Whether you’re starting or expanding a small business, qualifying for a small business loan can be an essential step to secure the future of your company.

If you’re a small business owner here in Salem, it’s important to understand the loans available to you and what the qualification criteria looks like. 

In this article, you’ll learn how to qualify for a small business loan in Salem, and discover steps and tips for meeting credit union requirements and securing funding for your business.

Types of Small Business Loans

Before you can qualify for a small loan in Salem, you need to decide what kind of a loan to apply for. This decision will depend on a number of factors like the amount you need to loan, the stage your business is in, and your credit score. 

Two of the most common types of small business loans are those backed by the Small Business Administration and those provided by traditional banks.

Small Business Administration

Through third-party lenders, the U.S. Small Business Administration (SBA) backs a number of loans. These loans are easier to qualify for and are less risky for lenders since they’re backed by the federal government. 

Your options of loans from the SBA are 7(a) loans, 504 loans, and microloans. They vary in amount, eligibility criteria, and how they can be used. 

Traditional Bank Loans

You can also apply for a small business loan from traditional banks and local credit unions here in Salem. There are a range of different loans you can apply for depending on your business needs. For these loans you can expect to be required to have collateral, good credit, and a strong business plan. 

To learn more about financing options, check out our Beginner’s Guide to Small Business Financing in Salem, Oregon. 

Qualifying for Small Business Loans

No matter where you apply for your loan, there are a number of things you’ll need to do to prepare. While the exact qualification criteria may differ from lender to lender or loan to loan, knowing what lenders typically look for can help you prepare and increase your chances of approval.

Credit Score

One of the first things lenders will look at is your credit score. Lenders will look at your personal credit score, and your business credit score if your company is well established. 

Your ability to pay things like card bills and car payments on time is reflected in your credit score. It shows lenders you’re able to manage personal debt. For SBA loans and traditional bank loans, lenders will look at your FICO® Score, which considers a credit score of 670 or higher to be a good score.

If your company is already established, you’ll likely also need a business credit score. Business credit scores range from 1-100 with 75 or higher generally being considered an excellent score. 

Business History and Information

Lenders will closely assess your business’ health. They’ll examine things like your business’ finances, profitability, and future prospects.

Here are some things you can expect them to evaluate:

• Financial Health. Lenders will examine your revenue, cash flow, and profitability. They may ask for recent tax returns, bank statements, and financial projections to assess how well your business is performing and whether it has the potential to repay the loan. Financial statements such as profit-and-loss statements and balance sheets are also often required
• Length of Time in Business. Most lenders prefer to work with businesses that have been operational for at least two years. If your business is newer, you may need to offer additional collateral or a stronger business plan to secure a loan
• Business Plan. A well-drafted business plan shows lenders how you plan to use the loan and how it will help your business grow. Include financial projections, market analysis, and a clear repayment plan.

Collateral

Depending on the loan you apply for, you may need to provide proof of collateral. Providing collateral could also be a good way to qualify for a small business loan even if you have bad credit. Collateral could be any business asset that the lender can seize if you fail to repay the loan. Assets include things like equipment, real estate, and inventory. 

Make sure to have your assets appraised to ensure they are correctly valued during the loan process. It’s also a good idea to offer high-value assets and diversify the assets you offer as collateral.

Some lenders may also require a personal guarantee in addition to or in lieu of collateral. Unsecured loans, for example, don’t require collateral but often come with higher interest rates and require a personal guarantee. 

Required Documents

Besides the items above, you may need to provide additional business documentation. The exact paperwork a lender will ask for will depend on the lender and the small business loan you’re applying for. Here’s a list of some common documents you may need to provide:

• Business licenses
• Lease information
• Articles of incorporation
• Identification
• Legal contracts
• Proof of business experience
• Financial statements

Working With a Local Credit Union

Here are some ways you can improve your chances of being qualified for a small business loan in Salem:

• Improve your credit score. Your credit score is one of the first, and most important, things that lenders look at. If you have a bad credit score you can be denied for that reason alone. As such, improving your credit score can help your chances of qualifying for a loan. Some ways you can improve your credit score include paying off any outstanding debt, always paying loans on time, and keeping your credit utilization to less than 30% of your available credit.
• Update your business plan. Make sure your business plan is comprehensive and includes updated market research, growth strategies, and financial forecasts. This shows lenders that your business is on a solid footing.
• Build relationships with local lenders. Building relationships can go a long way. Local credit unions and lenders are usually heavily involved in the local community, so be sure to attend local business events and show your commitment to the community. Similarly, getting to know loan officers can also help you stand out in the application process.

Frequently Asked Questions

What credit score do I need to qualify for a small business loan?

Credit score requirements vary depending on the lender and the type of loan you're applying for. Generally, a personal credit score of 670 or higher is considered good for small business loans. Local credit unions may be more lenient when it comes to your credit score, especially if you offer collateral or have strong business financials.

What documents do I need to apply for a small business loan?

Check with the lender to see what paperwork they’ll need from you, but you’ll typically need to provide:

• Personal and business tax returns (2-3 years)
• Financial statements, including profit and loss statements and balance sheets
• A detailed business plan with financial projections
• Information about any collateral you’re offering
• Recent bank statements

How can I get a business loan with bad credit and no money?

Getting a business loan with bad credit and no money is tricky, but it’s not impossible. One way is to offer collateral or work with a local credit union which may be more flexible. Alternatively, you can work to improve your credit score to increase your chances of getting approved. 

How long does it take to get approved for a small business loan?

The timeline can vary depending on the lender and the type of loan you’re applying for. For traditional loans, it may take several weeks to gather documents, complete the application process, and receive approval. Some loans, such as lines of credit or merchant cash advances, may have faster approval times, especially if you work with a local credit union.

How much can I borrow with a small business loan?

This will depend on a lot of factors, like your credit score, business history, revenue, and the type of loan you’re applying for. 

Working With a Local Credit Union

There are advantages to applying for a small business loan with a local credit union in Salem. 

Local credit unions often offer more personalized service, lower interest rates, and a stronger commitment to supporting small businesses in the community. They may also be more flexible with eligibility requirements and loan terms compared to larger financial institutions.

In addition to loans, we also offer business credit cards—contact our lending team to learn more about how they can support your business.

Don’t hesitate to reach out to Valley Credit Union for more information or to apply for a business loan. As a local credit union in Salem we can tailor your small business loan to meet your individual needs. 

About the Author

 Justin Roberts, Vice President of Lending

Justin Roberts is our Vice President of Lending and has been in the financial industry for over 18 years. He is an Oregon State University Graduate and has just completed Western CUNA Management School. When he is not focused on helping the members at Valley, you will find him coaching his two sons and volunteering his time to help develop the youth in our communities through sports.