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How to Write a Business Plan for a Loan

How to secure business financing

Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.

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A business plan is a document that explains what a company’s objectives are and how it will achieve them. It contains a road map for the company from a marketing, financial, and operational standpoint. Some business plans are more detailed than others, but they are used by all types of businesses, from large, established companies to small startups.

If you are applying for a business loan , your lender may want to see your business plan. Your plan can prove that you understand your market and your business model and that you are realistic about your goals. Even if you don’t need a business plan to apply for a loan, writing one can improve your chances of securing finance.

Key Takeaways

• Many lenders will require you to write a business plan to support your loan application.
• Though every business plan is different, there are a number of sections that appear in every business plan.
• A good business plan will define your company’s strategic priorities for the coming years and explain how you will try to achieve growth.
• Lenders will assess your plan against the “five Cs”: character, capacity, capital, conditions, and collateral.

There are many reasons why all businesses should have a business plan . A business plan can improve the way that your company operates, but a well-written plan is also invaluable for attracting investment.

On an operational level, a well-written business plan has several advantages. A good plan will explain how a company is going to develop over time and will lay out the risks and contingencies that it may encounter along the way.

A business plan can act as a valuable strategic guide, reminding executives of their long-term goals amid the chaos of day-to-day business. It also allows businesses to measure their own success—without a plan, it can be difficult to determine whether a business is moving in the right direction.

A business plan is also valuable when it comes to dealing with external organizations. Indeed, banks and venture capital firms often require a viable business plan before considering whether they’ll provide capital to new businesses.

Even if a business is well-established, lenders may want to see a solid business plan before providing financing. Lenders want to reduce their risk, so they want to see that a business has a serious and realistic plan in place to generate income and repay the loan.

Every business is different, and so is every business plan. Nevertheless, most business plans contain a number of generic sections. Common sections are: executive summary, company overview, products and services, market analysis, marketing and sales plan, operational plan, and management team. If you are applying for a loan, you should also include a funding request and financial statements.

Let’s look at each section in more detail.

Executive Summary

The executive summary is a summary of the information in the rest of your business plan, but it’s also where you can create interest in your business.

You should include basic information about your business, including what you do, where you are based, your products, and how long you’ve been in business. You can also mention what inspired you to start your business, your key successes so far, and your growth plans.

Company Overview

In this section, focus on the core strengths of your business, the problem you want to solve, and how you plan to address it.

Here, you should also mention any key advantages that your business has over your competitors, whether this is operating in a new market or a unique approach to an existing one. You should also include key statistics in this section, such as your annual turnover and number of employees.

Products and Services

In this section, provide some details of what you sell. A lender doesn’t need to know all the technical details of your products but will want to see that they are desirable.

You can also include information on how you make your products, or how you provide your services. This information will be useful to a lender if you are looking for financing to grow your business.

Market Analysis

A market analysis is a core section of your business plan. Here, you need to demonstrate that you understand the market you are operating in, and how you are different from your competitors. If you can find statistics on your market, and particularly on how it is projected to grow over the next few years, put them in this section.

Marketing and Sales Plan

Your marketing and sales plan gives details on what kind of new customers you are looking to attract, and how you are going to connect with them. This section should contain your sales goals and link these to marketing or advertising that you are planning.

If you are looking to expand into a new market, or to reach customers that you haven’t before, you should explain the risks and opportunities of doing so.

Operational Plan

This section explains the basic requirements of running your business on a day-to-day basis. Your exact requirements will vary depending on the type of business you run, but be as specific as possible.

If you need to rent office space, for example, you should include the cost in your operational plan. You should also include the cost of staff, equipment, and any raw materials required to run your business.

Management Team

The management team section is one of the most important sections in your business plan if you are applying for a loan. Your lender will want reassurance that you have a skilled, experienced, competent, and reliable senior management team in place.

Even if you have a small team, you should explain what makes each person qualified for their position. If you have a large team, you should include an organizational chart to explain how your team is structured.

Funding Request

If you are applying for a loan, you should add a funding request. This is where you explain how much money you are looking to borrow, and explain in detail how you are going to use it.

The most important part of the funding-request section is to explain how the loan you are asking for would improve the profitability of your business, and therefore allow you to repay your loan.

Financial Statements

Most lenders will also ask you to provide evidence of your business finances as part of your application. Graphs and charts are often a useful addition to this section, because they allow your lender to understand your finances at a glance.

The overall goal of providing financial statements is to show that your business is profitable and stable. Include three to five years of income statements, cash flow statements, and balance sheets. It can also be useful to provide further analysis, as well as projections of how your business will grow in the coming years.

What Do Lenders Look for in a Business Plan?

Lenders want to see that your business is stable, that you understand the market you are operating in, and that you have realistic plans for growth.

Your lender will base their decision on what are known as the “five Cs.” These are:

• Character : You can stress your good character in your executive summary, company overview, and your management team section.
• Capacity : This is, essentially, your ability to repay the loan. Your lender will look at your growth plans, your funding request, and your financial statements in order to assess this.
• Capital : This is the amount of money you already have in your business. The larger and more established your business is, the more likely you are to be approved for finance, so highlight your capital throughout your business plan.
• Conditions : Conditions refer to market conditions. In your market analysis, you should be able to prove that your business is well-positioned in relation to your target market and competitors.
• Collateral : Depending on your loan, you may be asked to provide collateral , so you should provide information on the assets you own in your operational plan.

How Long Does It Take to Write a Business Plan?

The length of time it takes to write a business plan depends on your business, but you should take your time to ensure it is thorough and correct. A business plan has advantages beyond applying for a loan, providing a strategic focus for your business.

What Should You Avoid When Writing a Business Plan?

The most common mistake that business owners make when writing a business plan is to be unrealistic about their growth potential. Your lender is likely to spot overly optimistic growth projections, so try to keep it reasonable.

Should I Hire Someone to Write a Business Plan for My Business?

You can hire someone to write a business plan for your business, but it can often be better to write it yourself. You are likely to understand your business better than an external consultant.

Writing a business plan can benefit your business, whether you are applying for a loan or not. A good business plan can help you develop strategic priorities and stick to them. It describes how you are going to grow your business, which can be valuable to lenders, who will want to see that you are able to repay a loan that you are applying for.

U.S. Small Business Administration. “ Write Your Business Plan .”

U.S. Small Business Administration. “ Market Research and Competitive Analysis .”

U.S. Small Business Administration. “ Fund Your Business .”

Navy Federal Credit Union. “ The 5 Cs of Credit .”

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How To Write A Business Plan For A Loan

A solid business plan is often critical to securing funding for your small business. Learn how to create a business plan for a loan that includes the information lenders want to see.

WRITTEN & RESEARCHED BY

Lead Staff Writer

Last updated on Updated August 18, 2024

REVIEWED BY

Editor & Senior Staff Writer

• Elements of a good business plan include an executive summary, company description, products and services, market analysis, marketing and sales plan, organizational structure, and other important information.
• Your business plan should address the "5 Cs of Credit" by demonstrating your business's financial health, investment, repayment ability, market conditions, and available assets.
• To improve loan approval chances, avoid jargon, show clear cash flow projections, document personal investment, seek professional help if needed, and be willing to revise your plan

A business plan is a crucial business document you need to have on hand when applying for business loans. However, the mere thought of writing a business plan for a loan is intimidating to a lot of business owners.

A one-page business plan may be sufficient for certain types of small business loans (for example, online loans), but bank loans and SBA loans typically require a more in-depth business plan that delves further into your financials.

If you need to write a business plan for a loan, you’ve come to the right place. Keep reading to learn more about everything you need to include in your business plan to improve your chances for loan approval.

Table of Contents

What Is A Business Plan For A Loan?

10 key sections to include in your business plan, what do lenders look for in a business plan, business plan examples, resources for writing a business plan for a loan, final thoughts on writing a business plan for a loan.

A business plan is a written document that provides a complete overview of your business, including information about your business’s services, strategies, finances, and goals. All businesses should have a business plan, but a business plan is especially important when applying for a business loan.

Most business plans should include some version of the following sections. Depending on your industry and other factors, such as whether you own a startup or established business, some sections could be condensed or combined. The exact verbiage for section titles can vary, as well.

For a business plan that’s longer than one page, it’s a good idea to preface these sections with a cover page and table of contents.

Executive Summary

This section is a condensed version of your entire business plan. It will likely include:

• Details of when, how, and why you started your business
• Your company mission statements
• High-level financial information about your business
• An explanation of how funding will help your business

Depending on whether you’re a startup or an established business, you may use this section to focus on your growth strategy or your past successes.

