Depending on the lender you work with, there may be several documents required for you to qualify for a business loan. If these documents aren’t provided, or if incorrect information is supplied, it could lead to your business being denied necessary funding. In this post, we’ll discuss documents that are frequently requested by traditional lenders in the loan application process. Typically, the more information that small business owners can provide to business lenders, the easier it’ll be to get quickly approved.
What Do I Need to Get a Business Loan? Six Business Loan Documents for Your Application:
1. Credit ReportTo gain access to additional capital, your business should ideally be able to demonstrate a history of paying back loans in full and on time. Although having poor credit won’t necessarily make it impossible to get approved for a loan, it’ll likely prompt online lenders to give you higher interest rates or smaller loan amounts. In some cases, they may require collateral to secure the loan. The differences between your personal and your business credit scores will depend on the specific structure of your business. Usually, it’s recommended that you try to create a separate legal entity for your business (LLC, Partnership, Corporation, etc.). This way, factors such as overdue payments on old student loans won’t affect your lendability as a business owner. Getting a credit report from one of the credit bureaus, such as Dun and Bradstreet, is a good place to start. If you have a good credit score, it'll likely make you an ideal loan recipient, increasing your chances of getting approved. In addition, you can correct any mistakes in your report prior to submitting your application. If your score is low due to business credit card debt or other financial issues, it may be worthwhile to focus on improving your score prior to applying for a loan.
2. Bank StatementsUsually, small business lenders will want to review your business’s bank account statements during the application process. Not only can they prove the legitimacy of your business, but they can also help you defend your future cash flow expectations. Lenders are much more likely to lend to businesses that they believe are actively earning revenue while managing their expenses in a healthy way. Due to this, it’s important that your financial statements reflect this.
3. Tax ReturnsYour business’ income tax returns can illustrate how your business has performed in the past. If your business is brand new, you should ask your accountant to help you create a projection of what your tax returns might look like in the upcoming year. When filing your taxes, it’s important to balance maximizing deductions while maintaining the image of consistent revenue. Although writing off a sizable portion of your taxes can allow you to minimize your annual expenses, having too many tax deductions may create some complications with potential lenders.
4. Income StatementYour income statement is a report of how your business has historically experienced cash flows. Generally speaking, an income statement will be clearly divided into columns of revenues and expenses. Income statements are especially useful for business lenders who want to understand how a business has performed over the past year(s). Even if your expenses exceed your revenues — which is often the case for newer businesses — all types of lenders will want to view your income statement.
5. Balance SheetThere are several differences between an income statement and balance sheet. While your income statement is a historical report, your balance sheet is a snapshot of your current financial situation. A balance sheet will represent your business financial components, such as:
- Currents assets
- Sources of equity
- Accounts receivable
6. Budget and Future Cash Flow ProjectionsWhen considering you for a loan, lenders will want to know how your business plans to utilize the financing, and what your plans are. For example, business owners often use their additional working capital to:
- Purchase real estate
- Pay for inventory
- Start expansion projects
- Invest in new equipment
- Afford payroll