how ualify business loan in 2022

DISCLAIMER: This article was written in 2022 and has not been updated. For more up to date information about small business funding products and options, please browse our recent articles.

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Obtaining financing for your business can be a process. There are a lot of eligibility requirements and documentation you will need to produce for your lender for them to feel confident in providing your business with capital. From business plans to financial statements to credit scores and everything in between, we cover how to qualify for a business loan in 2022. The type of business and the type of business loan can introduce nuance to the qualification requirements. In addition to the qualifications, we also provide tips to manage the business loan application process.

General Business loan qualifications

Qualifying for a business loan requires a lot of prep work and can be a long process. Understanding what lenders are looking for ahead of time will help make the process smoother and you won’t be scrambling to locate documents. Let’s jump right in and review the general business loan qualifications for 2022:

  • Credit Scores: The lender needs to understand if you and your business are a good credit risk or a bad credit risk so your credit score is factored into the business loan approval decision. If you are an existing business with a lot of history, you likely will only need a business credit score. However, new companies, or companies without a lot of time in business, will likely need to produce a personal credit report. Since the individual starting the business is essentially the business in the early days, your personal credit score will give the lender a sense of your creditworthiness, directly impacting the interest rates you are offered and your repayment terms. Financial institutions like a traditional bank or credit union might weigh a personal credit history more than an online lender. Minimum credit score requirements will vary depending on the lender, the type of loan, and the size of the loan.
  • Revenue: Certain loans require that your business meet annual revenue thresholds. For example, a commercial real estate loan from Biz2Credit requires annual revenue of at least $250K. Other loans that typically have a revenue requirement to qualify are term loans and working capital loans.
  • Time in business: Certain loans require that your business is in operation for a certain amount of time. For example, certain lenders might offer a working capital loan of up to or exceeding $2 million, but you need to be an established business for a certain amount of time.
  • Collateral to secure the loan: If you are new to the business, or not the most creditworthy, a lender might require that you collateralize the loan or provide a personal guarantee for you to qualify. You can provide assets such as personal property as collateral for your loan. Other types of collateral that lenders might accept are cash, stocks, car, boat, bonds, insurance policies, equipment, etc. If you default on your loan, the lender can take legal action to collect what is owed to them by forcing the sale of your personal property or having it repossessed. Read our article on How to Prevent a Business Loan Default for additional information on loan defaults.

    Business plan: producing a business plan will likely be the largest effort to qualify for a business loan. Even if the lender does not require a business plan, you should still consider creating one anyway. At some point down the road you might need one, and having one handy can be very beneficial. A business plan is an opportunity for you to show the lender your professional experience and that you are a serious business operator. By highlighting your skills and a plan to repay your loan within the framework of a business plan, you are justifying to the lender that they should consider your request to borrow money. Let’s take a quick look at the elements of a business plan:

    • Executive summary
    • Company description
    • Market analysis
    • Organization and management
    • Service or product line
    • Marketing and sales
    • Funding request
    • Financial projections for new businesses
    • Financial projections and financial statements for existing businesses

For a deep dive into the business plan process, how to create one, and other best practices, read our article titled: How to Write a Business Plan for a Loan Application.

  • Other documentation: In addition to everything listed above, the lender might require even more documentation. Be prepared to produce this information:
    • Income tax returns for your business are likely from the last 2-5 year range. If you are new to the business, you might be asked to produce personal income tax returns.
    • Bank statements. Similar to income tax returns, you might be asked to produce these for your business checking and/or personal bank accounts depending on your situation.
  • Personal resume.

Generally speaking, these are the core requirements to qualify for a business loan in 2022. Let’s review some of the nuances to consider and when and why you might need to produce even more documentation to qualify.

Nuances to consider

There is no one-size-fits-all approach to small business financing and there are nuances to consider when qualifying for a business loan. Because there are many options to obtain capital for your business, consider how the following will impact your qualification requirements:

Type of business: Certain businesses have special requirements and loan options. It is up to the business operator to do their due diligence into any special qualification requirements. For example, certain franchises offer franchisees different types of direct financing options. To create a strong partnership, a franchise can offer a franchisee reduced fees or eliminate fees altogether, or offer a special financing arrangement with a pre-determined lender. Additionally, each franchise will provide a Franchise Disclosure Document (FDD) or something similar. The FDD is a document that a franchisor is legally required to present to the franchisee before you sign the franchise agreement and will likely be needed to qualify for a business loan for a franchise. For more information on franchises, see our article titled: Ways to Get a Business Loan for Opening a Franchise.