Company Description

Use this section to delve deeper into your company’s offerings, core principles, legal structure, and leadership. Your company description should also include your unique value proposition . Describe your company’s unique strengths that will ensure your success.

Products & Services

This section should detail the products and/or services your company provides. Make clear the problem that your offerings solve. Include information such as:

• Information on your raw materials and production process (if applicable)
• Profit margins
• Whether you have or plan to file patents or copyrights

Market Analysis

Use this section to demonstrate your understanding of your overall industry and the specific markets you serve, including market trends, competitors, and the demographics of your target customers. Some companies hire a consultant or agency to perform the research for the market analysis section.

Marketing & Sales Plan

Building off your market analysis, how will you market to your target customers and beat your competitors? How will you sell to them and distribute your product? What are your sales goals and projections? Provide these details in this section.

Organization & Management

Use this section to include your organizational and leadership structure, ideally including an organizational flowchart. Also include job descriptions, qualifications, and years of experience to demonstrate why your team is capable of delivering on your company goals and is worthy of investment.

Operational Strategy

This section is used to describe your day-to-day operational processes, including information about your location, facility, equipment, inventory, and daily production. If you have a service-based business, this section may focus more on your team’s daily activities and how they contribute to long-term goals.

Financial Outlook

This section should tell lenders how much you spend and how much you make in profits. Include up to five years of data if possible, including financial documents such as:

• Income statements
• Cash flow statements
• Balance sheets
• Capital expenditure budgets
• Sales forecasts
• Projected income statements
• Information on any collateral you have to secure the loan

Depending on how much financial documentation you have, you might refer to specific documents in this section and indicate that the full documents can be found in the Appendix section.

Though startups may not have all of this data, you can make projections based on monthly or quarterly data and industry averages.

Funding Request

Now that you’ve laid out your expenses and financial projections, it’s time to make your case for a loan. Be clear about how much money you need, how you will spend it, and how you will repay the loan. Be as detailed as possible.

In the Appendix, include any supporting documents, such as financial documents referred to in the Financial Outlook section. Some other types of documents you might include in this section are:

• Business licenses  or permits
• Credit reports
• Product photos
• Marketing materials
• Letter of intent to purchase business

If you know what lenders are looking for in a business plan for a loan, you will increase your chances of approval. Learn the five things lenders want to see in your business plan, followed by five tips to create a loan-worthy business plan.

The 5 Cs Of Credit

The Five Cs of Credit is a phrase that summarizes what lenders look for when deciding whether to extend a loan to a business. Lenders will, accordingly, look for the five Cs when reviewing the business plan in your loan application. The five Cs are:

• Character: Your knowledge, experience, and creditworthiness
• Capacity: Your ability to repay the loan
• Capital: How much you have already invested in your business
• Conditions: Your market viability, considering your industry as well as overall economic conditions
• Collateral: Assets you can use to secure the loan

5 Business Plan Tips For Loan Approval

Besides emphasizing your “5 Cs,” there are a few other things you can do to make the best impression with your business plan to increase your chances of securing funding.

• Avoid Industry Jargon: Use plain English rather than industry terminology that the lender might not be familiar with. Remember that the loan underwriter may not have deep knowledge of your specific industry.
• Show Cash Flow: Cash flow is one of the most important factors that determine loan eligibility. You can even get a loan with bad credit as long as your cash flow is sufficiently high. The more insight you can provide into your past, current, and future cash flow, the better.
• Show Your Investment: Before extending a loan, the lender will want to see that you have already invested some of your own resources, such as personal savings, into your business. Be sure to include documentation that demonstrates your investment.
• Enlist Help: You will likely need some professional assistance in creating your business plan, whether that means hiring a writer, an industry consultant, or both. At the very least, you should have a third party review your business plan before you submit it as part of a loan application.
• Revise Your Plan As Needed: If this is the first time you’ve taken a close look at your business strategy and financials, you will surely learn some things about your business while creating your plan. For example, you may realize you cannot afford a business loan as large as you planned to ask for. Rather than trying to justify the number you started with, it’s better to modify your funding request (and other aspects of your plan) to align with your financial reality.

It’s easy to find templates and examples of business plans online. Though you may not want to copy and paste from a template verbatim, these samples provide a starting point and show you different ways a business plan can be structured. Here are a few to start with:

• Business plan template for a startup (from SCORE)
• Business plan template for traditional businesses  (from the SBA)
• Business plan template for retail or eCommerce (from Shopify; requires email address)

These tools and resources can help you create a solid business plan for a loan. While some free business plan creation tools are available online, you will have to pay for some options.

SBA Business Plan Resources (Free)

The SBA has a great resource in its online learning center that includes business plan worksheets . In addition to business plan templates, the SBA also helps you connect to free local business counselors who may be able to help you with your business plan.

Business Plan Software ($)

If you need extra help creating a business plan and don’t mind spending a little bit of money, consider business plan creation software. For example, LivePlan ($20/month) is business plan software that connects with QuickBooks to import your financial data to your plan.

Business Plan Writer/Consultant ($$$)

If you’re willing to invest more heavily into your business plan, consider hiring a writer or consultant that specializes in creating business plans. This option costs anywhere from $2,000 to $20,000, with the lower end of that scale typically including only basic writing services and the higher end representing a specialized industry consultant agency.

While it’s helpful to know how to write a business plan for a loan, you can always hire someone to help you draft the plan if the task is too daunting. A business plan is a worthwhile investment no matter what type of business you have or whether you are currently trying to secure business funding. Even if you don’t need a loan right now, it’s important to maintain an updated business plan to serve as a guide for your own business decisions.

Was your loan denied because of your business plan (or another reason)? Learn what to do if your business loan was denied .

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How to Write a Professional Business Plan for a Loan

Business Plan Template

• March 27, 2024
• 11 Min Read

So, are you thinking of getting a loan or funding to start an exciting business journey?

That’s great! But before you go any further, it’s very important to have a solid business plan in place.

Well, we understand that creating a successful plan for a loan can be a daunting task. That’s why we’re here to help you!

This investment-ready business plan template for loans will help you include all the essential elements in your plan, from summarizing your business concept to projecting the financial data. It not only impresses business loan lenders but also sets the stage for success.

Ready to get started? Let’s first understand how business plans will help you with loan proposals.

How business plans help in loan applications?

A business plan is a professional document that serves as a written loan proposal if you want to secure a loan for capital investment. It details every aspect of your business, including its concept, goals, market opportunity, and financial data.

Whether you’re a new entrepreneur or a small business owner, you’ll need a well-prepared business plan. It helps you persuade potential investors or lenders of its viability and potential for success.

Here are a few primary reasons why business plans are necessary in loan applications:

It helps you showcase your vision

A well-written business plan communicates your business vision effectively and allows you to demonstrate your clarity of purpose and strategic direction. It offers lenders a compelling narrative of what your business is aimed for and how it will achieve its goals.

It helps you prove your financial feasibility

Well, lenders need assurance that they’re making a wise investment. A detailed business plan presents them with realistic financial projections, along with how your business will earn money and repay the loan. This infuses confidence in lenders and convinces them that your business is a safe bet.

It helps you mitigate potential risks

Once you start your business, it naturally involves fair enough risks. However, a good business plan clarifies that you’re aware of those challenges and have backup plans or strategies to mitigate them. This shows lenders that you’ve considered different situations and keep contingency plans in place.

It helps you demonstrate your preparedness

A business plan shows lenders that you’ve carefully outlined every aspect of your business—from conducting market analysis to predicting finances. It assures that you’re serious about your business and well-prepared to manage the ups and downs of starting a business.

In short, having a solid business plan can be the cornerstone of a successful loan application that explains your business idea and how you plan to utilize the loan money to get started.

Now that you know how business plans help in a loan application, it’s time to check out and understand the key elements of a business plan for a loan template.

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Key components of a successful business plan for a loan

1. executive summary.

An executive summary is the first section of the plan, providing a concise overview of the entire business plan.

Generally, it is written in the last, as it summarizes the most important components you mentioned in your plan.

Since the potential investors or lenders would read this section first, make sure that you keep it simple, crisp, and compelling to build their confidence in your business. Also, it should not be more than 1 or 2 pages.

You may write your executive summary with a precise explanation of your business concept, the type of business you operate, and its status.

Here are a few primary elements you must add to your summary:

• Your company’s mission statement
• The product or service you intend to offer
• Market Opportunity
• Management team’s background and experience
• Growth plans or long-term objectives
• Financial projections and funding needs

2. Company Overview

As you’ll give a brief introduction in the executive summary, this chapter will expand on it, providing an in-depth understanding of your business.

