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What Do Banks Look For When Lending Small-Business Loans?
Online MBA: No GMAT Required
Online MBA: GMAT Waivers Available
University of Dayton
Online MBA: Complete in as few as 12-15 Months
Graziadio Business School, Top-Ranked Online MBA. GMAT Waivers Available
University of Denver
Online MBA: GMAT Waivers Available
Johns Hopkins University Carey School of Business
Online Master of Business Administration
George Mason University
Online Master of Business Administration
Although lending guidelines can vary for different banks, most lenders have similar requirements. Borrowers need to have a quality business purpose in mind for the loan. Business owners need to have a positive credit history, experience, and good character. Lenders may also appreciate borrowers with an MBA degree. It’s also important for borrowers to have the ability to pay back the loan with sufficient collateral to use for the financing. Generally, the U.S. Small Business Association requires loans to be completely secured. However, borrowers won’t be denied financing if collateral is the only issue.
- Small-Business Loans (PDF): Explore the requirements for a small-business loan with information provided in this report.
- Can I Qualify for a Small-Business Loan? (PDF): Read through requirements for business loans to see if you will qualify.
- Obtaining Financing: Coastal Carolina University shares parameters of small-business financing to help people explore this option.
- The State of Small-Business Lending: Credit Access During the Recovery and How Technology May Change the Game (PDF): Online lenders are changing the landscape of small-business lending, according to a document published by Harvard Business School.
- Capital Sources for Your Business: A small business must plan for financial needs, which may include securing financing.
What Information Will You Need to Obtain a Small-Business Loan?
Borrowers should expect to supply information about both their business and personal credit history. Many lenders will request current projected financial statements from start-up businesses. Business owners should also expect to provide a detailed business plan that includes information about the education and experience of all owners. Banks may also require cash flow projections and personal guaranties from all business owners.
- Preparing for a Small-Business Loan: To be successful in securing a small-business loan, an owner must prepare carefully for the process.
- Financing Options: Getting a business off the ground requires working capital. Business owners can explore various financing options to find something that fits their needs.
- Do You Want to Start a Small Business? Financial counseling may help start-up owners navigate the confusing world of financing.
- Financing Your Small-Business Exports, Foreign Investments, or Projects (PDF): Companies in the export business have special financing needs and opportunities, as outlined in this document.
- Securitization of Small-Business Loans (PDF): This report details the process of small-business loan securitization as it impacts all parties of the loan process.
How Can You Make Obtaining a Small-Business Loan Easier?
Preparation is vital to a business owner’s success in obtaining a loan. Select the lender carefully. Some small-business owners have more success when they approach smaller banks rather than large ones. It may also help to choose a bank with which you already have a working relationship. Speak with a lending officer directly to learn about the documentation required for a loan. Once you learn the requirements, fulfill them completely. Ensure that you do not leave any applications incomplete because this may cause a denial of financing. Online MBA programs can help prepare business owners for financing by teaching about the process.
- Loan Fact Sheet (PDF): Explore this loan fact sheet to ensure that you are prepared for the entire loan process.
- Financing Options for Your Small-Business Guide: Decide whether you will pursue a conventional loan or an SBA guaranteed loan for your small business.
- Can the Supply of Small-Business Loans Be Increased? (PDF): Expanding small-business loans may be effective for expanding job growth. However, some lenders struggle with supply and demand to meet funding needs.
- Why Aren’t Banks Lending to Small Business? Ask Bernanke: Small-business loans decreased during the recent recession as lenders tightened up their financing requirements.
- When Smaller Is Better: The Effect of Bank Size on Small-Business Lending: Small banks may have advantages over large banks for small-business loans.
Typically, How Much Money Is a Small-Business/Start-Up Business Loan?
With the wide variety of small-business structures, it’s difficult to assign a typical lending amount to small-business loans. An average small-business loan ranges between $130,000 and $140,000. The highest typical small-business loan would top out at approximately $250,000. For SBA small-business loans, the financing amount ranges between $5,000 and $5 million. The average SBA small-business loan would be approximately $371,000.
- Types and Sources of Financing for Start-Up Businesses: Small-business owners have a variety of options in funding to raise capital for a start-up.
- The Lending Tree: How to Snag a Small-Business Loan from a Bank: The Illinois College of Law provides helpful tips for small-business owners who are searching for financing.
- Prepare an SBA Loan Application: Learn about the small-business loan procedure to prepare for it effectively.
- Financing Options: Lenders have specific requirements for financing small businesses. When owners learn about these requirements, they can prepare for the process.
Other Resources for Starting Your Own Business
- Starting and Growing Your Small Business (PDF): Growing a small business takes effort and cash. Get advice and tips for launching a small business.
- Financial Advice and Guidance for Small Businesses (PDF): Finances will make or break a small business, so wise owners will approach capital carefully to ensure success.
- Writing a Business Plan (PDF): Business owners will need a solid business plan to secure financing. Some of the best online MBA programs will teach students how to write an impressive business plan.
- Understand Your Market: It’s crucial to understand your market before you launch a small business. Misjudging any of these components could lead to failure.
- 20 Businesses You Can Start Tomorrow: You don’t have to reinvent the wheel to create a successful business.
- 50 Incredibly Useful Tools for Starting a Business: Tons of great links to general information, legal, funding, marketing, networking and more.
- Frequently Asked Questions About Small Businesses (PDF): A grant may be one source of funding for a start-up.
- A Guide to Starting or Expanding a Business (PDF): Many people seek to start a business without having specific knowledge about or experience with financing for small businesses.
- How to Pay Business Debts You Can’t Afford (PDF): Small-business owners may encounter serious financial difficulties if they do not manage their professional finances correctly.
- Manage Your Business Finances (PDF): Learn about cash flow and how to manage it successfully for a small business.
- A Guide to the U.S. Small Business Administration (PDF): A successful small business requires careful planning to launch it, including a comprehensive business plan and financing assistance.
- How to Start a Small Business in a Few Hours: Setting up a business can be intimidating, but a lot of the basics are actually fairly simple and quick to accomplish.
- Small-Business Loan Guide (PDF): Lenders require small-business owners to invest a reasonable amount of their own equity into a company to be considered for a loan.
- Small-Business Loan Turndowns, Personal Wealth, and Discrimination (PDF): This report explores the situations in which small business owners are declined for loans.
- Government Loan Information for Start-Up and Emerging Businesses (PDF): Use a helpful worksheet to help you explore the amount of capital you need and how you will approach financing.
- SBA Loan Checklist: This page provides a comprehensive checklist to help small-business owners prepare for financing applications.
- Facts About Small-Business Loans (PDF): Learn the facts about financing to ensure that you meet criteria for securing a loan.
- Borrower-Lender Distance, Credit Scoring, and the Performance of Small-Business Loans (PDF): Several factors are instrumental in determining whether a small-business owner obtains financing.
- Lenders Can Help America’s Small Businesses Recover with SBA’s ARC Loans (PDF): Lenders profit from small-business loans, and the economy profits when small businesses succeed.