How to Qualify for a Small Business Loan: A Practical Checklist

Before you talk to any lender, you should be able to state your average monthly revenue, your monthly expenses, and how much you have left over. Lenders often compare your available cash flow to the new payment you are asking for. If the payment would eat up most of what you have left, expect a smaller offer or a decline.

Pull your last several months of business bank statements and add up the deposits. Look for anything that would concern a lender, such as frequent overdrafts, negative balances, or large unexplained transfers.

For most small business loans, your personal credit matters, especially if the business is young. Get your reports from all three bureaus and correct any errors. If your score is lower than you would like, paying down card balances and making every payment on time are two of the more reliable ways to improve it over time.

If your business has been operating for a while, check whether it has a business credit file. Paying suppliers and business cards on time helps build one.

Requirements vary, but it helps to have these ready:

• Business bank statements, often the last three to twelve months.
• Business and personal tax returns, often the last one to three years for bank and SBA loans.
• A profit and loss statement and balance sheet, even simple ones.
• Your business formation documents, such as articles of organization and an EIN confirmation.
• A list of existing business debts with balances and payments.
• A government-issued ID.
• For newer businesses, a business plan with projections and an explanation of your experience.

Lenders respond better to a clear, reasoned request than to a round number. Explain what the money is for and how it will help the business earn more or save more. If you want equipment, have a quote. If you need working capital, show the gap you are trying to cover and how long it will last.

Asking for far more than your revenue can support is one of the most common reasons for a decline. It is better to ask for an amount you can clearly justify.

Banks and SBA lenders usually offer the lowest costs but have the strictest requirements, often including two or more years in business and solid credit. Online lenders tend to move faster and accept shorter histories, but usually at a higher cost. CDFIs and microlenders focus on underserved owners and may be more flexible on credit.

Applying to the wrong type of lender wastes time and can lead to multiple credit inquiries. Look at each lender stated minimums before you apply.

When an offer arrives, look past the headline number. Check the total cost, the payment schedule, fees taken out at closing, whether there is a personal guarantee, and what happens if you pay early or miss a payment. Ask questions until you understand the terms.

A decline is information. Ask the lender what held the application back. Common reasons include too little time in business, revenue that is too low or too uneven, credit issues, or too much existing debt. Each of those can improve with time and focus. Many owners start with a smaller product, repay it on schedule, and come back stronger.