Company description includes all the business-related facts, such as the startup concept, vision-mission statements, company location, etc. Also, it explains the problems or challenges you aim to solve.

In addition to that, consider answering a few questions that would help lenders to grasp the significance of your business:

• What is the legal structure of your business?
• Who is the business owner?
• Do you have any business partners?
• Why did you start this business, and when it was founded?
• What are your business accomplishments to date?
• Who will get benefits from your company’s product or service?

Note that the company overview section can be regarded as your extended elevator pitch.

So, it’s a good opportunity to present your business’s specific details and structural aspects that the financing partner needs to know.

3. Market Analysis

The market analysis section provides readers with a deep understanding of the specific industry or market in which you plan to serve.

This seems unnecessary but serves different purposes. Those who are looking to fund a franchise business should do some serious work for this section, as lenders will review it very closely.

To carefully draft this section, you should conduct thorough market research and industry analysis to define your target customers, industry trends, market demand, and competitors.

This will demonstrate that you understand the market dynamics and validate the demand for your products or services.

Here are a few elements you should include in your market analysis section:

• Ideal target market
• Market size and growth potential
• Customer segments
• Competitive analysis
• Emerging trends
• Applicable government regulations

4. Product or Service Offerings

In this section, you may provide a detailed description of your products and service offerings, along with their features, benefits, and pricing structure.

It helps you highlight what your business offers to its ideal customers, how your offerings will satisfy their needs and explains the value proposition of your products or services.

You may consider including these points in the product or service section:

• A brief description of your product & service
• Pricing details
• Intellectual property, copyright, and patent filings
• Quality measures
• Any additional offerings

5. Sales and Marketing Strategies

Your marketing and sales plan elucidates how you intend to market your products or services in greater detail. It helps you outline the marketing and sales strategies you’ll use to attract and retain potential customers.

The primary goal is to give a flexible and practical marketing and sales strategy that persuades the lenders you know how to advertise or develop a public relations campaign to reach the company’s revenue goals.

For a well-crafted marketing plan, you might consider adding the following details in your plan:

• Your target audience and brand positioning
• Detailed marketing strategy
• Sales and marketing goals and KPIs
• Sales and marketing budgets
• Customer retention plan

While reviewing your loan application, lenders would like to know how you plan to make money and how you overcome marketing and sales challenges, so ensure that this strategy is always relevant.

6. Operations Plan

The operations plan section provides a clear picture of your company’s day-to-day operations and activities. It is a detailed-oriented section that outlines how you’ll manage to run your business smoothly.

Also, operational excellence is necessary to achieve your goals, satisfy client commitments, and maximize results. So, try to mention your operational intricacies and showcase efficient systems and processes.

Here are a list of details you must include in your operations plan:

• Staffing & training
• Operational processes
• Inventory needs and supplies
• facilities & technology
• Regulatory compliance

By offering insights into these operational aspects, this section helps you instill confidence in lenders about your ability to effectively handle and grow your company.

7. Management Team

Your management team section introduces the key individuals who are responsible for driving your business ahead.

It helps lenders easily understand your team’s roles & responsibilities, educational qualifications, industry experience, and how you plan to compensate your leadership team.

Even this will assure lenders that your team is capable enough to navigate challenges, make informed decisions, and reach strategic objectives. Also, they feel confident giving you a loan—even if it’s your startup.

So, you may consider including the below information:

• Company owner profile
• Resume-styled summary of key executives
• Organizational chart
• Compensation plan
• Details of advisory board members(if any)

8. Financial Plan

A well-written and comprehensive financial plan is one of the most crucial sections of your plan, as it helps you prove to lenders your business’s financial health, growth potential, and ability to repay the business loan.

So, your financial analysis must include the projected financial statements for three years or more. The following are the key financial projections that you should add:

• Income statements
• Cash flow statements
• Capital expenditure budgets
• Balance sheet
• Break-even analysis
• Funding requirements

As well as you should also list hard or soft collateral if you possess it so that you can put it up to get a loan. Even lenders may request to add more granular data(such as cost of sales or cost per product/service).

Note that if you’re a startup and don’t carry enough data to highlight, consider including estimated costs, revenue streams, and other strategic future projections you may have.

9. Appendix

The appendix is the last section of a professional business plan that typically provides supplementary information and other supporting documents the lender may need for better understanding.

You may include the following details in an appendix:

• Business licenses and permits
• Contractual agreements or other legal documents
• Letters of reference
• Credit histories and tax returns
• Key managers’ resumes and certificates
• Product photos

By adding these details, you offer more detailed explanations or validation for your business plan, strengthening your discussions and claims.

What factors do lenders look for in a business plan

When you submit a business plan to secure funding, lenders will analyze it to evaluate the viability and creditworthiness of your loan application. Here are several key factors they look for:

Character of your management team

Lenders will assess a business’ character that includes subjective or intangible qualities like whether its owners or key executives are perceived as honest, competent, or committed. Also, they consider educational background, industry experience, skills, leadership capabilities, and credit histories. This can be critical for evaluating prospects as most lenders don’t wish to lend to whom they don’t feel trustworthy.

Your capability to repay loans

Loan officers also spend a lot of time analyzing the borrower’s ability to repay the loan. They will thoroughly examine the financial statements such as projected revenue, expenses, cash flows, growth plans, and loan payments. Further, lenders analyze the financial history to see how much revenue you have generated or how much profit you have made in the past.

The capital amount you’re seeking

While reviewing loan applications, lenders will go through your financial information that highlights how much funding you’re seeking, how much cash you carry on hand, and how much debt you have. Also, they assess your personal financial investments as a sign of commitment and seriousness. So, make sure your business plan clearly outlines your investment amount and funding needs.

Collateral or personal guarantees

In some cases, lenders may request collateral or personal guarantees to secure the loan. Thus, you should document any assets or valuable items you can offer as collateral or additional security. Even lenders may still approve your loan without collateral if you have a good credit history and a reliable business plan.

By understanding these key considerations, you can prepare a business plan that resonates with the lender’s interests and concerns. Now, let’s move to a few business plan examples for a loan.

Business plan examples for a loan

When you’re just venturing into your entrepreneurship journey, crafting a comprehensive business plan for a loan application can be overwhelming.

So, try to consider some sample business plan templates or resources to get started on the first draft of your plan. Here are a few business plan examples that you may find helpful:

• Sample business plan outline
• Small business plan template
• Comprehensive business plan writing
• Business Plan Workbook for Loan Applications

Start preparing your business plan

Finally, you understand the importance and key elements of drafting a business plan for securing a loan or funding. But it requires some extra effort to find success down the road.

If you’re still confused about where to start, Upmetrics could be a great choice. It’s a modern business plan app that helps entrepreneurs or small business owners create an actionable plan quickly.

With Upmetrics, you’ll get easy-to-follow guides, a library of business plan templates , AI support, a financial forecasting tool, and other valuable resources to streamline your entire business planning approach.

So, don’t wait and start preparing your business plan for a loan!

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

Do i need a business plan to get a loan.

Of course, most lenders or financial institutes require a solid business plan, even if you are a well-established business. A well-crafted business plan helps you highlight every essential information about your business and demonstrate to lenders that you have a realistic plan in place to generate income and repay the loan.

Can I write a business plan myself?

Definitely, you can write a business plan by yourself. Also, you can get help from various resources available, including business plan templates and guides, to create a comprehensive plan. But, if you’re unsure or need assistance, you may consider having a business plan software or hiring a professional writer.

How long should my business plan be?

The length of your business plan should be concise and focused, typically depending on its purpose. A one-page business plan is a single-page document, a lean or mini business plan comprises 1–10 pages, while a comprehensive business plan can range from 15 to 35 pages and beyond.

What's the most important element of a loan-seeking business plan?

The financial plan is the most crucial element of a loan-seeking business plan, as lenders want to check realistic and well-structured financial forecasts that present your ability to repay the loan. Also, this section can make or break a lender’s confidence and willingness to raise capital.

What format should I use?

It’s essential to select a format that can effectively convey your business idea, strategy, and financial projections to the lenders. Following are a few common options to consider:

• Traditional text-based document
• PowerPoint or Keynote presentation deck
• Executive summary or a pitch deck

So, whatever format you choose, it should align with your preferences, the lender requirements, and the complexity of your business.

