Are you looking to secure a business loan and not sure what paperwork you need?
Choosing the right business lender and understanding the process can be complicated, but it doesn’t have to be. Whether you are looking for a Small Business Administration (SBA) guaranteed loan or a line of credit, I’ll provide you with a checklist of commonly requested items required for any small business loan application.
Also see: 10 tips for getting a business loan
- Business Plan
The business plan provides the lender with an overview of your company’s operations and goals, as well as a detailed financial analysis of your business. This document gives lenders insight into how you plan to use the funds they are providing and how you intend to use them to grow your business. It is important to provide a thorough and accurate business plan to give lenders the confidence that you are capable of managing their funds responsibly.
- Collateral Documentation
Lenders typically require a list of collateral when applying for a loan. Collateral is an asset that a borrower pledges in order to secure a loan and can include cash, real estate, cars, or other personal property. Having collateral provides the lender with some assurance that if the borrower defaults on their loan payments, they will be able to recoup some or all of their losses.
Also see: How to do a Missouri UCC Search
- Borrower Information Form
A borrower information form is a document that lenders require from all borrowers. This form is designed to provide the lender with an overall picture of your business, its financial situation and the ownership structure. The form typically includes questions about your personal background as well as your business’s financial status, such as current income and expenses. It also requires you to provide information about the nature of your business and how you plan to use the loan proceeds.
- Legal Formation Documents
Formation paperwork will be needed to prove the existence of the business. This will include the Articles of Organization for an LLC or the Articles of Incorporation for a corporation. For partnerships or sole proprietorships, the DBA (Doing Business As) registration will be needed.
- FEIN & Social Security Number
The banks will need the business’s Federal Employer Identification Number (FEIN) and the owner’s social security numbers.
- Personal Financial Statement
A Personal Financial Statement is a document that lenders require from all borrowers and you have likely seen one if you applied for a car or home loan. This form provides the lender with detailed information about your financial health and personal background. It includes questions such as current income, expenses, assets, liabilities, credit history, and other pertinent financial information.
- Business Financial Statements
Business Financial Statements are documents that lenders require from all borrowers. These forms provide the lender with detailed information about your business’s financial health and performance. The most commonly requested forms include an income statement or profit and loss statement, balance sheet, and cash flow statement.
- Two Years of Business and Personal Income Tax Returns
In addition to the financial documents of the business, the bank will also want to see the last two years of tax returns for both the business owner(s) personally and the business. If you haven’t filed for one or both, these are going to be required before the bank can move forward with any loan.
- Personal Credit Score
While not something that the bank requests, but is critical to know about before requesting a loan is the credit score of the borrowers. Having a poor credit score will impact the interest rate of the loan, or in more difficult situations, will result in the immediate denial of the loan.
- Business Bank Statements
A lender will often request to see past business bank statements (and sometimes personal bank statements) to verify the income that was claimed was actually received. In some cases, they only ask for the last 90 days, while at other times, they will look for the last year.
- Business Licenses or Certificates
Depending on the type of business you are operating and where it is located, there may be various licenses or permits that you need to obtain prior to applying for a small business loan in order to prove the business is legal to operate. Generally, these licenses or permits include state and local occupational taxes, certificate of good standing, building permits, health department permits, and any regulatory board licenses.
- Loan Application History
A Loan Application History is a document that lenders use to assess a borrower’s creditworthiness. The document includes information such as the types of loans you have taken out in the past and any missed payments or defaults on those loans. This allows lenders to see if you are a reliable borrower and whether or not they should approve your loan request.
- Owner’s Resumes
Most lenders require owners’ resumes when applying for a small business loan. This is to provide an overview of the small business owner’s business experience and the background of each individual owner to verify that they have the qualifications needed to run the business. It is important to include detailed information about each owner’s educational background, work experience, and any current or past business ownership in order to give a lender an accurate picture of the management team.
- Business Lease
If the business operates in a leased space, the lender will want to know if the business is at risk of losing their lease. Obviously, losing their location could negatively impact their continued earnings.
Applying for a business loan can be a long and complicated process, but if you follow this checklist you will be well on your way to getting the information the bank is going to ask for and the funding you need. Be sure to shop around for the best rates, prepare all of your documentation in advance, and have a clear plan for how you will use the loan proceeds. With careful preparation and some due diligence, you can get the business loan you need to grow your company.
Why do business loans get rejected?
Business loans may be rejected for a variety of reasons including insufficient collateral, poor credit history, or lack of experience running the business. Other factors that could lead to rejection include inadequate financial records, unrealistic projections, and cash flow problems. It is important to make sure your loan application is complete and accurate in order to give lenders confidence in your ability to manage their funds responsibly.
What is the minimum credit score for a business loan?
The minimum credit score that lenders require for a business loan will vary depending on the type of loan, the lender and other factors. Generally, lenders look for borrowers with a credit score of 650 or higher to qualify for a loan. The higher your credit score, the better chances you have of getting approved for a business loan. Additionally, it is important to have a strong financial history, low debt-to-income ratio and adequate collateral in order to improve your chances of being approved for a loan.
What are the 4 C’s of a loan?
The 4 C’s of a loan are credit, capacity, capital, and collateral.
Credit refers to the borrower’s credit history and ability to repay the loan on time.
Capacity is an assessment of whether or not the borrower has enough income to cover the cost of the loan payments each month.
Capital is a measure of the borrower’s available funds, such as savings or other assets, that can be used to make a down payment on the loan.
Collateral is an asset that the borrower pledges in order to secure the loan from the lender. These four factors are important elements that lenders consider when making a decision about whether or not to approve a loan for a borrower.