Every business will require additional financing at some point, whether it’s to help with startup costs or expansion.
With the big banks finally starting to lend to businesses again after the lean years following the financial crisis, and many alternative lenders offering loans tailored to suit the needs of small businesses, now is a good time to apply if your business needs some extra cash. But what exactly do you need to secure a business loan in the first place? Preparation is the key to success so here’s a guide to all the paperwork you might be asked to provide.
1. Business profile.
Your profile is a document that describes the basic facts about your business such as what service or product you provide, how many staff you employ, how long you’ve been in business, your annual sales and more. It’s a brief facts and figures guide to what your business is about.
2. Business plan.
A solid and detailed business plan is the most important part of your loan application. It should include a far more detailed picture of your business financials as well as a realistic assessment of your prospects for growth. Lenders will certainly check your plan carefully so make sure your figures are accurate. Your plan should be between 5 and 20 pages and have supporting documents in addition.
3. Supporting documents.
The financial documents needed to support your business plan will likely include three years’ worth of balance sheets, profit and loss statements, cash flow projections, tax records and details of your business accounts receivable and payable.
4. Loan request.
This form will include the type of loan you are seeking and the amount of money you want to borrow, how the funds will be used and the amount of working capital you have at your disposal. Always ask for the amount you realistically need rather than what you think a lender might be willing to give you. It’s not the loan amount itself that lenders are most concerned with but the evidence that you can pay it back – with interest!
Demonstrate how you plan to secure the loan, including business assets and other forms of equity, available cash and borrowed funds. You may also need to provide an inventory of equipment with serial numbers and proof of insurance. While this is an increasingly standard procedure, it can put you at risk of losing your house or other assets if your business fails. Some alternative lenders will waive collateral requirements in exchange for a shorter term loan with higher associated costs.
6. Personal and business financial statements.
Lenders will likely require a full report on not only your business’ current debts but also any personal debts you hold, including the balances, payment schedules and history, maturity and collateral required to secure them. In addition, you’ll also need to provide this information for anyone – such as partners or stockholders – who owns 20% or more of the business. Order business and personal credit reports at least 6 months before you plan to make a loan application and check for any factual errors. In addition, make sure these reports fully reflect your positive credit history, such as servicing debts promptly.
In addition to the above, you should consider submitting any documents that can improve your chances of securing a loan. These might include market data demonstrating demand for your product or service, research on your competitors or letters from commercial accounts stating that they are currently doing business with you or intend to start.
There’s a range of documentation required depending on the type of loan you seek, with long term bank loans typically requiring more paperwork and longer processing time.
Forewarned is forearmed and it’s good to have as many supporting documents to hand as you can, just in case they’re required. However, wait to see what your lender asks for before you submit. There’s such a thing as ‘too much information’ and overloading the lender with additional documents may ultimately damage your chances of securing a loan.