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Home > Finance > Loans

How to Get a Small Business Loan in 7 Simple Steps

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Sooner or later, many small-business owners consider taking out a loan to supplement their business's growth. But small-business loans can be tricky lines of capital to obtain, especially if you don't know much about the application process. And with the broader banking system still reeling from the collapse of Silicon Valley Bank and Signature Bank, you’ll need a rock-solid plan and squeaky-clean paperwork before you even approach a bank.  

That preparation begins here with these seven crucial steps for nailing down a business loan.

• Establish your reason for the loan
• Learn how lenders assess you
• Determine which type of loan you need
• Decide on a lender
• Gather the right financial documents
• Apply for the loan
• Keep building your financial profile

Lendio partners with over 75 lenders, which improves your odds and efficiency to get the funding you need.

Qualifications:

$50k in revenue

6 mos. in business

560 credit score

1. Establish your reason for the loan

The lender is going to hand over a significant amount of money to your business, and they’re going to want to know how and why it’s being spent. It’s a valid concern: how you invest the loan will affect your business’s income and ability to pay it back. Stocking up inventory or covering payroll are valid reasons banks and other traditional lenders would consider your loan application. (Purchasing a recreational 3D printer for the breakroom . . . not so much.)

General rationales for small businesses seeking loans include managing daily expenses, expanding or purchasing equipment, building a cash buffer against possible future shortfalls, or just starting a business. Also, determine exactly how much money you’ll need to borrow—don’t ballpark it and end up with too much to pay back or too little to cover expenses. A loan calculator can help you determine how much you can afford to take out, interest rates and all. 

2. Learn how lenders assess you

Banks and lenders have their own formulas to determine if a loan will likely be paid back. In the case of small businesses, the formula usually involves—but isn’t limited to—five factors for consideration. Since small businesses also tend to be newer operations, they’re probably not going to excel in every area, but if they’re strong in at least three of the five, that can help level the bank’s assessment. Factors to pay attention to include the following:

• Credit score and history. If you’ve repaid loans responsibly in the past, the potential lender will find out—and they’ll also find out if you haven’t. Banks can assess business and personal financial histories through a variety of avenues, but most loan processes begin with a credit review .
• Collateral. What do you own that could cover the loan in case of default? Most banks and lenders will require something of value to shield the lender. Typical business items that qualify as collateral include real estate, buildings, vehicles, equipment, inventory, and accounts receivable.
• Cash flow. The more money your business is currently making, the less of a loan risk it’ll be to the lender. Banks and lenders will not only look at the amount of profit you’re bringing in but also examine how you’re managing it. 
• Time in business. If you’ve been functioning as a business for several years, you’re probably doing something right. Startups and newer businesses won’t have time on their side, but a solid, executable business plan for reaching milestones will go a long way toward evening the odds in the lenders’ eyes.
• Industry. What’s the forecast for your line of business? For instance, if you had a successful local brewery last year but six more are fermenting in the area this year, your competitors might start to cut into your business's profits. Lenders might take current industry trends into consideration when deciding whether or not to approval your loan request.

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3. Determine which type of loan you need

Most traditional small-business lenders have strict requirements about your business's time in business and revenue. If you’re just launching your business and haven't started earning revenue, you'll have an easier time qualifying for a personal loan over a traditional small-business loan.

But there are multiple types of loans beyond traditional personal and business loans. Here are some of the most popular options.

Common loan types overview

We've overviewed the main types of loans—now let's look at a few more details.

• Term loans. With term loans , business owners receive a lump sum of money from their lender, which they’ll repay over an agreed-upon time. Along with repaying the principal loan amount, borrowers will repay interest accrued on the loan. Term loans are best for established businesses with solid credit that need expansion cash quickly.
• SBA loans. The U.S. Small Business Administration backs bank loans that meet strict borrower guidelines. This backing instills the confidence in banks and lenders to take chances on applicants who’ve previously been turned down. SBA loan interest rates are typically low, but the approval process can take months.
• Business lines of credit.  Less rigid than a bank loan, a business line of credit gives you access to as much capital as your credit limit will allow, but you pay interest only on the cash drawn. Business lines of credit work well for covering short-term expenses or annual downtime for seasonal businesses.
• Business credit cards . Like business lines of credit, business credit cards give business owners near-instant access to a revolving line of credit. Business credit cards often come with rewards and even sign-up bonuses, which you won't get with lines of credit, but the repayment terms are typically stricter and the APR much higher. 
• Commercial real estate loans. As the name implies, commercial real estate loans are for the purchase, development, and construction of business structures—offices, storefronts, hotels, etc.—typically for lease or rent to other businesses. Terms for these loans range from less than five years up to twenty.
• Invoice factoring and financing. With invoice factoring , you sell your business’s as-yet unpaid invoices to a factoring company, which then becomes responsible for collection from your customers. Conversely, invoice financing uses those invoices as collateral for a loan. Both generate cash fast.
• Equipment financing. When you take out a loan to buy business-related equipment , the equipment itself becomes the collateral, and the terms of the loan are determined by the expected lifespan and value of the equipment. As long as it doesn’t become outdated, owning it is good for building equity.
• Microfinancing. Microloans , or short-term loans under $50,000, can help business owners build their credit score as well as their cash flow.
• Merchant cash advances. If your business makes considerable and consistent credit card sales, a merchant cash advance can be a quick source of capital. After the lump-sum loan is made, it’s paid back through a daily withholding of your credit and debit card sales or weekly bank account withdrawals. Merchant cash advances are quite risky, and the repayment terms and interest rates are brutal if you miss a payment. Typically, we recommend merchant cash advances only as a last resort, and only if you're sure you can pay them back immediately.

4. Decide on a lender

After settling on which type of loan you need, it's time to choose a lender. Not all business financing venues, or even traditional lenders, are the same. If you're not sure where to start looking for lenders, here are a few of our favorites.

Recommended lenders

Data as of 2/8/23. Offers and availability may vary by location and are subject to change. *Does not represent the typical rate for every borrower, and other fees may apply.

Main types of lenders

Banks are typically seen as the traditional place to get a loan—but as you can tell from the table above, you have quite a few options to get a loan apart from going directly to a bank. Here are some of the main types of lenders you can choose from as you consider loan applications.

Direct lenders usually include banks, wealthy investors, asset-management firms, credit unions, and other traditional lenders. These types of lenders deal one-to-one with borrowers—you don't go through a third party to acquire a direct loan. 

At Business.org, we recommend direct lenders Kabbage , OnDeck , and Accion for small businesses in dealing with financial institutions.

A lending marketplace collects loan options from networks of business funders, including traditional banks. Online lenders typically have a fast turnaround but require decent credit scores. Business.org's favorite lending marketplace is Lendio , which partners with 75 or so lenders and matches you with the best loan offers after you submit your application.

Peer-to-peer lending is a form of direct lending that lives almost exclusively online. Investors browse borrower profiles and choose businesses they’d take a chance on. (You've probably funded a few small businesses, projects, or individuals on platforms like Kickstarter and GoFundMe.) A peer-to-peer loan can come from one or several investors.

If you're interested in finding a peer-to-peer loan, we recommend looking at Lending Club and Funding Circle .

5. Gather the right financial documents

Whichever type of lender you go with or type of loan you apply for, you’ll need to present financial documents that explain where your business stands financially.

Of course, lenders will typically look at your credit score (including your FICO score, if you're taking out a personal loan to fund your business). But your credit score isn't enough information for lenders to determine whether or not you're loan-worthy ("lendable"), which is why lenders typically require an assortment of the following documents:

• Financial statements, such as profit and loss statements , cash flow statements, and balance sheets
• Business and personal credit reports
• Business and personal tax returns for at least the last year
• Business plan
• Business forecast
• State registrations and licenses
• Legal documentation, such as articles of incorporation, commercial leases, franchise agreements, etc.

6. Apply for the loan

If you’re applying for a substantial amount of money, you’ll want to allow your business plan plenty of lead time. Depending on the loan and lender, the loan application process can take months. Using some avenues, like lending marketplaces, can speed up the application and approval course, but in most cases, actually getting the money isn’t an overnight proposition for startup business loans.

Beyond the loan amount itself, tacked-on fees can take you by surprise if you’re not paying attention. Keep an eye on loan application fees, SBA loan guarantee fees, early repayment fees, and late repayment fees, as they’ll eventually affect your annual percentage rate (APR). By the time you apply, you should have a reasonable level of comfort with your ability to repay the loan on time and with the payment schedule, the APR, and the included fees. 

Remember, you want to know how much the loan will ultimately cost, interest and all. As you're getting your documents in order and starting the application process, use a loan calculator to ensure you're taking out the right amount of money. 

