What Do You Need to Get a Business Loan?

If you’re thinking of starting a business or expanding an existing one, you may be wondering how to get a business loan. Here’s what you need to know.

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Whether you’re a startup or an established business, at some point you may need to take out a loan to finance your operations. But before you can qualify for a loan, there are a few things you need to have in order. In this article, we’ll go over what you need to get a business loan, so you can be prepared when the time comes.

1) A Good Business Plan

The first thing most lenders will ask for is a business plan. This is because they need to see how your business is doing and what your future prospects look like. With a good business plan, lenders will be able to see that you’re serious about your business and that you have a solid chance of making it succeed.

2) Financial Statements

Lenders will also want to see financial statements for your business. This includes things like your income statements, balance sheets, and cash flow statements. These documents will give lenders a better idea of your financial situation and whether or not you’re able to make loan payments.

3) Personal Financial Statements

In addition to financial statements for your business, lenders will also want to see personal financial statements from the owners of the business. This is because they want to know if you have the personal assets to back up the loan if things go wrong. Personal financial statements should include things like your income, assets, and debts.

4) Collateral

Lenders will also want some form of collateral before they give you a loan. This gives them something to fall back on if you can’t repay the loan. Collateral can be anything from property to equipment to inventory. Basically, anything that has value and can be sold if necessary.

The 5 C’s of Credit

The 5 C’s of Credit are Character, Capacity, Capital, Collateral, and Conditions. They are the key factors that lenders look at when considering a business loan. Let’s take a closer look at each one.


Capacity is a lender’s measure of the borrower’s ability to repay the loan from current cash flow. The higher the capacity, the lower the risk to the lender. To calculate capacity, lenders use a debt service coverage ratio (DSCR). The DSCR is the ratio of net operating income (NOI) to debt service. For instance, if a property generates $100,000 of NOI each year and has annual debt service of $80,000, its DSCR would be 1.25 (100,000/80,000). Most lenders require a DSCR of 1.20 or greater to approve a loan.


Collateral is one of the five C’s of credit, which are used to determine whether or not a business qualifies for a loan. Collateral is an asset that can be used to secure a loan, and it can be either personal or business-related. Personal collateral may include things like a home or a car, while business-related collateral may include things like equipment or inventory. The more collateral a business has, the more likely it is to qualify for a loan.

Credit Score

One of the most important factors in getting approved for a business loan is your credit score. This number, which is based on your credit history, is a key indicator of your ability to repay a loan. The higher your credit score, the more likely you are to be approved for a loan with favorable terms.


In order to qualify for a loan, you’ll need to prove that your business is in good financial standing. This usually means providing recent financial statements, tax returns, and proof of any collateral you’re using to secure the loan. The lender will also want to see a business plan that outlines your company’s projections for the future. If your business is new, you may need to provide personal financial statements and proof of your ability to repay the loan.


One of the first things a bank will look at when you apply for a business loan is your company’s capital. This includes both financial capital (like cash on hand or investments) and physical capital (like machinery or real estate).

Your business’s capital can give the bank an idea of ​​how much risk they’re taking on by lending you money, and it can also affect the interest rate you’re offered. The more capital you have, the lower the risk to the bank and the better your chances of getting a lower interest rate.

Other Requirements

Applying for a business loan can be a time-consuming process, but it doesn’t have to be. There are a few requirements you’ll need to meet in order to get a business loan. In this section, we’ll go over the other requirements you’ll need to get a business loan.

Business Plan

Your business plan is a document that will shape your business. It is a road map that will take you from where you are now to where you want to be in the future. It will help you to understand your business, your customers, and your competition. It will also help you to set goals and track your progress.

A business plan is not something that should be written and forgotten; it should be updated regularly as your business grows and changes. Even if you don’t need a loan, a business plan can still be a valuable tool for helping you to understand what you need to do to succeed.

Creating a business plan can seem like a daunting task, but there are many resources available to help you get started. The Small Business Administration (SBA) provides templates, tools, and resources for creating a business plan on their website. There are also many books and software programs available to guide you through the process.

Time in Business

Most lenders will want to see that you have been in business for at least two years, although some may consider loans for new businesses on a case-by-case basis. The longer you have been in business, the more likely it is that you will be approved for a loan and the better terms you will be able to get. Lenders will also want to see that your business is profitable and has a good history of cash flow.

Personal Guarantee

A personal guarantee is a commitment by you, as the business owner, to repay the loan if the business cannot. For smaller loans, the guarantee may be unsecured, meaning that you don’t have to commit any specific assets. However, for larger loans you may need to provide collateral, such as your home or another asset, in addition to a personal guarantee.


In conclusion, before you apply for a business loan, it is important to understand what lenders are looking for and to put together a strong application. Be sure to have a well-defined business plan, a solid credit history, and strong financials. With careful preparation, you can increase your chances of getting the funding you need to grow your business.

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