way to get your business off the ground or expand your existing business. However, it is important to understand the terms of the loan and to carefully consider all of your options before signing on the dotted line.
What is usually required for a business loan?
When you apply for a business loan, lenders will require some sort of collateral. This can be in the form of property, equipment, inventory, or even accounts receivable.
They may also require a personal guarantee from the business owner (s), which puts your personal assets at risk if the loan isn’t repaid. In addition to collateral, most lenders will also look at your business’s financial history and performance and your personal credit score to determine eligibility and interest rates.
What size loan can I get to start a business?
There is no one-size-fits-all answer to this question, as the amount of money you can borrow to start a business will vary based on many factors, including your credit score, the size of your business, and the purpose of the loan.
However, some lenders may be willing to loan you up to $100,000 for a small business startup.
*Terms and requirements subject to change without notice.
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