7. Keep building your financial profile

Improving personal credit, establishing business credit , paying down existing debts, maximizing income, expanding assets—these are all ways to build up your financial profile for future growth. It may seem backward, but banks prefer lending to businesses that don’t desperately need the money. It’s in your best interest to negotiate from a position of capital power.

While running your own operation doesn’t necessarily get easier, your future small-business loan processes will become more painless going forward, now that you’ve begun building your financial profile. Establish and build your business credit, and  then you’ll be able to rely upon yourself instead of playing the economic odds.

Alternatives to business loans

Personal loans.

Newer businesses may not qualify for many small business loans — that’s where personal loans come in. Personal loans are authorized based primarily on your personal credit score .

Some personal lenders, like Upstart , will approve loans to individuals whose credit scores are as low as 300. But most personal loan providers require at least a 580 credit score.

Personal loans can range from $1,000 to $100,000 with an interest rate span of 5.99% to 35.95%. In order to qualify for higher amounts, you’ll likely need to secure the loan with some kind of collateral . 

Your personal credit and assets are liable in the event of defaulting on a personal loan. With many business loans, only business assets will be at stake. But, as long as you’re comfortable with the risks, a personal loan can be another way to secure financing.

Personal credit cards

Personal credit cards are a great way to build credit in pursuit of a wider variety of lending options. Credit card APR ranges from 15.16% to 24%+ depending on your credit score.

If you have a credit score below 579, your lender may only offer a secured credit card where you make a cash deposit as collateral. You won’t have as much borrowing power because your credit limit will be a percentage of your collateral. Still, a secured credit card can help you build credit. 

Your lender will decide your credit limit, but the average limit is around $13,000. The key to building credit — no matter your limit — is to consistently make your payments on time. Keep up with that and you’ll be able to apply for better lending products in no time.

The takeaway

Depending on if you have an established business or are just starting out, there are many attainable ways to get funding via small-business loans, including personal loans for first-time small-business owners.

Take a look at your financial wellbeing, documentation, and consider applying for a loan through your local bank, the SBA, or the multitude of online lenders—keeping in mind their specific fees and borrowing terms.

Wherever you’re at in your business journey, there are multiple options available for a first-time business loan.

Want to learn more about small business loans and financing? Check out our ultimate guide to small-business loans.

Related reading

• SBA Loan Rates Explained

Best Small Business Loans

• How to Apply for a Business Credit Card
• How to Build Business Credit: 5 Steps for Improving Your Business Credit Score

Small Business Loan FAQs

Some business lenders require around $10,000 of revenue per month while many require $30,000 or more per month. Your business revenue requirements depend on where you apply and what kind of loan you’re applying for. Be sure to check your lender requirements before you apply.

Yes. There are a few ways to approach securing a loan with bad credit . You can apply for a secure or collateralized loan or apply for a lending product that isn’t related to your credit score — something like an invoice factoring loan . 

You can also apply for microloans , some of which have no minimum requirements. Additionally, there are lending marketplaces like Lendio that send your application to multiple lenders.

No. Many small businesses loans are easy to obtain. Take Lendio’s small business loans , for example. You fill out a 15-minute loan application and Lendio sends your request to a marketplace of lenders who will make you offers. Just like that, you have business loans available to you.

That said, there are some factors that may make securing a loan for your business more difficult. If you have poor business credit or your business is relatively new, for example, it may be difficult to get approved for a loan.

You may still be able to apply for a personal loan if your business credentials aren’t solid yet. 

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How to get a business loan in 6 steps

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Key takeaways

• The type of business loan you choose depends largely on why you need the loan and what you’ll be using it for.
• Lenders set their own qualifications for business loans, including time in business, personal and business credit score, annual revenue and collateral.
• The application process may vary depending on the lender and type of loan, and the funding time can range from a few days to 90 days or more.

Getting a business loan requires careful research and consideration to make sure you’re choosing the best funding option for you. Different loans serve different purposes, so researching loan options is a good starting point.

You’ll also need to make sure that you meet the lender’s requirements for credit score, time in business and cash flow, ensuring that your business can easily handle loan repayments. Let’s walk through the process of choosing and applying for a business loan step by step.

1. Choose a type of loan

The type of business loan you choose depends largely on why you need the loan and what you’ll be using it for. You might need a business loan to:

• Purchase equipment, assets or real estate
• Restock inventory
• Fund the development of a product
• Pay for an emergency expense
• Keep payroll and accounts payable up to date despite gaps or delays in revenue
• Draw from as needed for small- or medium-sized purchases

You’ll see many types of business loans on the market, and each comes with its own advantages and disadvantages. Take a look at some of the most common business loans and what they’re best used for.

2. Decide how much you can afford to borrow

At the end of the day, how much you can afford to borrow depends on the wiggle room in your business finances. You want to use business profits to make repayments on the loan.

To find out whether your business can afford a loan, many lenders will use something called a debt service coverage ratio (DSCR). The ratio essentially figures your business’s yearly cash flow divided by the cost of the loan.

DSCR = annual net operating income / total annual debt, including principal and interest

Many lenders won’t consider any business with a DSCR below 1.25, and the higher the number, the stronger you look.

For example, let’s calculate your DSCR if your annual net operating income is $500,000 and your loan’s yearly principal and interest is $225,000.

Step 1. Find your annual net operating income. Calculate your business revenue minus operating expenses.

Step 2. Calculate the yearly cost of your loan , including principal and interest. Use our business loan calculator to help you.

Step 3. Divide the annual net operating income by the annual loan cost.

$500,000 / $225,000 = 2.2222222

Here, your DSCR is 2.2, a number that shows a strong ability to repay the loan you’re vying for.

3. Check your eligibility

Requirements across lenders vary widely because lenders set their own qualifications for business loans . Brick-and-mortar banks tend to work with businesses that have a strong financial profile. Alternatives like online lenders may lower their qualifications, helping startups and business owners with subprime credit get a business loan.

Lenders may set requirements for:

Time in business

Traditional banks may require one to two years of business under your belt to qualify. Alternative and online lenders may fund businesses as young as six months old. Taking time to get your business on solid financial ground will help when making loan repayments.

Personal and business credit score

Since many small businesses don’t have established credit, lenders often use your personal FICO score to get a picture of your creditworthiness. For the best interest rates, most banks will look for a score of 680 or higher.  Online lenders may drop to the 500s to approve businesses with bad credit for a loan.

Once you’ve built up your business’s credit profile, lenders may rely on your business credit score to approve a loan. Your business credit score will range from 0 to 100 (or 0 to 300 with the FICO Small Business Scoring Service). The score factors in your company’s size, payment history, industry and other debts. A strong business credit score could mean that you don’t need to guarantee the loan with your personal assets.

Annual revenue

Most lenders require you to meet a minimum amount of revenue to prove you have enough cash flow for a loan. Requirements are different based on the lender and type of loan. Some lenders go as low as $40,000, while others set the annual revenue at $100,000 or more.

Collateral or personal guarantee

Since small businesses pose a higher risk to lenders, many lenders require you to secure the loan with assets like business equipment. Another way to secure the loan is to sign a personal guarantee , which allows the lender to seize your personal assets if you default on the loan. Some lenders require both.

Bank relationship

Relationships can make a big difference in managing your business finances and getting a loan. If your business finances are in a gray area, having an established bank relationship can help your business get approved for a loan.

And if you find yourself in a tight spot with repayments, your lender may be willing to work with you to defer payments or restructure the loan. You can start your banking relationship by opening a business bank account at your preferred bank.

4. Compare small business lenders

Once you’ve narrowed down the type of loan you need, you can compare lenders side by side to find the best small business loan for you. Take a look at the following types of lenders that offer small business loans.

Both traditional banks and online lenders offer wide-ranging loan amounts, anywhere from $5,000 to $600,000 or more. However, the interest rates are where you’ll see a real difference. Maximum interest rates for online lenders can range from 30 percent to 100 percent — much higher than you’ll see with banks.

Banks and credit unions

Banks and credit unions can offer APRs between 5.5 to 12 percent for conventional loans and lines of credit, though the exact rate varies based on your business’s financial standing.

Many banks also offer loans backed by the U.S. Small Business Administration. As of April 2024, SBA loans have interest rates between 11.50 to 16.50 percent, and you can secure loan amounts up to $5 million. Repayment terms may also stretch out longer than conventional loans, ranging from five to 25 years.

Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are a network of organizations that offer financial services and educational support to underserved communities. Each CDFI serves a specific target group for the purpose of building up the community, and they often accept customers with poor or no credit history.

