Which Factors Can Affect Small Business Loans?

Originally published January 2, 2020 on the original SPEN10 blog. Refreshed in October 2026: removed claims we couldn't verify and updated links. This is general information, not financial advice — talk to your lender or a financial professional about your situation.

Starting and running a business is exciting, and small businesses are essential to the economy. Eventually, most businesses reach a point where they want to expand. Access to capital makes it easier to pay employees, buy equipment and keep a healthy cash flow.

Here are the main factors that affect getting — and keeping — a small business loan.

Lending policies

Once you have a business loan, it's important to understand its terms and any changes to them. Lenders consider the overall health of your business when extending credit, and every lender has its own policies and procedures, with exceptions sometimes made in special circumstances.

Lenders assess the risk of lending to your business, check your existing debt commitments, and look at what collateral is available. Some loans also require a personal guarantee, which makes you personally responsible for repayment if the business can't pay. Make sure you understand these terms, and discuss them with your loan officer before you sign.

Term loans vs. lines of credit

Lenders can provide funding as a lump sum or as a revolving line of credit, depending on your creditworthiness — and you may or may not need to put up collateral.

• Term loans (closed-end). You receive funds up to an agreed amount, sometimes in stages. As you repay the principal, you can't borrow it again.
• Lines of credit (revolving). As you repay principal, that amount becomes available to borrow again, up to your credit limit. This is useful for ongoing expenses like inventory.

Common loan requirements

Here are the main things lenders look at when you apply for a business loan:

Business history and financials. Lenders review your business profile, so be ready to provide bank statements, balance sheets, and tax returns. Many lenders prefer businesses that have been operating for a while, though requirements vary widely.

Business credit. Building trade lines with multiple suppliers and paying them on time helps establish business credit. Business credit bureaus such as Dun & Bradstreet, Experian and Equifax each maintain their own business credit profiles and scores.

Personal credit and guarantees. If your business credit history is thin, lenders will likely look at your personal credit and may require a personal guarantee. Stronger personal credit generally means better approval odds and interest rates, but score requirements vary by lender and loan type.

Loan purpose and amount. Loans can fund almost anything a business needs: furniture and equipment, tables and chairs for a restaurant, or inventory for an online store. Be clear about how much you need and how you'll use it.

Before you apply

Understand your lender's requirements before you start the application, review all of your financial documents, and have a solid business plan ready. In the US, the Small Business Administration is a good place to learn about loan programs designed for small businesses.

— Spencer