What lenders commonly review
- Time in business. A longer record gives the lender more to judge. Newer businesses often face more questions or fewer options.
- Revenue and cash flow. Lenders want to see that money coming in can cover the new payment on top of existing costs. The cash flow guide explains how to track it.
- Credit. Many lenders check the owner’s personal credit and, where it exists, the business file. See personal vs. business credit.
- Existing debt. What the business already owes, and when it is due.
- Collateral. Assets that could secure the loan, such as equipment, real estate or receivables.
- Industry. Some lenders see some industries as riskier than others.
- Purpose of funds. A specific, believable use for the money.
The SBA’s fund your business (opens in a new tab) page gives an overview of how lenders evaluate small businesses.
A document checklist
Not every lender asks for everything here, and the period covered varies. Having these ready can make an application smoother:
- A business plan or at least a clear summary of the business and how the money will be used. See our business plan guide and the SBA’s write your business plan (opens in a new tab) page.
- Recent business bank statements.
- Business and personal tax returns for recent years.
- A year-to-date profit and loss statement and a balance sheet.
- A debt schedule listing each current loan, card or line, its balance, payment and lender.
- Formation documents, such as articles of organization or incorporation, and any operating or partnership agreement.
- Business licenses and permits.
- Ownership information for each owner.
- A personal financial statement for SBA loans, often on SBA Form 413. See the SBA’s 7(a) loan page (opens in a new tab).
Keep your numbers consistent
Lenders compare your bank statements, tax returns and financial statements. Differences between them invite questions. Good bookkeeping and steady expense tracking make the numbers line up.
Lender terms in plain English
| Term | What it means |
|---|---|
| Debt service coverage ratio (DSCR) | How much cash the business generates compared with the debt payments it must make. A ratio above one means income more than covers payments. |
| Debt-to-income | A comparison of what is owed each month with income, used for the business or the owner. |
| Loan-to-value (LTV) | The loan amount compared with the value of the collateral securing it. |
| Personal guaranty | The owner’s promise to repay personally if the business cannot. |
| Use of funds | A breakdown of exactly what the loan will pay for. |
Before you apply
- Check your personal credit reports and your business files for errors. The business credit report guide shows what to look at.
- Separate business and personal money, if you have not already. See separate finances.
- Decide how much you need and why, and work out whether the payment fits your cash flow.
- Compare loan types: the SBA loans explainer, working capital loans and a business line of credit serve different needs.
- Get free help reviewing your package from a SCORE mentor or Small Business Development Center.
If a lender says no
A decline is common, especially for newer businesses, and it is information. It can help to ask the lender which factors mattered most. The Federal Reserve’s Small Business Credit Survey (opens in a new tab) reports on how often small firms apply, how often they are approved and the reasons they give for shortfalls. The CFPB’s small business lending (opens in a new tab) page covers its work on how credit reaches small businesses.
Red flags
- Upfront fees charged to “lock in” or “secure” an approval before any loan is made.
- Anyone encouraging you to overstate revenue or alter documents. That is fraud and puts the owner at risk.
- Brokers who will not name the lenders they work with or explain how they are paid.
- Pressure to sign the same day without time to read the terms.
Frequently asked questions
What documents do I need for a business loan?
Lenders often ask for bank statements, business and personal tax returns, a profit and loss statement, a balance sheet, a debt schedule, formation documents and a description of how the money will be used. Requirements vary by lender.
Can a new business get a loan?
Some lenders work with newer businesses, though options are often narrower and the owner’s personal credit and a solid plan tend to matter more. Requirements vary by lender and loan type.
What credit score do lenders want?
There is no single answer. Each lender sets its own standards and usually weighs credit together with revenue, cash flow, time in business and collateral.
What is a debt service coverage ratio?
It compares the cash a business generates with the debt payments it must make. Lenders use it to judge whether income comfortably covers the loan payment.
What is SBA Form 413?
It is the SBA’s personal financial statement form, which lists an owner’s assets, debts and income. SBA lenders commonly ask owners to complete it.