If you’re part of an underserved community, working with a CDFI could help you build a sustainable business through funding, mentorship and additional resources.

Minority Depository Institutions

Minority Depository Institutions (MDIs) are financial institutions in which minority individuals own most of the stock or the board of directors are mostly minority individuals. Many MDIs focus on serving minority communities, providing business loans to entrepreneurs who are historically underserved in the banking industry.

5. Gather required documents

Lenders not only need to know your business’s financial standing and legal status, but they also want documentation on how you plan to use the loan and its expected effect on your business. When you apply for a business loan, your lender should have a full list of required documents . Some of the documents you should have ready to go include:

• Personal documentation. Your lender may request information about your finances, background, other sources of income and resume. If you have a business partner or co-owner, you must include their information too.
• Business plan. While not every lender will require a business plan, having one is beneficial. Your business plan should outline how you intend to use your loan funds and how additional financing will benefit your business. You should also include how the funds will improve revenue and your ability to repay the loan.
• Business financial statements. Most lenders require two years of income tax returns, balance sheets, profit and loss statements, bank statements and cash flow projections to determine if your business can repay a loan.
• Legal documents. To prove ownership and your business’s status, you’ll need to provide business insurance, a business license and any other legal documents pertaining to your business.

6. Apply for a business loan

Most lenders — both banks and online lenders — offer online applications that require minimal initial paperwork. With some banks, you’ll go in person to apply for the loan. In this case, you may want to contact the bank for a list of required documents ahead of time.

Once your application is received, the lender should be in contact within a few days to discuss your business’s eligibility and any additional paperwork required. But, the exact amount of time until you get the funding can vary depending on the lender and type of loan.

Every lender is different. Some may take only a few days to review your application. Others may take weeks. Many online lenders boast funding in as little as one to two business days. An SBA loan can take 30 to 90 days or more to fully process.

However, since the average application requires basic documentation, you can have a Small Business Development Center review it. They can give you tips, advice and strategies on improving your application — and thus your chances for approval.

Bottom line

If you’re considering applying for a business loan, you first need to decide what type of loan your business needs, how much you can afford and if your business meets the minimum qualifications.

Reach out to lenders you have worked with in the past or banks you already have a relationship with to discuss the process. You could also meet with a business advisor or a member of a Small Business Development Center in your area to learn more about what your business may qualify for.

Frequently asked questions

How hard is it to get a business loan, what disqualifies you from a small business loan, how long does a business loan take to get, related articles.

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How to Write a Business Plan for a Loan

Business plans are often required when applying for funds from venture capitalists or other private investors, but even if you are seeking a bank loan for your company it is very helpful to prepare one since the lender wants to be confident that he is taking on an investment with growth potential so that you can repay the loan.

In this article, you will learn about the types of business loans, the importance of the business plan in your application for a loan, and how to write a business plan that will help you get the funding you need for your company.

Download our Ultimate Business Plan Template here

What Is a Business Loan?

A business loan is funding that is provided by a financial institution to a company for it to carry out its day-to-day operational activities. It also supports the purchase of equipment, refinancing of debt, and other purposes. Small businesses might need these loans because they may not have enough funds to buy equipment, refinance debt, or because they encounter financial difficulties.  

Your Loan Application

You can apply for a commercial loan with your local bank, credit union, Small Business Administration (SBA) lender, or community development financial institution like Capital Impact. You should expect that the lender will ask you detailed questions about all aspects of your business to ensure that he or she is lending you money that will be repaid.

In addition, if you are looking to purchase a business or commercial real estate, the lender may ask for additional information and documentation to assess your qualifications and ability to repay the loan.

Before applying for a business loan it can be helpful to research different types of loans so you understand what is available and what you will need to pay attention to in your loan proposal.

Common Types of Business Loans

There are many types of loans for small businesses, including:

• lines of credit
• commercial mortgages
• equipment financing

Contact different lenders in your area to see what kind of loan terms they offer and if their interest rates are within your budget.

What is a Business Plan?

A traditional business plan is a document that provides an analysis of the present situation and future financial projections for a company. It includes details about the owners, management team, customers, location of the business, finances, marketing plan, and other information.

A comprehensive and well-researched business plan will help lenders make informed decisions about providing a loan for your business.

To help you get started, you can download our sample business plan for bank loan pdf .

Why Do You Need a Business Plan to Get a Business Loan?

A loan proposal business plan is your opportunity to show the lender you understand your business, its capabilities, and how it operates within the industry in which it competes. By putting together a clear and concise document that outlines all of this information, the lender should have a much easier time understanding how you have arrived at your numbers and where you are going in the future.

A business plan is also helpful to the lender because it provides an opportunity for him or her to ask you questions, further clarifying details that might not be clear from your application materials alone. This way the lender can walk away from the meeting with a good understanding of what he or she is loaning money to and how likely it is he or she will see the loan repaid.

How to Write a Business Plan to Get Approved for a Loan

Different lenders may ask for different sections of your business plan, but most require some combination of the following key elements.

1. Executive Summary

The Executive Summary is the first section of your business plan that a lender will read, but typically the last section written. It is very important because it acts as a snapshot of your business plan and allows the person reading to get an overview of what you are proposing.

The summary should include:

• A statement about why you need the business loan
• Details on how much money you want to borrow, when you will repay it, and interest rates
• A description of how the proceeds from the loan will be used
• Your business’s historical and projected financial information (again)
• The expected impact on your company and the industry as a whole if you are successful.

2. Company Description

In the Company Description, you should include basic facts about your company such as:

• What is the business structure (corporation, partnership, limited liability company (LLC), etc.)?
• How long has your company been in operation?
• What is the size of your workforce?
• What accomplishments or milestones have you achieved within the last year?

This section should also include information about your future business plans.

• How do you plan to expand, if at all?
• Who are your main competitors and how is your company different from them?
• What changes will you make to excel against these competitors?

3. Industry Analysis

In the Industry or Market Analysis, you should include information about your industry in general.

• What are the strengths and weaknesses of your industry?
• How will your company compete in it?
• What trends within the industry affect its future success or potential struggles?

You may also include information about your specific niche in the market. If your company operates in a very specific area of the industry, be sure to highlight it.

4. Customer Analysis

The Customer Analysis section of your business plan helps a lender understand who your customers are and why they will buy from you.

In this section, you should include information on the following:

• Your target audience and the individual customer segments
• How many potential customers you have within your target market
• How much your customers typically spend, and how much you expect them to spend in the future
• What has caused these changes or trends to occur and how they will impact your business

5. Competitive Analysis

This section should show the competitive landscape and how you plan to compete against your competitors.

• What are their strengths?
• Where do they fall short?
• What changes will you implement to get ahead of them?
• What are your company’s competitive advantages over these competitors?

6. Marketing Plan

This section should include a detailed description of the marketing strategy you plan to implement.

• What is your customer acquisition cost? How much will it cost you to bring in one new customer?
• How will you reach these potential customers? Be specific about your marketing strategy, advertising methods and costs.
• Who is responsible for implementing each part of the marketing plan and how much it is expected to cost?

7. Operations Plan

Your Operations Analysis should describe the way your company currently operates and how it will operate with the help of the loan.

• What are your company’s strengths? Weaknesses?
• What have you implemented in the past 12 months that has led to increased revenue, decreased costs, or improved efficiency?
• How will you continue to operate efficiently with the proceeds?

8. Management Team

In the management section, you should describe your business in terms of its personnel structure.

• What are the responsibilities of each person on your team?
• Who are they? What are their qualifications?
• How will their roles change when you receive the loan proceeds?

9. Financial Plan

This section should include your company’s financial statements include the projected income statements, projected balance sheet, and cash flow statements for the next 3 – 5 years.

You can assume that you will receive loan proceeds in 20XX, so plan accordingly.

Include a five-year break-even analysis and an explanation of how you arrived at your income statement and cash flow projections. Don’t forget to include interest and loan payments in your financial projections.

10. Appendix

In this section, you will include the supporting documents for the claims within your business plan. This section should include:

• A loan agreement
• A list of all applicable business licenses, permits, etc. that your company holds or has applied for

You may also include:

• An organizational chart for your company
• The resumes of the members of your management team
• The resumes of any employees who will be making a significant impact on your business with the loan money
• Copies of contracts, leases, and other agreements that are relevant to your business plan
• Complete financial statements and projections if you only include a summary in the Financial Plan section

These documents should be attached to your business plan in a separate file if they are not included and may need to be submitted with the final small business loan application.

