Business Loan Requirements: What Small Business Owners Need To Qualify

Applying for a loan can feel daunting. Here is a guide to the requirements and qualifications needed to acquire business funding.

WRITTEN & RESEARCHED BY
Erica Seppala
Editor & Senior Staff Writer

Last updated onUpdated December 16, 2025

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Key Takeaways

Lenders evaluate loan eligibility based on the 5 Cs of Credit to assess the risk of lending to your business.
Gather key documents and information in advance to streamline the loan application process.
Documentation and eligibility criteria vary by loan type, so plan accordingly to make the process as quick and easy as possible.

Before applying for a business loan, it’s important to understand what lenders look for.

This guide breaks down how lenders evaluate loan eligibility and the documents you’ll need to prepare, so you can move through the process confidently and secure the funding your business needs.

Table of Contents

How Lenders Use The 5 C’s Of Credit To Evaluate Loan Eligibility
Small Business Loan Application Requirements
Business Loan Requirements By Loan Type
The Bottom Line On Business Loan Requirements

How Lenders Use The 5 C’s Of Credit To Evaluate Loan Eligibility

To assess risk, lenders commonly rely on a framework known as the 5 C’s of Credit.

Character: Measures trustworthiness, based on credit reports, credit scores, references, and sometimes interviews.
Capacity: Evaluates your ability to repay the loan, often using metrics like debt service coverage ratio (DSCR) and debt-to-income ratio (DTI).
Capital: Reflects how much money you’ve personally invested in your business, signaling commitment and financial stake.
Collateral: Business or personal assets used to secure the loan and reduce lender risk.
Conditions: Considers loan terms, economic conditions, and industry or market factors that may affect repayment.

Lenders use these factors to gauge overall risk. Lower risk improves your chances of approval, better rates, and higher borrowing limits, while higher risk can limit options or increase costs.

Small Business Loan Application Requirements

Applying for a business loan is much simpler when you know what lenders expect. Below are the key details and documents most lenders require.

Loan Amount

You’ll need to specify how much you want to borrow. Before applying:

Calculate costs: Get quotes and estimates to determine your funding needs
Confirm affordability: Use DTI and DSCR to ensure payments fit your cash flow

Loan Purpose

Lenders require a clear explanation of how funds will be used. Common purposes include:

Equipment or inventory purchases
Real estate or business acquisition
Working capital or emergency expenses
Debt refinancing

Some lenders restrict how funds can be used, so review terms carefully.

Personal Credit Score & History

Your personal credit score plays a major role in approval, rates, and terms.

Strong credit qualifies for better pricing
Credit issues may limit options or increase costs

Before applying, pull your free credit score and credit report, review for errors, and dispute inaccuracies if needed.

Business Start Date

Most traditional lenders prefer businesses with at least two years in operation. Startups may face stricter requirements, fewer options, or additional documentation requests.

Monthly & Annual Revenue

Revenue helps lenders assess your ability to repay.

Monthly revenue is usually verified with bank statements and P&L reports
Annual revenue may be confirmed through tax returns and financial statements

Bank Statements

Bank statements provide insight into cash flow and financial management. Most lenders require at least three months, though banks and SBA lenders often require six months or more.

Business Debt Schedule

A debt schedule outlines your existing loan obligations and monthly payments. Lenders use this to evaluate whether your business can handle additional debt.

Proof Of Ownership

You’ll need to verify ownership using business licenses, registrations, or formation documents.

Collateral

Some loans require collateral or additional risk protection, which may include:

Specific assets pledged as collateral
A UCC blanket lien on business assets
A personal guarantee

Always review collateral terms carefully before accepting a loan.

Business Loan Requirements By Loan Type

Most business loans require basic information, such as bank statements and a federal tax ID. Depending on the loan type, lenders may also ask for additional documentation.

SBA Loan Requirements

SBA loans are issued through approved lenders and come with strict eligibility and documentation standards. Requirements vary by program but typically include:

Proof you meet the SBA’s small business definition
Strong personal credit
Business and personal financial documentation

The application process is detailed and can take weeks or longer.

Bank & Credit Union Business Loan Requirements

Traditional lenders, such as banks and credit unions, have the strictest requirements and favor low-risk borrowers. Common documentation includes:

Bank statements
Business and personal tax returns
Personal credit score and financial information
Financial statements and business plan
Collateral

Approval timelines are often lengthy.

Startup & New Business Loan Requirements

Startups and newer businesses must demonstrate experience and future viability. Lenders may require:

Owner resumes
Detailed business plan
Financial projections

Options are typically more limited than for established businesses.

Business Line Of Credit Requirements

Lines of credit often have fewer requirements, especially through online lenders. Basic requirements may include:

Personal and business information
Federal tax ID
Bank statements
Government-issued ID

Banks and credit unions may also request financial statements and tax returns.

Equipment Loan Requirements

Equipment loans are generally easier to qualify for since the equipment serves as collateral. Common requirements include:

Bank statements
Equipment invoice or quote
Tax returns and financial statements

Requirements vary by lender.

Invoice Factoring Requirements

Invoice factoring focuses more on your invoices than your credit profile. To qualify, lenders typically look for:

A B2B business model
High-quality unpaid invoices
Likelihood of customer payment
Soft credit check

Invoice volume and invoice size also matter.

The Bottom Line On Business Loan Requirements

Applying for a business loan is much easier when you’re prepared. Knowing how much funding you need, how you’ll use it, and what your business can afford puts you ahead of the process.

Having the right documentation ready and understanding what lenders look for can help speed up approval and improve your chances of securing the loan you need.

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Erica Seppala

Editor & Senior Staff Writer at Merchant Maverick

Erica has been writing about small business finance and technology since 2008. She joined Merchant Maverick in 2018 and specializes in researching and reviewing business software, financial products, and other topics to help small businesses manage and grow their operations. Her expertise has been cited in MSN, Reader's Digest, Vox, U.S. News & World Report, and Real Simple. She is a Certified ProAdvisor for QuickBooks Online and QuickBooks Payroll, a graduate of Limestone University, and currently resides in Greenville, South Carolina.

View Erica Seppala's professional experience on LinkedIn.