How to get approved for a small business loan

To get approved for a small business loan, the requirements are pretty much laid out for you. It’s no mystery. Go online and check the lender’s qualifications and requirements before you attempt to apply. This will save you a lot of time.

While you’re at it, compare all the lenders that you’re interested in and weigh loans against each other. Which ones do you think will be more manageable and what loan do you think you’ll have higher chances to get approved for?

Small business loans usually do require you to pay a collateral up front and the lender will check your credit score and credit history.

What they’ll be looking for

What they need is proof that you’ll be able to pay off the loan on time. They want to see that you’re trustworthy and that you usually make payments promptly.

And of course, they’ll want to see your business plan and it’d better be a good one.

Here are the things they will mostly likely check when they’re considering your request:

  • Assets in the business
  • Debt service coverage ratio
  • Bank statements
  • Financial statements
  • Personal credit score
  • Business credit score
  • The quality of your business plan
  • Bank rating (if the loan is from a bank)

Note: A lot of loans are declined because their details get mixed up with another business or there are discrepancies in your records.

So make sure that the information on your papers exactly match your business details – the name, address, tax forms, utility bills, company website etc.

If any of this information changes, say you moved locations or changed your phone number, make sure you update your license and business documents.

Assets in the business

The reason why they check this is because in case you fail to pay off your debt, they have something else to collect: your declared assets.

If your assets prove to be insufficient, some lenders usually accept personal guarantees. If you do have some assets, it’s better if you don’t give them the personal guarantee.

You don’t want your personal assets to be seized when things go sour.

Debt service coverage ratio

The reason why you’ll be asked to provide financial statement is so they can calculate your DSCR. You want this amount to be less than 1.25 to 1.35 times what you spend – that’s counting the loan you’re applying for.

Some other factors they might look at are your fluctuations in income, tax obligations and how viable your niche is.

Don’t expect to be approved for a loan if your DSCR is less than 1.0. That means no money is coming in and you’re not financially sound enough to handle the debt.

Bank statements

What they’ll be looking for here is consistent deposits of substantial amounts. So constantly depositing small amounts won’t look great. In fact, it might even look suspect.

In general, to get a loan from a bank, they would want to see an average minimum daily balance of $10,000 over 3 months.

This is why you’ve got to be careful about overdrawing your account.

Financial statements

Make sure that your financial statements are up to date and accurate. You also want them to be audited by a CPA for the extra credibility. Some lenders will even require this.

And it would generally be more convenient for you because you can have the CPA review your statements for you.

Personal and business credit scores

Credit scores reflect how well you manage your money. Read through your credit report and check for any inaccuracies and have them disputed.

You can increase your score by consistently making payments on time, not being in debt, not using up a lot of your available credit, and having a separate credit account for your business.

The quality of your business plan

Here is where you’ll lay out how you see your business growing. This also shows how well you’ve researched your niche and that you have solid evidence to back up your predicted trajectory.

Lenders want to see that the business you have chosen has a viable future and that it will rake in profits enough for you to pay off your debt.


Deil D Pecci is a writer and blogger based in Chicago who covers topics on personal finance and entrepreneurship. Deil D Pecci  has made Chicago her home along with his wife and children.