What Do Banks Look For When Lending Small-Business Loans?

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.

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.

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.

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.

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