Business Loan Requirements: What Lenders Look For

Business Loan Requirements: What Lenders Look For

Understanding what lenders evaluate before approving a business loan is the single most effective thing you can do to improve your chances of getting funded. Lenders are in the business of managing risk, and every document they request, every metric they analyze, and every question they ask is designed to answer one fundamental question: will this borrower repay the loan?

In this guide, we break down the core requirements lenders look for, explain how each factor affects your application, and share strategies for strengthening your profile before you apply.

Credit Score Requirements

Your credit score is usually the first thing a lender checks. It provides a quick snapshot of your borrowing history and financial responsibility.

Personal Credit Score

Most business loan applications require the personal credit score of every owner who holds 20 percent or more of the company. Here is a general breakdown of what different score ranges mean for your borrowing options:

• 750 and above: Excellent. You qualify for the most competitive rates from banks and SBA lenders.
• 700 to 749: Good. You have strong options across traditional and online lenders.
• 650 to 699: Fair. Online lenders and some credit unions will work with you, though rates will be higher.
• 600 to 649: Below average. Alternative lenders, merchant cash advances, and equipment financing with collateral are your best bets.
• Below 600: Challenging but not impossible. Microloans, revenue-based financing, and secured products may still be available.

Business Credit Score

If your company has been operating for several years, it likely has a business credit score through agencies like Dun and Bradstreet, Experian Business, or Equifax Business. A strong business credit score can offset a weaker personal score in some cases. Make sure your business is registered with these agencies and that your trade references are reporting payment activity.

Revenue and Cash Flow Requirements

Lenders want to see that your business generates enough income to cover existing obligations plus the new loan payment. This is where revenue and cash flow documentation become critical.

Minimum Annual Revenue

Revenue thresholds vary widely by lender type:

• Traditional banks: Typically require $250,000 or more in annual revenue.
• SBA lenders: Minimums vary by program, but $100,000 per year is common.
• Online lenders: Many work with businesses earning as little as $50,000 to $100,000 annually.
• Merchant cash advance providers: Focus on monthly credit card sales volume rather than total revenue.

Cash Flow Analysis

Beyond raw revenue numbers, lenders look at your cash flow patterns. They want to see consistent deposits, healthy account balances, and minimal overdrafts. Expect lenders to request three to twelve months of business bank statements and scrutinize them for:

• Average daily balance
• Lowest balance points
• Deposit consistency and sources
• Frequency of negative balances or non-sufficient-funds incidents

If your cash flow is uneven due to seasonal demand, be prepared to explain the pattern and demonstrate how you manage through slower periods. Working capital loans are specifically designed to smooth out these kinds of fluctuations.

Time in Business

How long your company has been operating is a significant factor in the lending decision. More history means more data for the lender to evaluate, which reduces their perceived risk.

• Less than 6 months: Very limited options. Microloans, personal loans used for business purposes, or friends-and-family financing may be your best path.
• 6 months to 1 year: Some online lenders and alternative financing products will consider you.
• 1 to 2 years: Your options open up considerably, including many online lenders and some SBA microloan programs.
• 2 years and beyond: You qualify for the widest range of products, including traditional bank loans and full SBA programs.

If your business is newer but you have significant industry experience, make sure to highlight that in your application. Lenders take comfort in knowing that the person running the business has deep expertise in the field.

Documentation You Will Need

Having your documentation organized and complete before you apply sends a strong signal to lenders that you are a serious, well-prepared borrower. Here is a comprehensive checklist:

Financial Documents

• Business tax returns (two to three years)
• Personal tax returns for all owners with 20 percent or more stake
• Year-to-date profit and loss statement
• Balance sheet
• Cash flow statement
• Business bank statements (three to twelve months)
• Accounts receivable and accounts payable aging reports

Legal and Business Documents

• Business license or permits
• Articles of incorporation, partnership agreement, or LLC operating agreement
• Commercial lease agreement
• Franchise agreement, if applicable
• Resumes of key management team members

Loan-Specific Documents

• A clear use-of-funds statement explaining exactly how you plan to deploy the capital
• Business plan, especially for newer businesses or large loan requests
• Collateral documentation, if offering a secured loan
• Existing debt schedule listing all current obligations

Industry and Business Type Considerations

Certain industries face tighter scrutiny from lenders due to higher default rates or regulatory complexity. Businesses in the following sectors may need to provide additional documentation or work with specialized lenders:

• Restaurants and food service
• Construction and contracting
• Healthcare, including home healthcare
• Cannabis-related businesses (even in legal states)
• Startups and pre-revenue companies

On the positive side, businesses in stable industries with recurring revenue models — such as SaaS companies, medical practices, and professional services firms — often find the lending process smoother.

Debt Service Coverage Ratio

One of the most important metrics lenders calculate is your Debt Service Coverage Ratio, or DSCR. This ratio measures your business's ability to cover its debt obligations with its operating income.

DSCR = Net Operating Income / Total Debt Service

A DSCR of 1.0 means your income exactly covers your debt payments. Most lenders require a minimum DSCR of 1.25, meaning you earn 25 percent more than what you owe in debt payments. Higher ratios indicate a more comfortable financial cushion and improve your approval odds.

Collateral and Personal Guarantees

Many business loans, especially those from traditional banks and the SBA, require some form of collateral. Common types of collateral include:

• Commercial real estate
• Equipment and machinery
• Inventory
• Accounts receivable
• Personal assets such as a home or investment accounts

Even if collateral is not strictly required, many lenders will ask for a personal guarantee from the business owner. This means you are personally responsible for the loan if the business cannot repay it. Understand the implications of a personal guarantee before you sign.

There are two types of personal guarantees to be aware of. An unlimited personal guarantee means you are liable for the full loan amount plus fees and legal costs. A limited personal guarantee caps your liability at a specific dollar amount or percentage. If you have a business partner, some lenders will accept limited guarantees from each partner rather than requiring unlimited guarantees from both.

The Role of Your Business Plan

For larger loan requests or businesses with less than two years of history, a solid business plan can make or break your application. Lenders use your business plan to assess your understanding of the market, your competitive strategy, and the likelihood that you will generate enough revenue to repay the loan.

Your business plan should include:

• Executive summary covering your business model and funding request
• Market analysis showing you understand your industry, target customers, and competitors
• Financial projections for the next two to three years, including revenue, expenses, and cash flow
• Use of funds detailing exactly how you will deploy the loan capital
• Management team bios highlighting relevant experience and qualifications

A business plan does not need to be 50 pages long. A focused 10 to 15 page document that clearly communicates your strategy and financial outlook is more effective than a lengthy plan filled with generic information.

How to Strengthen Your Application

Check your credit reports for errors. Dispute any inaccuracies well before you plan to apply. Corrections can take 30 to 45 days.

Pay down existing debt. Reducing your current obligations improves both your credit utilization ratio and your DSCR.

Increase your revenue. Even small revenue gains in the months before you apply can move you into a more favorable bracket.

Build your business credit profile. Open trade accounts with suppliers who report to business credit agencies and pay every invoice on time.

Organize your financials. Clean, professional financial statements instill confidence. Consider hiring an accountant to prepare or review your documents.

Prepare a compelling narrative. Numbers matter, but so does the story behind them. Be ready to explain any dips in revenue, past credit issues, or unusual expenses in a way that reassures the lender.

Next Steps

Understanding what lenders look for is the first step toward a successful loan application. At Brevo Capital, we help you match with lenders whose requirements align with your business profile, saving you time and increasing your approval odds.

Start your application today and let us help you find the right funding for your business.