Running a business often requires additional funding to help see your vision through. However, qualifying for a business loan involves more than simply filling out an application. Read our guide to learn more about general loan requirements and how to qualify for business credit.
Establish Your Business
The first step to qualifying for a business loan is to legally establish your business. This includes applying for any business license and/or permit in order to operate lawfully. If you need help registering your business, you may want to consult with your local chamber of commerce and/or business trade agency.
Apply for an Employer Identification Number (EIN)
Typically, you’ll need an EIN or federal tax identification number to qualify for business credit. You can apply for an EIN or tax ID through the U.S. Small Business Administration.
Open a Business Banking Account
Opening a business banking account is another crucial step in qualifying for a business loan. There are several different types of business bank accounts available, but a business checking account is generally a requirement for business credit.
Establish Your Credit Files
You should also verify whether your company has a credit file with the major business credit reporting bureaus, including Dun & Bradstreet, Equifax Small Business and Experian Business. If you have an existing credit file with any agency, make sure that all the information listed is correct and updated. If you don’t already have a file, you can apply for one directly through each bureau.
Watch Your Credit
Borrowers are generally required to have a solid business credit history in order to qualify for a business loan. Additionally, your personal credit may come into play when you apply for a business loan. Since lenders may review your personal and business credit ratings, it’s important to watch both and take steps to improve your scores, if necessary. These tips can help you improve or maintain your personal and business credit scores:
- Aim to always make payments on time
- Keep your credit utilization ratio low, if applicable
- Promptly dispute any errors on your personal or business credit reports
Maintain a Positive Cash Flow
Another important factor in qualifying for a loan is having the ability to repay the funds that you borrow. You can show that you’re capable of loan repayment by protecting and maintaining your cash flow. Learn how to increase your cash flow in order to help qualify for a business loan.
Work With Companies That Report to Business Credit Bureaus
Business credit bureaus calculate credit scores based on available payment data. Similar to personal credit, it’s important to remember that not all companies report payment data to business credit bureaus. In order to make sure that you’re actually building business credit, work with companies that report payment data to at least one major business credit bureau. If you have a good relationship with another business, consider asking them to start reporting payment information to a major business credit bureau.
Research Before You Apply
Although business loan qualifications can vary by lender and type of credit, it’s a good idea to review all the loan criteria before you apply. Business loan qualifications may include:
- Time in business: Business lenders may require a minimum amount of time in business in order to qualify for credit.
- Annual revenue: You may also be required to earn a minimum annual revenue for a business loan.
- Business and personal credit scores: Business creditors may set minimum personal and business credit scores to qualify for a business loan.
- Industry: Some lenders may only work with borrowers in certain industries, so it’s important to make sure that your business meets eligibility criteria in this area.
- Important business documents: Although specific requirements can vary, you may need to provide business documentation, including Articles of Incorporation, license(s), permits and related forms.