Small business loan requirements

What do I need to qualify for a small business loan?

Securing a small business loan can be a turning point for entrepreneurs — whether you’re expanding operations, purchasing equipment, or bridging cash flow gaps. But before you apply, it’s important to know what lenders are looking for. Understanding the key qualifications can help you prepare a stronger application and boost your chances of approval.

Below, we’ll walk through the most common factors lenders consider and what you can do to position your business for success.

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1. Strong Credit History

Your credit score — both personal and business — plays a crucial role in determining your eligibility.

• Personal Credit: Most lenders want to see a personal FICO score of 690 or higher for traditional bank or SBA loans. Community development financial institutions (CDFIs) — which provide financial services to underserved markets and populations — often accept lower credit scores (e.g. 575 or higher). Online lenders may also accept lower scores, but a higher score typically means better rates and terms.

• Business Credit: If your business is established, it will have its own credit profile through agencies like Experian or Dun & Bradstreet. Keeping accounts current, managing trade credit responsibly, and maintaining low debt levels will strengthen your business credit.

💡 Tip: Review your credit reports for errors and pay bills on time to quickly improve your score.

2. Consistent Revenue and Cash Flow

Lenders want assurance that your business generates enough income to repay a loan comfortably.

• Most lenders have minimum annual revenue requirements, which can range from $100,000 to $250,000, depending on the lender and loan type.

• They’ll also look at your Debt Service Coverage Ratio (DSCR) — a measure of how easily you can cover loan payments. A DSCR above 1.25 is generally considered healthy.

💡 Tip: Keep detailed financial statements to prove your business’s earning potential and demonstrate that you can meet repayment obligations.

3. Time in Business

Your business’s track record matters. Lenders view longevity as a sign of stability and lower risk.

• Traditional banks and SBA lenders typically require at least two years in business.

• Some CDFIs and online lenders will also work with newer businesses — sometimes as little as six months of operations.

If you’re a startup, you may still qualify for financing, but you’ll likely need a solid business plan, strong personal credit, and potentially collateral.

4. Solid Business Plan

A clear, compelling business plan shows lenders you’ve thought through how you’ll use the funds — and how you’ll pay them back.

Your plan should include:

• A company overview and mission statement.

• Detailed financial projections (cash flow, expenses, profit margins).

• A breakdown of how you’ll use the loan.

• A repayment plan.

💡 Tip: Even if a lender doesn’t require a full plan, having one demonstrates professionalism and foresight.

5. Collateral or Personal Guarantee

Depending on the type of loan, lenders may require collateral — such as real estate, equipment, or inventory — to secure the loan.

If you default, the lender can seize these assets to recoup their loss. Some lenders instead require a personal guarantee, which means you agree to repay the loan from personal assets if your business can’t.

💡 Tip: Understand exactly what you’re pledging and the potential risks before signing.

6. Financial and Legal Documentation

Before approval, lenders will ask for documents that confirm your business’s financial health and legitimacy. These may include:

• Business and personal tax returns

• Profit and loss statements

• Balance sheets

• Bank statements

• Business licenses or incorporation documents

• Lease agreements

• Proof of collateral (if applicable)

Organizing these documents ahead of time will make the application process smoother — and show lenders that you run a professional, trustworthy operation.

7. Industry and Loan Purpose

Lenders also assess the risk associated with your industry and loan purpose. Some sectors — such as restaurants or construction — are considered higher risk due to volatility or seasonal revenue.

Additionally, government-backed SBA loans have specific rules: your business must be for-profit, operate within eligible industries, and meet the SBA’s “small business” definition.

💡 Tip: Be ready to explain why you’re seeking financing and how it will help your business grow sustainably.

Final Thoughts

Qualifying for a small business loan is about more than just filling out an application — it’s about presenting your business as a stable, well-managed, and financially sound enterprise.

By improving your credit, keeping accurate records, crafting a thoughtful business plan, and understanding what lenders expect, you’ll position yourself for success — and find the right financing to take your business to the next level.

Ready to explore your options? Start with Mona’s common app to see which lenders may be the best fit for your business.

Note: This material is for informational use only and does not constitute financial, legal, or investment advice.