The 6 Business Loan Documents You’ll Need to Apply
Applying for a business loan is one of the best ways you can invest in your business’s financial future. However, the loan application process can be confusing, especially if you’ve never pursued outside funding options.
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 Report
To 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 Statements
Usually, 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 Returns
Your 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 Statement
Your 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 Sheet
There 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:
Sources of equity
Each of these figures will be very important to business financing lenders. Essentially, the purpose of a balance sheet is to illustrate what your business currently owns and how much you currently owe. If your liabilities exceed your current assets, you may have a more challenging time securing a small business loan with a low interest rate.
6. Budget and Future Cash Flow Projections
When 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
Start expansion projects
Invest in new equipment
Although business lenders will want you to be as specific as possible with your plans, you’ll be afforded some freedom with your claims. This is because your budget and future cash flows are only projections, and lenders know that conditions can change.
To secure a business loan, you'll need to create two future scenarios. The first scenario will illustrate how you believe your business will perform without any additional financing. The second scenario should reveal how your business will be able to produce better outcomes once you receive a small business loan. Hopefully, this will convince lenders that you’re a viable candidate that could successfully repay a loan.
Lastly, remember that paperwork may vary depending on the type of business loan that you pursue. If you apply for a business line of credit or merchant cash advance, the requirements may differ from that of a traditional loan. In addition, bank loans usually require more paperwork in order to qualify.
In addition, required paperwork may vary by lender, which can include business licenses and other paperwork. If you pursue an SBA loan, you’ll be subject to the Small Business Administration’s specific prerequisites.
Overall, you must assure lenders that providing your business with financing will be mutually beneficial. By doing this, you’ll be more likely to secure a loan with a low interest rate.
Although there are numerous variables considered during the loan underwriting process, having the documents mentioned in this post available will certainly be in your best interest.
Editor’s Note: This post was updated for accuracy and comprehensiveness in March 2022.