10 Documents You’ll Need to Be Approved for a Business Loan
Applying for a small business loan can be an intensive and time-consuming process. As such, it’s important to start preparing long before you apply.
A critical component of a business loan application is documentation. Lending to a small business can be a risky endeavor for lenders, so they’ll want to know that you and your business are worth taking that risk.
The sooner you start putting together your documents, the more smoothly the application process will go. Here’s what you’ll need.
1. Business plan
Your business plan may be the most crucial document you’ll need because it helps the lender understand the purpose of the loan and whether the business can succeed long enough to pay it back.
In your business plan, share information about your:
Also, take the chance to tell your story, and explain what sets you apart from your competitors. Demonstrating your passion and building a case for your business can give the loan officer more context where financials don’t tell the whole story.
Some lenders may require a personal resume to get an idea of who you are and your background. Even if it’s not needed, it can’t hurt, especially if it can prove you have the expertise necessary to succeed with your business.
3. Personal credit report
Most lenders run a personal credit check as part of the application process, especially if you don’t have a strong business credit history. But you may need to provide a copy of your personal credit report along with your other documents.
You can get a free copy of each of your personal credit reports once a year at AnnualCreditReport.com.
Before you include it with your application, go over the report to make sure there aren’t any inaccuracies. Creditors and the consumer credit bureaus aren’t perfect, so it’s possible that an error can slip through and hurt your chances of getting approved.
4. Business credit report
As with your personal credit report, the lender may look up your business credit report on its own. But you should at least look over it before you apply.
Unfortunately, you can’t get free access to your business credit reports through the commercial credit bureaus. You can, however, view your report for free after getting denied for a business loan, or through Nav’s credit report tool.
5. Tax returns
Lenders typically want to see three years’ worth of personal and business tax returns to understand how stable your and your business’ financials are.
Of course, if your business isn’t three years old, you’ll only need to provide the returns you have. And if your company is a pass-through entity, such as a sole proprietorship, partnership, LLC or S corporation, you’ll only have to share your personal tax returns.
6. Bank statements
In addition to getting an idea of your financial stability over the past few years, lenders also want to know if there are any red flags from the past months.
To provide this, you’ll often need to share the last three months’ worth of business and personal bank statements. If there’s anything out of the ordinary, like a large deposit or withdrawal, be prepared to explain the source.
7. Other financial statements
To get a deeper understanding of the company’s financials, lenders often want to see your cash flow statement, balance sheet, and profit-and-loss statement. These documents should provide every detail about your business’ assets and liabilities, revenue and expenses, and cash decisions.
In addition to providing a snapshot of your current and past financial situation, it’s also wise to put together some projections for each of these statements.
8. Collateral documentation
Many business lenders require collateral to secure a small business loan. That can include cash deposits or savings, equipment, inventory, real estate, or other assets.
Regardless of what you choose as collateral, you’ll need to show that you or your business own the asset free and clear and that there aren’t any other liens on them.
9. Business legal documents
Depending on how you’ve structured your company, you may need to provide additional documents to show that you’re operating legally and licensed to do business. Typical documents include:
If you have an attorney or tax accountant, consult with them to ensure you get all the necessary documents prepared.
10. Commercial leases
If you already have monthly obligations, either to a landlord or another lender, you’ll likely need to provide copies of your leases. Not only do they show your payments, but a lease from a landlord also shows how long you can do business at the property for the entire length of the lease, providing more stability.
The bottom line
Gathering your documents for a business loan application can be the most stressful part of the process. So it’s essential that you don’t want until you need money to start doing it.
It may even be a good idea to get these documents together even if you don’t need a business loan anytime soon. That way, you’ll have it when you need it and don’t need to draw out the process longer than it already is.
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