Securing a business loan can be a challenge, but there are certain requirements that can make it easier to get approved.
As seasoned experts in the business loans industry with years of experience working with lenders, we have discovered three factors that make it easier to get approval on a business loan.
In this blog, we’ll explore these three key requirements that can increase your chances of getting a business loan: $200k annual revenue, a credit score of 640 or higher, and at least one year in business.
We’ll look at why these business loan requirements matter, how they can affect your loan options and terms, and what steps you can take to meet them.
Why These Requirements Matter
Lenders want to make sure your business has the ability to pay back the loan within the terms. Therefore, there are certain factors about your company that are indicators of your ability to not default on the loan. Lenders consider these factors almost like a personal guarantee that you will pay them back.
1. Annual Revenue of $200k+
Making at least $200k in annual revenue gives you an advantage to qualify for a business loan. Keep in mind that annual revenue is total money earned before expenses. Lenders use your annual revenue as an indicator of your business’s financial stability and ability to generate enough income to repay the loan.
A higher annual revenue shows that your business is generating enough income to cover its expenses, including loan repayments. This reduces the risk for lenders and increases your chances of being approved for a loan.
Additionally, having a higher annual revenue can also help you qualify for larger loan amounts and more favorable terms, such as lower interest rates and longer repayment periods. By demonstrating that your business has a consistent stream of revenue, you are showing lenders that you are a low-risk borrower and have the ability to repay the loan on time.
2. Credit Score of 640+
The credit score requirement is another important factor that lenders consider when evaluating loan applications. Your credit score reflects your creditworthiness and financial history, and lenders use it to assess the risk of lending to you.
A poor credit score indicates you have not proven your ability to pay back your debt and will make it harder to get approval for low interest rates and longer terms. However, an excellent credit score means you have a reputation of paying back your debts in a timely manner and makes it much easier to
A credit score of 640 or higher is generally considered to be a good score for a small business loan, but again, this can vary depending on the lender and the type of loan you’re applying for.
Note: A poor credit score doesn’t have to stop you from getting the funding you need, it just may make it difficult to get the interest rates and terms you want. Below we discuss some ways to increase your credit score.
3. 1+ Years in Business
Having at least 1 year in business is a key factor in determining your eligibility for any type of business loan. This is because lenders view businesses that have been operational for a year or more as having a proven track record of stability and the ability to generate income.
By being in business for at least a year, you have had the opportunity to establish your business, build your customer base, and generate revenue. This gives lenders more confidence in your ability to repay the loan, as you have already demonstrated that your business has the potential to succeed.
Additionally, being in business for a year or more allows you to build up your business credit score, which can further increase your chances of being approved for a loan with favorable terms and rates.
How These Requirements Affect Loan Options and Terms
Meeting these requirements can open up a wider range of loan options and better loan terms. For example, if you meet the $200k annual revenue requirement, you may qualify for larger loan amounts and longer repayment terms.
If you meet the credit score requirement, you may be eligible for lower interest rates and more favorable loan terms. And if you meet the one year in business requirement, you may have access to more loan options and better rates than newer businesses.
On the other hand, failing to meet these requirements can limit your loan options and result in higher interest rates and less favorable loan terms. For example, if your revenue is below $200k, you may only qualify for smaller loan amounts with shorter repayment terms.
If your credit score is below 640, you may be considered a higher risk borrower and may be offered higher interest rates and stricter loan terms. And if your business is less than a year old, you may have fewer loan options available to you and may be subject to higher rates and stricter loan requirements.
What You Can Do to Meet These Requirements
If you don’t currently meet these requirements, there are steps you can take to improve your chances of getting a business loan. Here are some tips:
- Increase your revenue: If your business is generating less than $200k in annual revenue, focus on growing your customer base and increasing sales. Consider marketing and advertising strategies, expanding your product or service offerings, or targeting new markets.
- Improve your credit score: If your credit score is below 640, work on improving your credit by paying bills on time, paying down debt, and avoiding new credit inquiries. You can also consider getting a secured credit card or becoming an authorized user on someone else’s credit card to build your credit history.
- Build a track record of success: If your business is less than a year old, focus on building a solid track record of success. This can include maintaining a positive cash flow, developing a strong business plan, and establishing relationships with vendors and customers.
In conclusion, meeting certain business requirements such as having a minimum annual revenue of $200k, a credit score of 640 or above, and a minimum of 1 year in business can greatly increase your chances of getting approved for a business loan. Lenders use these requirements to assess your financial stability, creditworthiness, and business viability. By meeting these standards, you demonstrate that you have the ability to generate sufficient income to pay back the loan and are a responsible borrower.
While there are other factors that lenders consider, meeting these requirements can help you get closer to securing the funding you need for your business. It is important to remember that every lender has their own set of requirements, so it is important to do your research and shop around to find the best loan option for your specific needs.
BusinessLoans.com makes it easy to shop around for the perfect loan. Our easy, 3-minute application considers your annual revenue, credit score, and time in business, as well as your funding needs to get the best loan offers for you. In our application process, we give you the opportunity to add your bank statements as proof of income and demonstrate a good credit score without doing a hard pull on your credit.