How to apply for a business loan

Step 3: Review eligibility requirements

Each business lender will have their own eligibility requirements to obtain a business loan, including:

• Business revenue: Your lender wants to assess your business's health and ensure you have sufficient positive cash flow to cover the monthly payments. Each lender may have different minimum revenue requirements. Consider your revenue when thinking of your loan amount. For a lender, an ideal debt-to-income ratio is less than 36%.
  
  
• Length of time in business: Your business history or the length of time you’ve been in business is also a factor in the lending process. Generally, you need to be in business for at least two years to qualify for a conventional loan, though some lenders may have a minimum of one year. If you’re a new business or have been in business less than two years, an SBA loan might be an option.
  
  
• Bank statements or other financial documents: Getting a loan for a business requires you to provide your business and personal financial records. These documents may include tax returns, bank statements, profit and loss statements, financial projections and more. For example, SBA loans require applicants to submit personal financial statements and three years of business financial statements.
  
  
• The size and location of your business: For an SBA loan, your business must meet size standards to qualify as a small business. Additionally, your location may matter, as some lenders may only provide business loans in certain states.
  
  
• Type of business and how it operates: No two businesses are the same. Your prospective lender will review the type of business you have and how it earns income.
  
  
• Collateral options: As part of the business loan process, you may need to pledge collateral to secure the loan. This may be a physical asset, like commercial real estate, a vehicle or equipment.
  
  
• Credit profile: To qualify for a business loan, you likely need a good credit score. FICO, which is a popular credit-scoring model, defines “good” as a credit score between 670 to 739. Anything above that may put you in a better position to obtain a loan and may help you get a competitive interest rate. Typically, lenders tend to have a minimum credit score requirement of 680, though this may vary by loan type. Both your personal and business credit scores may be reviewed as part of your application.

Step 4: Collect your business documents

Once you assess your needs and review the type of loans and the eligibility requirements, start collecting your business documents to apply for a business loan.

To apply for a BMO business loan, you’ll need various documents, which may include:

• Articles of incorporation or other business formation documents
• Collateral information
• Business plan
• 2 or more years of financial projections
• Business financial statements (e.g., profit and loss statements, if available)
• Business tax returns
• Personal tax returns
• Other documents as needed

For a full list of requirements, contact a business banker.

Step 5: Apply for a business loan

After gathering the appropriate documents, it’s time to apply for a bank loan for your small business. At BMO, to get the process started, you can contact a business banker.

Make sure you have all items listed in Step 4 to help expedite your application. That way, the lending process is streamlined, and you can likely get the funds you need in a timely manner. We strive to handle your loan request efficiently from application to closing, so you can focus on what really matters – growing your business.

Ready to get started? Take the next step to get a business loan or line of credit.

Best Practices to Get a Business Loan

There are many things to consider when applying for small business loans. Here are some best practices to follow before submitting your application:

• Be realistic about the loan amount: Develop budget projections to figure out how much to request in your application. These projections might include future costs for equipment, inventory, marketing or an expansion, organized by one-time expenses and ongoing costs. The amount you want to borrow will affect the size of the loan payments, which will affect future cash flow. Using a business loan calculator can help you compare different loan/payment scenarios.
  
  
• Work with a business banker: A business banker can play a critical role in helping you determine the financial needs for your business, assess options for business funding and choose the right type of loan to set you up for success.
  
  
• Prepare for follow-up questions: While your business plan will address key information lenders will want to consider, lenders may have additional queries or request more information.
  
  
• Think through your repayment plan: Making loan payments should be a top priority, so it's important to align scheduled payments with your business's cash flow. Setting up autopay can help ensure you don't miss a payment, though it may not be practical if your enterprise's cash flow is inconsistent.
  
  
• Review all loan costs: Review loan offer terms carefully to determine which might fit best with your revenue stream and other financial obligations. The loan with the biggest principal and the lowest interest rate may seem the most appealing. But it could end up costing more over its lifespan once you factor in the annual percentage rate (APR), which includes fees, other loan costs and the interest rate.