Whether you own an established business or one that is fairly new, an infusion of capital can often go a long way toward helping to drive sales and increasing your bottom line. However, if your business revenues aren’t quite where you need them to be, you may find yourself wondering whether you’ll be able to qualify for financing.
While small business loan requirements vary from one lender to the next, a minimum amount of revenue is almost always factored into the basic business loan criteria. After all, before approving a loan, the lender needs to feel confident that you’ll have enough funds coming in to make all of your payments on time. While there’s no set-in-stone answer to the question, “What is required for a business loan?” we’ll provide a bit of insight into what you can typically expect when it comes to a lender’s minimum revenue requirements.
Revenue Requirements: Traditional vs. Alternative Lenders
Often, small business owners begin their search for financing with a traditional lender, such as a bank or credit union. However, you may quickly find that these institutions have strict requirements for a business loan that can make it difficult to qualify, particularly if you’re credit-challenged or don’t have a significant amount of recurring revenue.
Traditional lenders typically prefer to work with well-established businesses and their minimum business loan requirements are a reflection of this. In general, these institutions may require a minimum revenue of around $36,000 to over $100,000, depending on the type of loan you’re trying to obtain.
Working with a non-bank creditor, also known as a “direct lender” or an “alternative lender,” may open up new opportunities. Since they do not use an intermediary, these lenders often have more lenient qualification requirements and are more willing to work with newer businesses and those with past credit issues.
When comparing alternative lenders to each other and to their traditional counterparts, it’s common to find at least one option that can meet you where you are. For example, at Zinch, you can qualify for a short-term small business loan or a merchant cash advance after being established for just six months with a minimum of $10,000 in sales each month.
Debt-Service Coverage Ratio
It’s also important to note that while your gross business revenue is an important factor for most business lenders, your debt-service coverage ratio (DSCR) may come into play as well. This term refers to the amount of gross revenue you receive in relation to the amount of debt you owe. It’s another way to confirm that your business will be able to cover its outstanding debts with the amount of income your business is currently earning.
The DSCR is calculated by dividing your gross annual income by your total outstanding debt. For example, if your business grosses $100,000 and you have a total of $80,000 in debt, your ratio is 1.25. A ratio of less than 1 means that your business has a negative cash flow. Generally, lenders want to see a DSCR of 1.25 or higher.
Documenting Your Small Business Revenue
One of the common myths about small business financing is that it is a long and difficult process that requires extensive documentation. The truth is, you can typically apply for a business loan from a direct lender in a matter of minutes. Often, simply providing recent business bank statements is enough to document your monthly revenue and show that you meet the lender’s new business loan requirements.
Depending on the lender you choose and your circumstances, you may also need to provide copies of your business tax returns, profit and loss statements, or other documentation.
Explore Your Business Financing Options Now!
One of the best ways to find out whether your business qualifies for a loan is to complete a pre-qualification form. Zinch offers a quick and simple pre-approval process that will allow you to get started in less than three minutes. Simply answer a few questions and you’ll be able to find out right away whether you’re likely to qualify and how much business funding you can get.
Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
