Getting a business loan can be difficult. The entire process of loan approval is complex and lengthy. The reason for this is that the lenders need to make sure that you can repay the loan on time. Businesses may incur profit or loss. The lenders will scrutinize every detail of your business’s financial health, along with your assets, to ensure that you can pay back the loan amount even if the business goes through a rough patch. To make the loan-approval process convenient, you must know the business loan requirements and prepare a checklist of all the financial statements that lenders would want to see.
Documents You Need For a Business Loan
Business loan requirements can vary depending on the type of loan and the lender. However, there are some common documents that are required for any business loan. Here you will get to know about them.
1. Business Licenses And Registrations
Lenders will need to ensure that your business is legally authorized. You need to demonstrate that you have a valid license and other legal documents to run a business; otherwise, you won’t get any funds from a bank or other lenders. A business license usually has a limited time frame after which you need to renew it. So, make sure you have the up-to-date document to show the lenders.
2. Balance Sheet
A balance sheet is one of the most crucial business loan requirements for a business loan. It will give a snapshot of your business’s present financial condition. It shows the business’s current assets, liabilities, equity sources, and accounts receivable. It is better to submit the balance sheet of the past two years so that the lender can see a consistency in your financial position.
3. Personal And Business Credit Report
Your credit report will show whether you have paid down debts in the past and how much credit you have to pay back in the future. The same goes for your business credit report. If you have taken credit in the name of your business, then the credit report will show how efficiently you have managed your debts. The credit report will show if you have delayed or defaulted on any payment. The credit report is similar to your character certificate. A clean credit report will assure the lender that you are not a risky borrower and that you will pay back the loan on time.
4. Income Statement
An income statement shows whether your business is profitable or not. The lenders can see if you can manage to keep your expenses lower than your revenues and generate profit. By looking at the past two to three years of income statement, the lenders can spot any unusual expenses or seasonal fluctuation in revenues.
5. Income Tax Returns
If your business has been in operation for many years, then you must present tax documents for at least the past two years. This document acts as extra proof for your monthly earnings that you have declared in your business financial statements. The number of tax returns will determine how much of a loan you will be eligible for. Whenever you start a new business, it is necessary to hire an accountant to keep records of your finances and prepare tax returns at the end of every year.
6. Business Plan
Before lending you money, the lender will make sure that you are serious about your business. Whether you are applying for the loan to start a new business or expand your existing one, you should prepare a detailed business plan. In your plan, you must mention your projected returns and action plans for getting those returns.
7. Cash Flow Statement
Lenders often want to know whether you have sufficient liquid cash to pay loan or any other unexpected costs. This document shows clearly where your money is moving, that is, whether you are using it for investing or operating a business, for example. Therefore, a cash flow statement is one of the important business loan requirements.
8. Proof Of Collateral
Lenders will need collateral to approve a business loan. The collateral, which can be a house or any other asset, acts as a guarantee that the lenders can recover the debt amount in case you fail to repay. Accounts receivable can also serve as collateral. You must show documents of assets you offer up as collateral.
9. Insurance Information
Many lenders may ask you to have insurance against the owner’s death to avoid any risk of the loan. So, you must submit the insurance document if the lender demands. Lenders will see you as a safe borrower if you can provide the insurance documents.
10. Accounts Receivable And Payable Aging Reports
These reports will show how efficiently your business can get accounts receivable from clients and pay accounts payable to vendors. If your business has a healthy aging report, then it indicates that your business maintains financial discipline.
If you can present these documents, then your business will be considered to be transparent and organized. You will have a higher chance of getting a loan. This checklist can help you collect these documents in advance to strengthen your loan application. It is recommended that you hire a financial advisor to scrutinize all these documents to ensure that they are in the right order before submitting them to the lenders.
