How To Qualify For A Small Business Loan

Getting a small business loan can be complicated, and you can avoid potentially time-consuming rejections by understanding the lender’s qualifications and the requirements for a small business loan. Here are five steps to help you get the business loan you need.

1. You May Need To Build Your Credit Scores.

Lenders may use your company’s credit score to determine whether to approve your application for a small business loan. Not every company has a business credit score, though. In the absence of this information, lenders may use the personal credit score of the person applying for the loan. 

Your credit scores show lenders how much risk they’ll take on if they extend credit. Your past financial behavior reflected in your credit file gives lenders some clues as to how you may behave in the future. In addition, some lenders may require access to your personal credit score to get an idea of how you’ve handled your personal finances in the past. 

However, it’s important to check with your lender to find out their actual policies on the use of credit scores. Some financial institutions may not rely on these scores or may not have extensive requirements regarding your credit scores as part of their lending process – so always remember to check.

2. Your Lender’s Minimum Requirements

Each lender sets minimum qualification criteria for business loans. They may have rules about how many years a business must be in operation, minimum credit scores and minimum annual revenue. Some lenders may be more flexible with their criteria, so it’s crucial to understand their minimum requirements before you apply for a business loan. 

U.S. Small Business Administration Loans 

If you are interested in getting an SBA loan, you must operate as a for-profit company and meet their definition of a small business. The SBA won’t back loans for financial businesses like 

insurance companies and banks, or those engaged in speculation, multi-sales distribution, or investments.1 You must also be current on government loans and not in default (now or in the past). If you’ve been late on a government-backed mortgage or federal student loans, you may not be able to qualify for an SBA-backed loan.

3. Start To Gather Legal and Financial Documents

You’ll need certain paperwork and documents when you apply for a small business loan. Your lender can tell you exactly which papers you need for the lending process. You can make this process easier by collecting some important documents, which may include: 

• Photo of your driver’s license or other government-issued identification
• Personal and business income tax returns 
• Articles of incorporation 
• Balance sheet and income statement 
• Personal and business bank statements 
• Commercial leases 
• Business licenses 
• Resume showing relevant business experience
• Financial projections 

1 U.S. Small Business Administration, 2021, 7(a) Loan Program Eligibility, Accessed November 6, 2021, [SBA.gov]

4. Put Together a Strong Business Plan

Lenders may prefer to see a business plan that outlines your vision for the company. A business plan can show potential lenders exactly how you plan to use loan funds to support your business with the intent of increasing profits and encouraging growth. 

Your business plan should include: 

• A detailed description of your company. 
• Description of your company’s product or services. 
• A short introduction to each member of your management team. 
• Overview of your industry and how your business fits. 
• Complete facilities and operations plan. 
• Current and projected financial reports. 
• Marketing and sales plans.
• Analysis of the company’s strengths, weaknesses, opportunities, and threats (SWOT). 

Remember that your business plan doesn’t have to be extensive, but it should include information that demonstrates that your company will have strong enough cash flow to pay back the loan as promised while covering ongoing business expenses.

5. You May Need To Provide Collateral

Some lenders require collateral to back a small business loan. Business collateral can be equipment, inventory, or real estate. If you fail to make loan payments as promised, the lender can legally seize the collateral and sell it to recoup some of its losses. 

Some lenders may ask for a blanket lien on your business’ assets. If you fail to pay the loan as promised, they can seize any property of worth owned by your business. So always make sure you talk with your lender about their requirements for collateral as well as what type of assets they may accept to secure your small business loan.

Have More questions? Looking For a Loan?
Then Talk To Charter Oak’s Business Lending Experts! 

Getting a small business loan may be necessary when you want your company to reach the next level of success. Qualifying for a loan can seem complicated, but getting a business loan is hassle-free when you work one-on-one with the Charter Oak Business Loan Solutions team.  

At Charter Oak, we offer competitive products, an easy loan process, personal attention and efficient and timely decisions! We offer commercial real estate loans that are tailored to your needs, flexible lines of credit for the capital you need when you need it, and construction loans that are business-friendly with great rates and great terms.

And all of our lending decisions are made locally by our team of business lenders who understand the unique needs of eastern Connecticut’s business community. We know the needs of our local business community because we’ve worked with local businesses – small, medium, and large – from Putnam to Pawcatuck and beyond!

We offer an extensive suite of business loans and business credit, including:

Commercial Real Estate Loans 

• 15-year term and up to a 30-year amortization 
• Competitive rates and terms 
• No pre-payment penalties 

Fixed-Term Business Loans 

• Flexible rates and terms 
• Set monthly payments 

Business Line of Credit 

• Flexible rates and terms 
• Interest-only monthly payment options 

So let our experts on our Business Lending team work with you to find a lending solution that grows your business – and your bottom line! More of eastern Connecticut’s business community is coming to Charter Oak for all their business lending needs. You should, too!

To learn more about our business lending products and services or to find out how you can qualify for a Charter Oak small business loan, please reach out to our Business Lenders today!