Business Loan Requirements: Time in Business

Business owners that have more years of experience in their industry have a proven track record. Lenders make a similar evaluation of borrowers with their time in business requirements for small business loans. Although it varies on the type of loan, lenders have a minimum threshold for the age of a business that they will lend money to.

Time in business loan requirements help lenders lessen the risk. Note that not all business loan lender or loans have the same time requirements. If you don’t meet the minimum age threshold, there are other finance alternatives to consider.

Why Is Time in Business a Loan Eligibility Requirement?

Roughly twenty percent of businesses fail in the first year of business. Lenders will go to great lengths and expense to recoup their loss when a business fails. When this occurs, business financing lenders lose a lot of money.

The time in business requirement allows lenders to avoid working with businesses that cannot prove they can last one year. New business owners typically are not as experienced at financing their business. New owners tend not to know how best to use their loan. Nor do they necessarily know how large of a loan they need.

New business owners are less likely to have built up a strong credit history. to ensure that your business and personal credit scores are good, business lenders may want to wait for a certain length of time to pass before providing you with a loan.

Are There Different Requirements for Different Business Financing Lenders and Loans?

Eligibility requirements can vary when you are trying to qualify for a business loan. Especially when it comes to alternative lenders, such as an online lender, versus a traditional lender, like a bank or credit union.

To approve your business loan application, banks and credit unions will require your business to be at least two years old. An online lender may only require your business to have one year in operation so that your application is approved.

Business age requirements also depend on the type of loan. Term loans typically have high minimum ages. However, lines of credit, equipment financing, and invoice factoring have much lower minimum ages.

3 Ways to Make Sure You Meet Time in Business Requirements

Obtain an EIN and keep it

Many entrepreneurs start their business a sole proprietorship then incorporate it later. If you’re not careful, it can be hard to secure funding if you start over.

Open a business bank account

When establishing the age of your business, you need a paper trail. Opening a business bank account is a great way to document the age of your business in addition to obtaining an EIN. In fact, even if you haven’t incorporated your business, a business bank account can establish your time in business.

Start your official business now

Start your business as soon as possible. Establishing your business will start your time in business. When you need to get business financing, you will be glad you did. Another way to legitimize your business is to create a thorough business plan. This will help you identify cash flow shortages and other issues, so that you can communicate exactly how you’ll use your loan.

The Bottom Line

If you don’t meet the age requirement for a term loan, there are still business financing alternatives that you could pursue. This includes business credit cards, equipment financing, invoice financing, credit lines, and merchant cash advance. If you’re interested in any of these alternative financing options, make sure to do your research so you find what is best for you.