What Lenders Look For in Loan Applications — Complete Guide
Lender Evaluation Guide

What Lenders Look For in Loan Applications

Understand the key factors lenders evaluate when reviewing your business loan application.

Lenders look for these factors in loan applications: (1) Credit score (600+ personal, business credit if available), (2) Revenue and cash flow ($10k+/month, positive or improving trend), (3) Time in business (6+ months minimum), (4) Debt-to-income ratio (low debt service relative to income), (5) Financial statements (accurate P&L, balance sheet), (6) Use of funds (clear, legitimate business purpose), (7) Collateral/assets (for secured loans), (8) Business health (no liens, judgments, tax issues). Strong factors in multiple areas improve approval odds and rates.

Primary Evaluation Factors

1. Credit Score

Most important factor. Lenders check personal credit (FICO) and business credit (Paydex, Intelliscore) to assess repayment risk.

What They Look For:

  • • Personal credit score 600+ (higher = better rates)
  • • Business credit score 70+ (if established)
  • • Payment history (on-time payments critical)
  • • Credit utilization (below 30% ideal)
  • • No bankruptcies, liens, or judgments

Learn about credit score requirements and how to build business credit.

2. Revenue and Cash Flow

Lenders verify revenue through bank statements and assess ability to generate cash flow to repay loan.

What They Look For:

  • • $10,000+ monthly revenue (minimum, higher preferred)
  • • Consistent revenue over 6+ months
  • • Positive cash flow or improving trend
  • • Revenue growth potential
  • • Stable customer base

Use our cash flow calculator to assess your cash flow.

3. Time in Business

Lenders prefer established businesses with proven track record. Newer businesses face higher rates or may not qualify.

What They Look For:

  • • 6+ months in business (minimum)
  • • 12+ months preferred for better rates
  • • 2+ years for SBA loans
  • • Consistent operations (not seasonal gaps)

4. Debt-to-Income Ratio

Lenders assess existing debt service relative to income. High debt service reduces ability to take on new debt.

What They Look For:

  • • Debt service below 40-50% of revenue
  • • Low existing debt balances
  • • Ability to cover new loan payments
  • • Improving debt trend

Secondary Evaluation Factors

Financial Statements

Accurate P&L and balance sheet. Shows profitability, cash flow, and financial health. Learn how to prepare financial statements.

Use of Funds

Clear, legitimate business purpose. Specific uses (equipment, inventory, expansion) preferred over vague "working capital."

Collateral/Assets

For secured loans, valuable assets (equipment, real estate, inventory) reduce lender risk and improve approval odds.

Business Health

No liens, judgments, or tax issues. Business in good standing. Clean legal and financial record.

Industry & Business Type

Some industries (restaurants, retail) considered higher risk. Stable industries preferred. Business model matters.

Personal Guarantee

Most loans require personal guarantee. Lenders assess personal assets and credit. Learn about personal guarantees.

How to Strengthen Your Application

  • Improve Credit: Pay down debt, make on-time payments, dispute errors. Learn how to improve your credit score.
  • Show Consistent Revenue: 6+ months of $10k+/month revenue. Avoid applying during slow seasons.
  • Prepare Accurate Statements: Ensure financial statements match bank statements and tax returns.
  • Clear Use of Funds: Provide specific, legitimate business purpose for loan.
  • Reduce Existing Debt: Pay down other loans to improve debt-to-income ratio.
  • Gather All Documents: Complete application with all required documents. See documents checklist.

Red Flags That Hurt Applications

  • Low Credit Score: Below 600 personal credit significantly reduces approval odds.
  • Inconsistent Revenue: Erratic or declining revenue raises concerns about ability to repay.
  • High Debt Service: Existing debt consuming 50%+ of revenue limits ability to take on new debt.
  • Incomplete Documentation: Missing documents delay approval or cause denial.
  • Business Issues: Liens, judgments, tax issues, or bankruptcies disqualify most lenders.

Frequently Asked Questions

What's the most important factor?

Credit score and cash flow are most important. Strong credit (700+) and positive cash flow significantly improve approval odds. However, lenders evaluate all factors together.

Can I get approved with low credit if revenue is strong?

Possibly, but rates will be higher. Asset-based loans (equipment, invoice financing) are better options for low credit. Learn about business loans with bad credit.

How much revenue do I need?

Minimum $10k/month, but higher revenue improves approval odds. Lenders want to see ability to cover loan payments comfortably (typically 10-20% of revenue).

What if I'm a new business?

Newer businesses face challenges. Need strong credit, personal guarantee, and clear business plan. Consider alternative lenders more flexible than banks. Wait 6+ months if possible.

Related Resources

How to Qualify for a Business Loan

Complete guide to qualification requirements.

Business Loan Readiness Checklist

Assess your readiness before applying.

How to Get Ready for a Business Loan

Complete preparation guide before applying.

How to Prepare Financial Statements

Guide to creating accurate financial statements.

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