One of the most widely available and most flexible forms of business funding, business loans are utilized by almost every entrepreneur in building or growing their enterprise. However, business loan applications can be intensive; even quick loans require an abundance of information about a business and its leaders.
So any entrepreneur interested in taking advantage of business loans needs to have the right documentation on hand to submit with their loan application to make the process quick and painless.
Typical Documents to Have Ready
Because acquiring the right documents for a business loan can take time, it might be worthwhile for business leaders considering small business loans to start amassing the following information typically involved in loan applications:
Lender Application Form
Every lender has their own application form, which requests basic information about the business and its leaders. These forms help to keep information and documents in order for a lender, and it is imperative that business leaders utilize each lender’s unique form during the application process.
Resume
When entrepreneurs apply for business loans, they are expected to submit a resume that demonstrates their leadership and industry experience. This will function in lieu of other documents that would otherwise reveal business stability and success. Entrepreneurs should invest time into creating a resume that will impress lenders and encourage them to offer financing to a new venture.
Business Plan
For new and established businesses alike, a business plan communicates a business leader’s strategy, showing what they will do with their loan and how they will achieve growth and success — that will allow them to repay both principal and interest.
Business Credit Report
Credit ratings are essential to any loan application process. Lenders typically evaluate a business’s credit report as well as the credit scores of the current company leaders. It is possible to improve credit ratings before applying for a business loan, and business leaders might work to clean up their credit history as much as possible before submitting their application.
Income Tax Returns
Most loan applications will request copies of business and personal tax returns from the past three years. This will reveal to lenders details about profit and expenses and show a trend of business performance in recent history.
Financial Statements
In addition to tax returns, applications often demand specific financial documents from the company, such as recent and project balance sheets, income statements, cash flow statements, lists of accounts receivable and up to a year of bank statements. Finally, leaders will need to submit a schedule of current business debts.
Information on Collateral
Because business loans can carry rather a lot of risk — due to their size as well as the potential instability of a business — many lenders require collateral to secure a loan. Business leaders might need to submit details about potential forms of collateral, such as business assets like equipment or personal assets like a leader’s home.
Application Materials Can Vary
No two lenders have identical loan application processes. While the list above might give business leaders a general idea of the documents they need to assemble prior to loan application, in truth, leaders should examine what exactly is being asked of them from the specific lender they choose to work with. It might be worthwhile to communicate with a lender before submitting an application to get a better sense of what they want to see in application documents.
Business leaders might also look for clarification about different requirements of different loan products; asking a lender how do small business loans work can help a business understand a lender’s communication style and provide guidance regarding the type of business loan that will most benefit them. Then, leaders can avoid wasting time chasing documents they don’t actually need to acquire their loan.
Admittedly, applying for a small business loan is rarely a fast process, and it can be difficult to assemble the information lenders want and need. Still, approval hinges upon a business’s ability to deliver all mandatory documents. Hopefully, knowing more about what lenders are likely to demand during a loan application will help more business leaders achieve success.
