Loan Criteria for Small Businesses

Loan Criteria for Small Businesses
  • Opening Intro -

    Qualifying for a small business loan can present a challenge for the emerging enterprise, but it is entirely possible that if you are organized and make a case that you can receive approval.


The Small Business Administration backs billions of dollars in new loans annually, funds that are distributed through commercial banks to approved applicants. To reduce the risk of default, certain loan criteria must be followed.

Your Business

Your lender wants to know about your business. That information is included in a business plan, something that you should have on hand. A business plan provides an overview of your business and outlines action plans that demonstrate how you will earn money. Your loan application will ask for a copy of your business plan, therefore make sure that the information contained therein is accurate and relevant.

Your Finances

Is your business profitable? If so, you will need to prove it. Your banker will review your financial statements including your cash flow and your income statement. A balance sheet can demonstrate profitability and help make a case for your banker to lend you money. If your business is new, your personal accounts may suffice.

Business Credit

You have personal credit and that information may be useful for your banker to assess risk. Without prior business credit, your personal credit habits are important, and can demonstrate trustworthiness. Do not expect that if you have a history of poor credit management that your banker will lend money for your business. If you have partners, expect that these individuals will be required to share their credit information too.

Personal and Business Assets

Lenders will look at what collateral you are offering when borrowing money. Your bank will seize your assets if you default on a loan with the federal government providing a guarantee to cover losses. Still, you and your partners will be expected to show that you have a stake in the process and will be asked to offer some assets. Your personal home, a paid off car, land that you own outright can qualify. If your business owns property, equipment or other assets, these can be considered as well.

Moral Excellence

Your personal reputation can go far in helping the banker decide whether to loan money to you or not. It may be the deciding factor as your lender will be looking for proof from you that your word is good. Personal reputation may be difficult to measure, but it is evident in the way that you comport yourself. If you get along with others, have a reputation for backing your words with actions and you follow through on your promises, then you stand a better chance for receiving loan approval. Keep in mind that if your business has partners, these individuals will receive similar scrutiny. Borrowers should be above reproach, exhibiting noble traits any lender would value.

Loan Considerations

Once you are ready to make application, be prepared to turn over supporting documentation as soon as possible. Your lender may have other criteria for you to follow, therefore respond as efficiently as possible to expedite your application.

See AlsoFinding a Business Broker


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Categories: Small Business

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".