In seismic design of steel beams, it is necessary to set lateral supports in order to diminish lateral slenderness ratio which can prevent lateral instability and can maintain sufficient rotation capacity to dissipate input energy of earthquake. The behavior of steel beams under cyclic loading is quite different from that under monotonic loading. However, the formula for critical lateral slenderness ratio recommended in the current Chinese code GB50011-2010 for seismic design of buildings is resulted from research findings for monotonic loading. At the same time, the effect of different seismic grades is not considered in the formula. So it is necessary to improve the formula. In this paper, nonlinear finite element analysis of steel beams subjected to cyclic loading is carried out based on the concept that a seismic grade should match a suitable rotation capacity. The modeling developed takes into account the influence of initial geometric imperfection and residual stresses and is validated by other researcher’s experimental results. By means of the numerical analysis for five parameters such as end-moment ratio, web height-thickness ratio, flange width-thickness ratio, residual stress distribution pattern, out-of-plane boundary condition, the formula for critical lateral slenderness ratio for the steel beam under cyclic loading is proposed, which has higher accuracy and simpler form.