The requirements for small business loans can vary by lender. But in general, lenders may review the following information to approve you for a loan:
- Personal credit. You may be able to qualify for a business loan with a credit score as low as 500. However, a good score of at least 670 could give you a better shot at getting approved for a competitive rate.
- Time in business. Lenders typically require that you be in business for at least six months to two years to qualify for a loan.
- Business checking accounts. Lenders may require that you have a business checking account with several months of transactions to show cash flow.
- Business revenue. Most lenders require that you have between $100,000 to $250,000 annual business revenue to qualify.
How to Choose a Small Business Loan
Just as certain types of loans are more appropriate for certain businesses, some lenders may be better suited to your business than others. Consider these factors to choose a small business loan:
- Lender reputation. Check online reviews so you’re aware of any red flags or potential issues before you sign on the dotted line. If you plan to work with a local bank or credit union, check with other local business owners to see which institutions have the best reputation.
- Qualification requirements. Most small business loans are underwritten based on the business owner’s personal credit score and are personally guaranteed. The minimum credit score required to qualify for a small business loan depends on the lender and the type of loan. So, it’s generally a good idea to check your personal credit score and then research each lender to compare minimum credit score requirements.
- Available loan amounts. Loan amounts vary by lender and loan type. Before choosing a small business lender, evaluate your business’ borrowing needs and shop for a loan that fits those parameters.
- Underwriting and funding speed. The amount of time it takes to process an application and receive funds varies widely by lender and loan type. In general, it can take anywhere from a couple of days (in the case of a merchant cash advance) to several months (for an SBA loan) to receive funds after submitting an application. If you need a loan quickly, choose a loan type and lender that can meet those time constraints.
- Annual percentage rate. APRs also vary by loan type and lender, but generally range anywhere from 5% to 99%. The most creditworthy applicants qualify for the lowest rates, but some lenders are more competitive than others.
- Additional costs. Many lenders charge origination fees that cover the costs of processing applications and underwriting loans. Likewise, some lenders charge prepayment penalties for borrowers who opt to pay off their loans early, while others charge draw fees on lines of credit. However, borrowers should not be charged application fees, and any fees levied prior to loan approval are a red flag.