Here's What You Need to Qualify for the Most Popular Small Business Loan Types

October 10, 2016 Meredith Wood

While getting financing for your business can feel promising and exciting—considering how it could help your business grow—it can also feel overwhelming and stressful. Where do you start your search? How long will the process take? How much paperwork is involved?

No one wants to invest hours or days into something that won’t be successful, so before you start your financing search, do your research on what lenders require to even consider your loan application.

Sounds daunting, but don’t worry—we’ve got you covered. Let’s break down the absolute minimums needed to qualify for the most popular small business loan types.

Criteria for Securing a Small Business Loan

Generally speaking, lenders look for a certain combination of factors in order to meet their risk profile for a small business loan. While their requirements of each factor will vary, lenders pretty much all consider how long you have been in business, your revenue, your personal credit score, profitability, history of bankruptcy, credit card volume, your accounts receivable, and any existing debt you already have in play.

Here’s what those minimums look like across the most popular products:

1. Startup Loan

Startup loans are usually in the form of a line of credit or an equipment loan. They are an attractive option for young businesses because they are one of the most lenient loan types, with some lenders requiring zero revenue and no time in business.

Sound too good to be true? They aren’t—but they do require near-perfect credit to secure. The minimum FICO credit score for a startup loan is on the higher end at 700 or more.

2. Invoice Financing

Invoice financing is perhaps the next most lenient loan type overall. This loan is best for businesses who find themselves frequently strapped for cash due to late-paying customers. With invoice financing, a lender would loan you a portion of the amount of the invoice due (so you can stop waiting on the cash you need to make ends meet!), and you pay the debt back, plus fees, after your invoices are settled.

To qualify for invoice financing, you need to be in business at least six months and have $50,000 in revenue. The credit score requirement is more liberal than a startup loan at 500+, and profitability is not required. You may even qualify for an invoice loan despite having filed bankruptcy.

3. Short-Term Loan

Short-term loans differ from more traditional business loans in that they are generally for less money, have drastically shorter repayment periods, and you often find you’ll pay the lender back daily or weekly rather than monthly.

Short-term lenders require six months or more in business and at least $65,000 in revenue. Similar to an invoice financing loan, profitability is not required and the FICO score requirement is lower than other loan types at 500+. Owners who have filed for bankruptcy may still qualify for a short-term loan after a waiting period of one year or more.

4. Small Business Administration 7(a) Loan

An arm of the U.S. Government, the SBA’s purpose is to help drive the economy by giving small business owners access to the capital they need.

Through an SBA-guaranteed loan, you can borrow money for a variety of business purposes, including adding to working capital, purchasing inventory or equipment, refinancing other debts, buying real estate, or even financing the acquisition of other businesses.

Compared to the other loan types mentioned above, SBA lenders require more time in business at a minimum of two years. Their minimum FICO score is 640 or higher are relatively lenient. The wait time after filing for bankruptcy is three years before you could quality for this particular loan product. Although this is seen as the minimums for the product, SBA loans are still pretty tough to qualify for, but are one of the lowest-cost products on the market.

For the most part, any trustworthy lender is looking at the same factors to determine which loan products you qualify for, but how they choose to weight each factor varies. Knowing where your business stands financially can help you quickly assess all of the options available to you, streamline your research into different loan products, and prep a knockout application that will get you the financing you need to grow your business.

 

About the Author

Meredith Wood is the Head of Content and Editor-in-Chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more.

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