Loan amount: The loan amount you are trying to obtain for your business needs will directly impact the type of loan you should be targeting and what the monthly payments will be. There are usually maximum loan amounts for each loan product to consider as well. Also, consider how much of the loan amount you need right away. Do you need a lump sum payment the same day or the next day? Or can it wait?

Special type of loans: In addition to the typical loan product offerings, there are special types of loans that have unique qualifications. For example, the SBA offers a range of COVID-19 relief options for businesses that meet special requirements. Under the umbrella of Covid-19 relief options, there are even more loans for specific business situations.

SBA loans: Loan programs from the U.S. small business administration have additional qualifications. Here are the high-level qualifications for the three most popular types of SBA loans and where to find additional information:

  • SBA 7(a) loans: Eligible businesses must operate for profit, fall within the SBA size guideline, be engaged in, or propose to do business in, the U.S. or its territories, have reasonable owner equity to invest, use alternative financial resources, including personal assets, before seeking financial assistance. For more information, visit the SBA to review all the 7(a) loan qualifications.
  • SBA 504 loans: To be eligible for a 504 loan, your business must operate as a for-profit company in the United States or its possessions, fall within the SBA size guideline, have a tangible net worth of less than $15 million, have an average net income of less than $5 million after federal income taxes for the two years preceding your application. For more information, visit the SBA to review all the504 loan qualifications.
  • SBA microloans: To be eligible for a Microloan, you must meet the lending and credit requirements of the intermediary that is administering your Microloan application.

Alternatives to business loans: It’s important to ask yourself, “am I ready for a business loan at this stage in my business?” Writing a business plan can help you answer that question. There are many alternative funding options that a business can explore before needing a business loan. For example, will a business credit card with a high credit limit or a business line of credit serve your purposes? Qualifying for those two financing options can be easier than qualifying for a loan and can take fewer business days to do so. Other business funding alternatives include personal cash, crowdfunding sites, personal network, venture capital, and more. It’s important to understand the pros and cons of each of these alternatives though. For example, an investment from a venture capital firm will require that you give them a percentage of ownership in your company vs a business loan lender who does not.

New business vs existing business: As we touched on above, qualification requirements will change depending on if you are a new business or an existing business. An existing business with a strong credit profile will likely not need its operators to produce any personal information. Also, being in business for longer opens you up to more loan options. For example, both term loans and working capital loans have time-in-business qualification requirements.

Business loan process

If you’re reading this article and saying to yourself, “this is a lot”, you are right. Qualifying for a business loan is a process. Here are a few things to consider:

  • Business plan: Your business plan, which is likely the biggest effort in the qualification process, only needs to be done once. For each subsequent loan, you can simply update the information within the existing framework of your business plan. In other words, think of your business plan as a “living document” that will change and evolve as your business loan needs change.
  • Business Loan Consultants: Business loan consultants can streamline the entire loan process by gathering the right documents, preparing applications, submitting paperwork, working directly with the small business lender on any follow-up questions, and will be available to answer any FAQs you have about the process. Due to their experience, a business loan consultant can also help you decide on what is the best small business loan for your specific situation. For entrepreneurs and startups whose most precious resource is time, or first-time borrowers who are overwhelmed with the application process, a business loan consultant can be worth the investment. For additional information, read our article titled: How to Find Business Loan Consultants Near Me.

Getting started

Qualifying for a business loan in 2022 (and likely beyond) is a process due to the high volume of documentation required. There are many ways to get a business loan for your small business and Biz2Credit is a great place to start. Our helpful staff provides small business owners with exceptional customer service and will work hard to understand the needs of your small business, the intended uses for your loan, and the best terms that can be offered. Get in touch today to find out the small business loan financing that can help you.

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