Tips for Writing a Business Plan for a Loan

To have a successful business plan and loan application, you need to know exactly what information your loan officer is looking for and how to find it.

• Before you submit your application, be sure to carefully edit and proofread it for errors. Errors in a business plan may lead a lender to question your attention to detail, so make sure it is polished and error-free.
• Always be sure to include an executive summary of the main points of your plan at the beginning, as some loan officers may not read all of the details.
• Be sure to keep your tone professional and business-like.
• Include detailed financials, market analysis, and other crucial information.
• Remember that any omission or inaccuracies will be carefully scrutinized by a lending officer, so be sure you have all of the necessary documents before submission.
• Finally, remember that lenders often appreciate creativity and outside-the-box thinking when it comes to business plans, but don’t let it distract from the necessary information for your application.

Writing a good business plan is one of the most important and necessary steps toward securing a loan or other source of capital.

Use our proven business plan template provided below, and you’ll be able to give your lender all of the information they need to make an informed decision.

The key is to do it right. By following the steps outlined above and including all of the necessary documents (and editing/proofing your application), you should significantly improve your chance of securing a loan for your business.

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

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• Business Loans

Business Loan Requirements: How To Qualify For A Business Loan

Updated: Jun 7, 2023, 12:08pm

Table of Contents

1. business & personal credit scores, 2. annual business revenue & profit, 3. time in business, 4. debt-to-income ratio, 5. debt-service coverage ratio, 6. collateral for secured loans, 7. type of industry, 8. business plan.

Taking out a business loan—whether to cover payroll or purchase inventory—can provide financing to help in difficult times, improve your cash flow or grow your business. While each lender has its own rules, there are common business loan requirements you should be aware of when preparing to apply.

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When you submit a business loan application, a lender will typically review both your personal and business credit scores to assess the risk you pose. While a bad personal credit score can hurt your chances of approval, a good personal credit score can improve your loan approval odds and help you secure a lower interest rate.

What’s considered a good or bad personal credit score varies according to the credit scoring model a lender uses and its own guidelines. One of the most widely used credit scoring models—FICO—ranges from 300 to 850. While scores below 580 are considered bad, a score of at least 670 is considered good.

Although minimum credit score requirements vary, some online lenders may approve you for a business loan with a personal credit score as low as 500. A traditional lender like a bank may require you to have a minimum score as high as 680, however.

Similar to personal credit scores, what’s deemed a good or bad business credit score also varies based on the credit scoring model a lender uses. One of the most popular business credit scoring models— Dun & Bradstreet (D&B) PAYDEX —ranges from 0 to 100. A good score ranges from 80 to 100; a bad business credit score ranges from 0 to 49.

Related: How To Check Your Credit Score

Lenders often have minimum annual revenue requirements, and some have minimum monthly revenue requirements, too. To confirm your business’ earnings, a lender will request your business’ bank statements and income tax returns. You can upload your bank statements manually or allow a lender to connect to your bank and analyze your statements, if available.

In addition, some lenders may ask to see your profit and loss statements to determine if you have enough positive cash flow to afford your loan.

Related:  How To Get A Business Loan With No Money

Businesses that have been in operation for longer have a greater chance of loan approval. While minimum time requirements vary, it’s common for traditional lenders to require you to have at least two years in business. Online lenders often require applicants to be in business for at least six months to a year.

However, this requirement may vary depending on the specific type of business financing. For example, with invoice factoring, which involves selling unpaid invoices to a factoring company, a lender may require that you’ve been in business only for three months.

Some lenders will review your debt-to-income (DTI) ratio to determine whether you can afford to take on additional debt. Your DTI ratio weighs your monthly debt against your gross income.

You can calculate the DTI ratio by dividing your monthly debt by your gross income. For example, if your monthly debt is $10,000 and the gross income is $20,000, your DTI ratio is 50% ($10,000/$20,000).

The higher your DTI ratio, the greater your risk is as a potential borrower. While minimum DTI requirements vary by lender, it’s a good idea to keep your DTI ratio at or below 43%.

Another ratio some lenders consider is the debt-service coverage ratio (DSCR), which measures your business’ annual net operating income in relation to its total annual debt. Remember, annual net operating income is another way to say earnings before interest, taxes, deductions and amortization (EBITDA).

To calculate your DSCR, divide your business’ EBITDA by its total annual debt. For instance, if EBITDA is $100,000 and its total annual debt (including the business loan you’re applying for) is $80,000, the DSCR is 1.25 ($100,000/$80,000). A ratio greater than 1 shows a lender your business will likely have enough income available after expenses.

Although DSCR requirements vary by lender, U.S. Small Business Administration (SBA) loans require a minimum DSCR of 1.15.

Lenders offer both unsecured and secured business loans. If you apply for a secured loan, lenders require you to pledge collateral—something of value, such as accounts receivable or real estate—that they can seize if you fail to repay the loan.

The collateral requirements can vary, depending on your specific loan. For instance, you could take out a loan to purchase a business asset—like equipment, a business vehicle or commercial real estate. The collateral in that scenario would be the asset purchased. This means if you purchase equipment such as a commercial printer, the printer will serve as collateral.

In addition, some lenders will require you to provide a personal guarantee, which means you accept responsibility for repaying the loan with your personal assets if the business fails to do so.

The industry you operate in also plays a factor in whether you qualify for a loan. That’s because each industry has a different risk factor and some lenders are restricted from working with certain industries, such as adult entertainment businesses, gambling businesses and not-for-profit businesses. Before you apply, contact the lender to check your industry’s eligibility.

Some lenders may require you to share your business plan, especially if you’re a startup , which may include the following:

• Financial projections
• Purpose of using the funds
• Industry outlook
• Competitive analysis

Your plan should provide a lender with a detailed outline of how you intend to use the loan funds and include a five-year forecast of cash flow, income and expenses. If you’re unsure how to write a business plan, you can find sample business plans on the SBA’s website .

Documents Needed For a Business Loan

Before you apply for a small business loan , gather the required documents. A lender will likely ask for some or all of these items:

• Bank statements
• Personal and business tax returns
• Business licenses and permits
• Employee Identification Number (EIN)
• Proof of collateral
• Balance sheet
• Copy of your commercial lease
• Disclosure of other debt
• Accounts payable and accounts receivable aging
• Ownership and affiliations
• Legal contracts and agreements
• Your driver’s license
• Business insurance plans
• Payroll records
• Incorporation documents
• Business plan

To get a list of all required documents, review your lender’s website and/or contact them before applying.

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Beware of Common Business Loan Application Mistakes

One-third of business loan applications are rejected by lenders, according to a 2019 Federal Reserve survey. Some of those loan denials are unavoidable, but mistakes can also lead to rejections.

With the right preparation, you can avoid those mistakes.

• Waiting until the last minute. As a small business owner, you’re busy. Yet, procrastinating on applying for a business loan can lead to mistakes, or you simply won’t have the time to find the best rates.
• Filling out forms incorrectly. It’s quite common for lenders to reject otherwise-good applicants simply because they didn’t complete the loan application correctly or submit the right forms.
• Not having a clear plan for the loan funds. Most lenders will want to know how you decided on the exact amount of funding you need and what you intend to use the loan funds for.
• Making big business changes just before applying. Drastic changes to your business can lead lenders to believe that your current business isn’t going to plan.

Next Steps: Decide What Type of Business Loan You Need

The next step after learning how to qualify for a business line of credit or loan is to find the right type of business loan for your unique needs. Some common types of small business loans include:

• Business lines of credit
• Invoice factoring
• Working capital loans
• Equipment financing

Get Forbes Advisor’s ratings of the best lending platforms and helpful information on how to find the best loan based on your credit score.

Frequently Asked Questions (FAQs)

Is it hard to get a business loan.

It can be hard to get a business loan. In 2019, about two-thirds of business owners who applied for a business loan were approved.

If you’ve been running a solid, profit-generating business for many years with little or no debt and have an excellent credit score, it’ll likely be straightforward to get approved for a business loan. On the other hand, it’s often much harder to get approved if your business is newer, your credit is poor or you have inconsistent profits.

How long does it take to get a business loan?

How long it takes to get your loan depends on the lender. Typically, it can take at least several weeks to get funding from traditional small business lenders. Some online small business lenders offer funding within days, although they typically charge much higher rates.

Can I get a business loan with my EIN number?

Whether you can get a business loan with your employer identification number depends on the lender’s loan application requirements. Some lenders allow you to apply for a small business loan with just an EIN, while others require your Social Security number as well.

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Jerry Brown is a personal finance writer based in Baton Rouge, La. He's been writing about personal finance for three years. Financial products he enjoys covering include credit cards, personal loans, and mortgages.

