What Do Lenders Look At? Revenue, Credit Score, and Time in Business Explained

When you apply for a business loan, lenders typically consider a few key factors before deciding whether to approve your application. Understanding these factors will help you prepare your business for a successful loan application and give you a better chance of securing funding.

This article covers the most important factors that lenders look at when evaluating a business loan application: your revenue, credit score, and time in business.

The 3 Key Factors Lenders Look at When Reviewing Your Loan Application

Revenue

One of the first things a lender looks at is your business’s revenue. The lender wants to see that your business generates enough money to repay the loan, with interest, over time. Typically, lenders require that your business have a certain level of revenue, depending on the size of the loan and the type of business you operate.

Time in Business

Lenders also look at how long your business has been in operation. In general, the longer your business has been running, the more confident a lender will be in its stability. Newer businesses may find it more difficult to get approved for loans, as lenders typically prefer businesses that have been around for at least 1–2 years. However, this isn’t always a dealbreaker, and alternative lenders may have more flexible time-in-business requirements.

Credit Score

Your credit score plays a critical role in the approval process. Lenders use your credit score to gauge how likely you are to repay the loan on time. Personal credit is particularly important for small business owners, especially if your business is young or doesn’t yet have its own established credit history. A higher credit score generally means lower interest rates and better terms for your loan.

How Lenders Use Your Revenue to Make a Decision

Lenders typically want to see that your business generates consistent revenue over time. They often ask for recent bank statements or profit and loss (P&L) statements to assess your cash flow. If your business has fluctuations in revenue, lenders may want to see how you manage those fluctuations and whether you have sufficient reserves to cover the loan repayments during slow months.

If your business has steady, predictable revenue, it makes you a more attractive candidate for a loan, as the lender has more confidence in your ability to repay the loan on time.

How Credit Scores Affect Your Loan Options

Personal vs. Business Credit

Lenders typically look at both personal and business credit scores, but personal credit is often the primary factor for small businesses. If your business is young and doesn’t yet have a credit history, lenders will rely heavily on your personal credit score to evaluate your loan application. For established businesses, lenders will also assess the business credit score, which is based on the company’s financial history.

Understanding Credit Score Ranges

Here’s a general overview of what lenders look for in terms of credit scores:

• Excellent (750+): You’re likely to get the best interest rates and terms.
• Good (700-749): You’ll qualify for favorable loan terms, but not necessarily the best.
• Fair (650-699): You may still qualify for loans, but expect higher rates.
• Poor (below 650): Your chances of approval are lower, and you may be offered unfavorable terms.

What Time in Business Really Means for Your Loan Application

Lenders prefer to see that your business has been operating for at least 1-2 years because it shows you’ve been able to maintain operations and generate revenue over a longer period. A longer track record helps to reduce the lender’s risk. However, new businesses can still get funding, especially from online lenders, though they may face higher interest rates and more stringent terms.

Why “New” Businesses Are Considered Risky

Startups and businesses with less than a year in operation are considered higher risk because they don’t have a proven track record of revenue generation. If you’re a newer business, lenders will want to see evidence that you have a solid business plan, sufficient personal assets, and any available collateral to secure the loan.

The Advantage of a Track Record

For businesses that have been running for several years, lenders are more likely to approve a loan, especially if you have a history of profitability and financial stability. A longer time in business shows the lender that you’ve weathered challenges and continued to grow, making you a lower-risk borrower.

How to Improve Your Chances of Getting Approved

Short-Term Solutions

If your credit score or revenue isn’t where you want it to be, there are some steps you can take to improve your chances of approval:

• Improve your credit score by paying down debt and checking for errors on your credit report.
• Increase your revenue by offering new services or targeting a more profitable customer base.
• Build up savings or personal assets to show that you have a cushion if cash flow slows.

Long-Term Strategies

Over the long term, you can increase your likelihood of loan approval by:

• Building your business credit by opening accounts and making timely payments.
• Maintaining steady revenue growth year-over-year.
• Creating a strong business plan that shows lenders how you’ll use the loan to grow.

By following these steps, you’ll improve your chances of being approved and securing favorable loan terms when you’re ready to apply.

Important Reminder: Education Only

ChicagoBusinessLoans.com is an educational blog. This article provides general information to help you understand what lenders look for in a business loan application. It is not a substitute for personalized financial advice. Always review loan offers directly with the lender before committing to any loan agreement.