Applying for a business loan can be a difficult process or a smooth one, depending on how prepared a business owner is. And because some loan programs have limited amounts of money and can run out quickly, the sooner a business owner can gather the paperwork needed when an opportunity arises, the quicker they may receive an answer about securing a loan. When a business is prepared, the lender is able to gain an early, clear picture of the business’s finances, which may shorten the application process. Listed below are some of the most common documents a lender may need, and which are good to always have on hand.
A collection of the business’s bank statements can show the stability and history of a business. This information also shows how money was spent, which might be important for certain loan programs.
Typically, a lender requests three years of federal tax returns, unless a business has not been in operation that long.
Personal financial statement
This document summarizes the assets and liabilities of the person applying for the business loan. Assets are what the applicant owns, such as a vehicle or land. Liabilities are expenses or loans on which the applicant might owe money, such as a home mortgage. Lenders use the personal financial statement to take an applicant’s income into account. Assets, liabilities, and the applicant’s net worth are all considered in the loan approval process.
Profit and loss statement
This is a summary of a company’s revenue and its costs of doing business. The profit and loss statement reflects whether a business can generate a profit by increasing revenue, reducing expenses, or both.
A balance sheet shows how a company’s finances are doing as of a certain date. It reports all assets, liabilities, and shareholder equity. Shareholder equity is the amount of money the owners of a company have invested in the business.
The business plan identifies trends and puts in writing how and why the business will succeed. It’s a way of communicating why a lender, or anyone else who reads it, should place confidence in this particular business.
Business licenses show a lender how the business is structured. For example, the applicant may be a limited liability company (LLC), an S corporation (S corp), a sole proprietorship, or a nonprofit organization. These are all different ways the government recognizes a business. There are different rules for each.
Accountants or bookkeepers are experts at pulling these types of documents together to help companies apply for business loans. Alternatively, certain software packages and websites can generate the necessary loan documents. Often, community organizations can aid small businesses that want to apply for a business loan.
When applying, be sure to ask for a checklist of all documents that the lender or program needs in order to process the loan. Keep in mind that the lender may request additional items during the loan process. Ask about the lender’s deadlines for submitting paperwork, and commit to those deadlines. If you have to miss a deadline, anticipate the issue in advance and talk to the lender. Keep all paperwork organized and secure – these are private documents that you should only share with trusted sources.
With a little advance preparation, business owners can enjoy a smooth experience when applying for a business loan. Not only does the information give the lender a complete picture of a company’s finances, but the business will gain a clear understanding of its own financial health, too.