When your small business needs to borrow money, one of the first places you might turn to is a financial institution. Getting a business loan from a bank can be a wise choice. These loans often feature attractive interest rates with the potential to save you money. 

On the other hand, getting a business term loan or an SBA loan from a bank might not be the easiest undertaking. Qualification requirements for these types of business loans can often be stricter than the demands you might face from an online or alternative lender.

If your goal is to take out a bank business loan, it’s wise to learn what a lender might want from you in advance. As you discover the qualification requirements you can work to improve your company’s chances of getting a loan approval. 

Below are four factors that lenders may consider when you apply for a business bank loan. These details could influence the cost and terms of your loan as well. 

1. Your Credit Information

The first hurdle you must clear when you apply for a business loan from a bank is the credit check. There’s a good chance a lender will review the condition of your personal credit and business credit when deciding whether to approve your small business financing application. 

Good Personal Credit

As a small business owner, lenders will often place your personal credit under the microscope when you apply for business loans. Many lenders see your business as an extension of yourself—especially if your business is a startup or has little established credit.  

It’s also common for lenders to ask you to sign a personal guarantee when you take out a business loan. If you agree to do so, you are essentially co-signing for your company. 

If a lender asks you to sign a personal guarantee, a review of your personal credit will probably follow. A credit check helps the lender determine whether you’re a good credit risk and likely to repay your debts as promised. 

A minimum credit score of 680 is often necessary. However, every lender sets its own terms and minimum credit score requirements for bank business loans.

Since a lender is likely to review your credit information when you apply for a business loan, you should review your credit reports and credit scores from all three consumer credit bureaus in advance. 

If you need to establish personal credit, the CreditStrong MAGNUM account could be worth considering. A MANGUM account can help you build up to 120 months of payment history and may report up to $10,000 worth of installment credit to all three major credit bureaus. 

Build Your Business Credit

Another factor that a bank may review when you apply for a business loan is your business credit score and credit history from at least one major business credit bureau. Positive payment history and a good business credit score have the potential to work in your favor. 

You may also face minimum business credit score requirements for different bank loans. If you apply for an SBA loan, for example, you might need a minimum FICO Small Business Scoring Service Score (SBSS Score) of 140 or higher for various types of SBA loan programs.  

Does your business still need to establish credit? 

Do you want to build better business credit to (hopefully) qualify for business financing without a personal guarantee in the future?

If you answered yes to either of the previous questions, consider if a CreditStrong Business credit builder account might be right for you. You can open this secured installment loan once your business is at least three months old. (There’s no minimum credit score requirement.)

As you repay the loan, the monthly payments are reported to Equifax Business, PayNet, and the Small Busienss Financial Exchange (SBFE). Soon, they will be reported to Experian Business as well. 

2. Time in Business

Most banks prefer for a company to have at least two years worth of experience under its belt to qualify for a business loan. Therefore, it can be especially difficult for startups to qualify for certain types of business financing. 

Due to these challenges, some newer businesses will opt to seek financing from other sources until they become more established. (See below for ideas on other ways to get financing for your business in the meantime.)

3. Annual Revenue

In addition to creditworthiness and time in business, banks may also evaluate the revenue that your business generates. It’s important for a lender to make sure your company earns sufficient revenue to afford the financing that it’s seeking. 

Banks may have different qualification criteria where business revenue is concerned. Yet it’s common for banks to require its business borrowers to show a minimum of $50,000 to $100,000 in annual revenue or sales to be eligible for financing. 

4. Have a Business Plan

A well-written business plan could be another essential part of your application for a bank business loan. Lenders understand that not every business idea makes it. 

According to a Fundera analysis of BLS data, only around half of small businesses last beyond five years. As a result, lenders need evidence that your business idea is practical and sustainable—both now and in the future when you would be repaying your business loan. 

An effective business plan should provide details about the past revenue and profits your company has earned. (Note: startups won’t be able to include this information.) You’ll also want to include forecasts regarding future sales and profits for the next several years. 

Looking for more ideas about what to include in your business plan? Consider the following: 

• Company Description
• Financial Records (Balance sheets, income statements, cash flow statements, etc.)
• Financial Forecasts (Projected profit and loss, sales forecast, cash flow forecast, etc.)
• Organization and Management Structure
• Market Analysis
• Sales and Marketing Plan

Other Ways to Get Financing for Your Business

The Federal Reserve reports that 66% of small businesses did not apply for funding in 2021. However, over half of those businesses needed access to capital yet still did not seek it. 

The top reasons these businesses gave for not applying for the financing their companies needed were as follows: 

• Weak Business Financials (56%)
• Overly Strict Lender Requirements (32%)
• Concerns About Lenders Not Approving Businesses Like Theirs (24%)
• Being Denied for Business Financing Previously (22%) 

If you’re worried about a bank denying you for a business loan, it’s wise to work to strengthen your application details for the future (e.g., personal credit, business credit, revenue, etc.). You also might want to think about applying for other types of financing such as those below. 

Consider Loans with Collateral 

Business loans that include some type of collateral are often easier to qualify for than unsecured business loans. The reason loans involving collateral can be easier to get is because the risk is lower for the lender. In the event of a default, there’s an asset to seize.

Some examples of business loans with collateral include: 

• Equipment Financing
• Commercial Vehicle Loans
• Commercial Real Estate Loans
• Secured Business Loans

Consider Business Credit Cards

One potentially easy way to get business financing (even for a startup) is to open a business credit card. Depending on the type of account you wish to open, you may need good personal credit to qualify. Secured business credit cards may be an option if you have bad credit.  

A business credit card may work alongside other credit-building products (like credit builder loans and business tradelines) to help you build business credit. These accounts can also help you separate personal and business expenses for tax purposes and more. 

Yet credit cards—both small business credit cards and personal credit cards—typically feature high interest rates. Therefore, they don’t tend to make good long-term financing solutions. 

The best way to manage a credit card is to pay off the full statement balance every month. Doing so should help you avoid expensive interest charges. This good habit might also protect your business and personal credit scores by keeping your credit utilization ratios low.   

Next Steps

It’s wise to begin building business credit early, even if you don’t plan to apply for business financing yet. Qualifying for a bank loan or other type of business loan can be a challenge. And it might take months or even years to establish a strong business credit profile. 

If you’re not sure where to begin, a Business Credit Builder Account from CreditStrong could be a great starting point. The account gives you the opportunity to add up to a $10,000 installment account to the major business credit bureaus using your company’s EIN. 

As a small business owner, your personal credit matters a great deal too. So take steps to ensure that your personal credit reports and scores remain in the best shape possible. 

No matter what approach you take to build credit (business or personal), remember that on-time payments are essential. Payment history isn’t the only factor that matters where credit is concerned. Yet on-time payments can be a great starting point to earn good credit scores.

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