Getting Ready for Your Business Loan Application
Securing a business loan can be a crucial step in growing your business, and the good news is that there are various options available, including low-interest loans from state and local economic development agencies and nonprofit organizations, especially for those who might not qualify for traditional commercial loans.
Whether you’re aiming for a loan from one of these alternative sources or a traditional commercial lender, here are four essential tips to help you prepare
Explore Your Lender Options
Before applying for a loan, it’s vital to research different financial institutions. Each lender has its own criteria for evaluating risk, and what one lender sees as a good risk, another might not. Regulatory requirements also influence the types of loans lenders can offer, so understanding how a particular lender operates can give you a better chance of approval.
Clearly Define Your Funding Needs
One of the main reasons loans get denied is due to issues with the business’s earnings quality, cash flow, or insufficient collateral. To increase your chances of approval, be ready to explain precisely why you need the loan and how you plan to repay it. Using profitability ratios to demonstrate your business’s financial health can be particularly persuasive.
Gather and Prepare Essential Documentation
Lenders expect you to be well-prepared with the necessary collateral and documentation. The loan application process involves filling out forms that require detailed information, so it’s essential to have everything ready. You’ll need to provide:
- Personal Background: Include details like previous addresses, criminal record (if applicable), education, and any former names used.
- Management Team Information: Details about the key members of your team.
- Existing Business Debts: List any other debts and the names of creditors.
- Assets and Suppliers: Identify assets you need to purchase and the suppliers involved.
Provide Additional Required Materials
To support your loan application, you’ll need to submit several key documents:
- Business Plan: A comprehensive business plan that outlines your strategy for growing revenue over the next 3-5 years. This plan should include projected financial statements like cash flow, balance sheet, and profit and loss statements.
- Credit Report: Lenders will review your personal credit report, so it’s important to check it yourself beforehand for any inaccuracies. If you’re already in business, they might also request your business credit report. Clear up any discrepancies before applying.
- Resume: Some lenders require a resume to demonstrate your business or management experience, particularly if the loan is for starting a new business.
- Income Tax Returns: Include both personal and business tax returns from the past three years.
- Accounts Receivable and Payable: Many loan programs will want to see your business’s current financial status, so have these records ready.
- Legal Documents: Depending on your business structure, you might need to provide legal documents such as articles of incorporation, contracts with third parties, franchise agreements, commercial leases, and any necessary business licenses and registrations.
- Financial Statements: Lenders may require signed personal financial statements, especially for owners with more than a 20% stake in the business. Projected financial statements might also be needed, either as part of your business plan or separately.
- Bank Statements: Many lenders request a year’s worth of personal and business bank statements.
Partner with iCFO for Expert Guidance
iCFO can provide invaluable support throughout the loan application process. Our team of financial experts can help you:
- Assess your financial health and identify areas for improvement.
- Prepare comprehensive financial documents that meet lender requirements.
