Small Business Loan Requirements & The 5 C's of Credit

Starting a business takes grit, heart, and a plan. Lenders want to see that plan in action. When you understand small business loan requirements, you can show your strengths, close gaps, and move forward with confidence. This guide explains what lenders look for, how the 5 C’s of credit work, and practical ways to prepare using tools from First Alliance Credit Union.

Imagine Maya, who wants to launch a mobile coffee cart. She has great recipes, a simple menu, and a busy morning route in mind. Before she buys equipment, Maya writes a business plan, builds a starter budget, and learns exactly what a lender will need. Her plan keeps her focused. It also helps a loan officer clearly see how the business will repay the loan.

Why lenders ask for a business plan

A business plan shows how your idea becomes steady cash flow. It should answer basic questions: Who are your customers, what do they need, and how will you reach them at a profit. If you are wondering, how do you write a business plan, start with a short outline and grow it as you learn. Keep it active. Review it every few months as prices and conditions change. Rising costs matter, so include a note on how does inflation affect people and your prices.

Your plan needs two parts. The narrative covers market research, competitors, marketing, and your team. The financials show revenue, expenses, and at least two years of projections with realistic assumptions. If you have already started selling, include a simple cash flow summary that shows average monthly sales, costs, and the proposed loan payment. Lenders do not expect perfection. They expect a thoughtful plan supported by facts you can explain.

The 5 C’s of credit, explained in simple terms

Lenders use five common factors to review small business loan requirements. Knowing them lets you prepare strong evidence for each one.

Character is your reliability and credit history. Pay on time, keep balances low, and fix report errors.

Capacity is your ability to repay from business income. Solid pricing, realistic sales, and a monthly cash flow that comfortably covers the payment all help. If you have a Business Credit Card, use it wisely and pay on time to demonstrate healthy habits.

Capital is the money you have invested. Savings committed to the business and equipment you already own show real commitment.

Collateral is an asset the lender can claim if the loan is not repaid. List vehicles, equipment, or other assets with realistic values.

Conditions are outside factors like local demand, seasonality, and supplier costs. Show that you understand your market and have a plan for slower periods.

Documents most lenders ask for

Your file should be complete, accurate, and easy to read. Organize it the same way every time so updates are fast. Read each request carefully and label your files clearly. A consistent format shows professionalism and speeds up underwriting.

Checklist: Documents most lenders ask for

• Business plan with narrative and two-year projections

• Government ID, business registration, and Employer Identification Number or EIN (if applicable)

• Recent personal tax returns and bank statements

• Year-to-date sales report or basic cash flow summary if operating

• Quotes for equipment or build-out costs

• Collateral list with realistic estimated values

• Short description of your experience and key partners such as a CPA or attorney

Which business loan fits your plan

Picking the right loan helps your cash flow and improves approval odds. Start by matching the job to the tool. Use long-term loans for long-lasting needs. Use short-term credit for short-term needs. Be clear about why each dollar is needed and how it will be repaid. This clarity helps your lender see the path to success. It also prevents you from borrowing more than you need.

• Term loan: One lump sum with fixed payments over a set time. Good for equipment, vehicles, or buildouts.

• Business line of credit: Flexible funds you draw, repay, and draw again. Good for inventory, payroll timing, and short gaps.

• SBA-backed loan: Similar to a term loan, but with a government guarantee. Often longer terms. A strong plan is still required.

Watch & Learn What is a Business Plan & Why You Need One 

Mark gives you expert advice on the key sections of a business plan, including the narrative and financials!

What lenders will quote you

Understanding the price of money shows lenders you are prepared. Read every quote slowly. Ask simple questions and write the answers down. Clear terms help you avoid surprises later. If something is unclear, keep asking until it makes sense. Your lender should welcome good questions. Knowing your costs today helps you price your product wisely tomorrow.

• APR and fees: The annual cost of the loan. Includes interest and any origination or document fees.

• Payment and term: Monthly amount and how many months you will pay. Make sure it fits your cash flow.

• Collateral and guarantees: What secures the loan and who promises to repay. Know exactly what is at risk.

• Prepayment details: Ask if you can pay early without a fee. Some loans charge for early payoff.

How to strengthen your application before you apply

Most applications are decided on clear numbers and clean documentation. Give yourself time to prepare, then review everything with a trusted advisor. Three simple steps can raise your odds fast. First, price your product with real costs and a healthy margin. Second, confirm demand by tracking potential customers for a week and noting your competitors and their prices. Third, prepare a simple monthly cash flow that proves the loan payment fits without stress.

When those basics are set, tighten the story with practical moves lenders appreciate. These habits show professionalism, reduce back-and-forth, and make underwriting faster.

• Separate business and personal spending with dedicated business checking and a Small Business Credit Card.

• Keep invoices, receipts, quotes, permits, and registrations in one digital folder ready to share.

• Start small and grow in stages so each step is supported by cash flow and real demand.

• Build a modest reserve in your business savings to handle slow weeks or repairs.

• Review results monthly and adjust expenses, hours, or pricing before problems grow.

Maya’s simple path to yes

Maya saved three months of expenses in a business savings account. She wrote a clear plan, tracked a week of foot traffic, and collected three letters from nearby offices promising to order weekly. Her plan showed capacity through customers, capital through savings, and conditions with a seasonal plan for winter. The loan officer could see the path. The approval made sense.

Common mistakes to avoid

New owners often skip real market research and rely on guesses. Spend a few hours confirming demand, prices, and competitors so your plan reflects the world you will operate in. Another frequent miss is sales tax and licensing. Register early, learn your rules, and build these costs into pricing so there are no surprises later.

Mixing personal and business money causes messy records and slows approvals. Open dedicated business checking and savings so your cash flow is clear. Keep receipts, invoices, and quotes in one digital folder you can share quickly with a lender. Owners also underestimate working capital. Plan for startup costs, a few months of expenses, and a small cushion for slow weeks. Finally, some try to scale too fast. Start simple, measure results, then expand as cash flow grows.

Putting it all together

Small business loan requirements are straightforward when you prepare. Lenders want to see a steady plan, the 5 C’s of credit, and proof the payment fits your budget. Use First Alliance Credit Union calculators to map cash flow and savings growth, and keep your documents organized. Build reserves in a safe account, price with real costs, and show how your first months will work.

Your next step is simple. Gather your plan, projections, IDs, and quotes. Open business accounts to separate spending, then review your numbers with a business banker who understands local conditions. When your file is neat and your story is clear, approvals come easier. Visit First Alliance Credit Union online or stop by a branch to get started with guidance that fits your business.

 Have questions about small business loan requirements? Ask us for clear, caring guidance from experts.