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Business Loan Requirements: What Lenders Want to See

• Business Finance

A business loan can provide your company with financial solutions for many different situations. Yet before you can take advantage of thisl, you’ll need to figure out how to qualify for a business loan. 

Each lender has its own criteria when it comes to approving loan applicants. Below, you’ll find nine common business loan requirements that your company might need to satisfy to qualify for this versatile type of financing. 

Requirement #1: Credit Score

One of the first details a lender will consider when you apply for financing is your creditworthiness. And with small business loans, a lender may want to examine your business credit score and your personal credit score. 

A credit score helps a lender predict the risk of doing business with a loan applicant. Higher credit scores indicate less risk and could help you qualify for better loan offers. 

Bad credit scores, by comparison, could make it more expensive to borrow money. In some cases, bad credit might make a lender turn down your loan application for business financing. 

Minimum credit score requirements will differ from lender to lender. You might be able to find online lenders that are willing to issue business loans to borrowers with a FICO® Score as low as 500. 

A traditional lender, such as a bank or credit union, might have stricter credit score requirements. It’s not unusual to need a 680 personal credit score or above to qualify for a business loan. 

Business credit score requirements for business loans can also vary. Yet, again, higher credit scores could help you qualify for business financing and secure a better loan term. 

For example, your business might need a PAYDEX Score of 80 or higher with lenders that require good business credit scores. Other lenders might work with riskier business credit profiles or be willing to help companies that need to build business credit from scratch.

Requirement #2: Time in Business

Another factor that a lender will examine when you apply for funding is your company’s time in business. A LendingTree analysis of U.S. Bureau of Labor Statistics data finds that one in five businesses in the United States fails within their first year. 

Based on those statistics, companies with longer track records tend to be considered less risky in the eyes of a lender. Yet there can be a lot of wiggle room when it comes to exact loan requirements in this category, as outlined below.

• Online lenders may want a company to have a minimum of six months in business before approving a business loan application. 
• A few online lenders might be willing to work with business startups. 
• Traditional financial institutions may prefer to work with businesses that have been established for at least two years or more. 

The longer your company has been around, the more financing options may be available to it. Business owners who established their companies some time ago may also be able to lock in better loan terms on a term loan, business credit card, business line of credit, and more.

Requirement #3: Annual Revenue

The amount of revenue your company earns will most likely play into the decision processes of most lenders when you apply for a business loan. Again, online lenders tend to be more lenient where business revenue requirements are concerned. 

Traditional lenders may require your company to have at least $100,000 in annual revenue (or more) to qualify for business financing. Yet online lenders may be willing to work with businesses that earn less — perhaps as little as $50,000 in annual revenue .

Requirement #4: Debt-Service Coverage Ratio

It isn’t just the revenue that your business earns that matters on a business loan application. A lender will need to know more to determine your capacity to repay the funds you’re asking to borrow. 

The way your business revenue relates to the debts your company owes is a critical detail that lenders may consider when you apply for business financing. This relationship between your company’s income and its debts is called the debt-service coverage ratio (DSCR). 

A DSCR ratio of more than one tells a lender that your business has enough money after expenses to pay its credit obligations. If your business has a DSCR of less than one, it may signify a negative cash flow. 

Lenders have different requirements where DSCR figures are concerned. With SBA lenders , for example, your company will need a DSCR of 1.15 or higher to qualify for an SBA loan. Other lenders, however, may have different requirements. 

Requirement #5 – Debt-to-Income Ratio

You may need to sign a personal guarantee when taking out a business loan, merchant cash advance, or other form of business financing. When you sign such an agreement, you could be personally liable for the debt if your business doesn’t pay as promised. 

(Prefer to keep your business and personal credit obligations separate? There are ways to build business credit without using personal credit .)

If a personal guarantee is involved, a lender may also care about your debt-to-income (DTI) ratio. A DTI ratio measures the relationship between your personal income and debts. 

A lower DTI tells lenders that you may have more capacity to borrow money and repay additional debts. A high DTI ratio, by contrast, could indicate that your budget is strained and you might not be able to afford additional debt. 

The exact DTI ratio requirements you need to satisfy probably won’t be the same from one lender to the next. Some lenders may consider a DTI ratio of 43% or less to be acceptable for business loan applicants. Others might have differing requirements. 

Requirement #6: Collateral

Depending on the type of business loan you’re considering, you may need to provide the lender with collateral. Unsecured loans do not require you to pledge any assets for the lender to seize in the event of a default. With secured loans, however, collateral is a must. 

Putting up collateral might help you qualify for a business loan or perhaps qualify you for a lower interest rate or better loan term. Yet the type of collateral a lender may be willing to accept depends on a number of factors. 

Some of the items a lender might require (or accept) as collateral include the following:

• Real Estate
• Cash or Cash Equivalents

In addition to specific pledges of assets, some lenders might require a blanket lien when you take out a business loan. A blanket lien essentially gives the lender a claim to any of a business’s assets in the event of nonpayment. 

Requirement #7: Loan Purpose

Many lenders may allow you to use a business loan for a variety of different purposes. Yet certain types of small business loans may come with more restrictions with regard to how your company can use the funds that it borrows.

You may need to state your loan purpose on your business loan application. If the loan you’re seeking comes with strict usage restrictions, you may want to chat with a loan officer ahead of time to make sure the financing is a good match for your business’s borrowing needs. 

Requirement #8: Industry Type

Lenders often have eligibility requirements regarding the types of businesses that are eligible for funding. If your company operates in an industry that a lender considers to be high risk, you likely won’t be eligible for business financing.

Lenders differ when it comes to the types of businesses they prefer to avoid. Yet if your company operates in any of the following industries, you might find it challenging to qualify for certain business loans.

• Firearm Sales
• Adult Entertainment
• Cannabis 

It’s not just “high risk” businesses that could face funding challenges in this area. Some lenders may prefer not to issue business loans to non-profit organizations, healthcare providers, auto dealerships, child care centers, and more. 

Requirement #9: Business Plan

Nearly 70% of business owners recommend creating a business plan before starting a new business according to a QuickBooks survey . Yet many small business owners skip writing a business plan either because they’re too busy or don’t see the importance. 

There are many reasons you might want to write a business plan — and the ability to qualify for certain types of financing is one of them. It’s not uncommon for a business lender to ask for a copy of your business plan when you apply for financing. 

If a lender does want to see a copy of your business plan with your loan application, that plan may need to contain any number of the following details. 

• Company Overview 
• Financial Projections
• Industry Analysis
• Competitive Analysis
• Marketing Strategy

If you’re not sure how to write a business plan, the U.S. Small Business Administration provides free resources that can help you. You can use the guide to build a business plan for the first time, or to update and upgrade your existing business plan. 

Documents Needed for a Business Loan

When you apply for a business loan, you may need to submit a variety of documents along with your application. The documents below may help a lender measure your potential risk as a borrower and verify that the information on your application is accurate.

• Business Bank Statements
• Tax Returns (Business and Personal) 
• Personal Financial Statements
• Driver’s License of Owner
• Employer Identification Number (EIN)
• Business Licenses
• Incorporation Documents
• Balance Sheet
• Cash Flow Projections
• Business Plan
• Payroll Records
• Proof of Insurance 
• Copies of Commercial Leases

How to Qualify and Apply for a Business Loan

Once you gather all of the necessary documents and you believe you’re in a position to satisfy lender requirements, you may be ready to apply for a business loan. The following basic steps can help you navigate this process. 

• Build credit. Open business credit file and personal credit can go a long way when you want to apply for a small business loan. Good credit can improve your odds of qualifying for a business loan and might help you to lock in lower interest rates too. 
• Shop around. Be sure to review your options before committing to a business loan. Search for lenders that seem like a good match based on loan requirements. Then, compare the interest rates, fees, and other loan terms those lenders have to offer. 
• Submit a complete loan application. When you submit your loan application, be sure not to skip over any requested information. Submitting a thorough application and all required documents upfront might improve your odds of getting an approval. 
• Respond quickly to follow-up requests. If a lender follows up to request additional information or documentation, make it a point to respond quickly. Dragging out the loan application process could impact your funding timeline and might even disqualify you from getting a business loan altogether. 

Bottom Line

Small business owners may be tempted to rush through the research phase (or skip it altogether) when they are ready to apply for new business financing. Yet understanding what lenders are looking for could set you up for a more successful loan application. 

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• Business Financials in your format, or use ours . Also include:
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• Income Statements (Year to date)
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