For entrepreneurs, seasoned ones and those taking the first step alike, a business loan is the key that opens many doors. Securing a business loan can allow you to scale operations, start a new venture, or simply bolster your cash flow.
However, to get a business loan one need more than a brilliant idea or a profitable business. One needs to show lenders they are financially reliable and prepared. They need to convince the bank they are bankable.
From financial statements and tax returns to business plans and legal paperwork, read on as we cover all key documents needed to secure a business loan.
Financial statements
When lenders assess your application, they want to know if your business can repay the loan. Financial statements like profit and loss statements, balance sheets, and cash flow statements help paint a clear picture of your business’s health.
Profit and Loss Statement (P&L)
This shows your business’s revenues, expenses, and profits over a certain period. Lenders use this to see if your income can cover loan payments.
Balance Sheet
It gives a snapshot of your assets, liabilities, and equity. It’s like a quick health check for your business.
Cash Flow Statement
This shows how money moves in and out of your business, proving whether you have enough liquidity to handle loan repayments.
Tip: Keep these statements updated and accurate to impress lenders.
Tax returns
Tax returns give lenders a deeper look into your financial history. Typically, they’ll ask for your business and personal tax returns from the past two to three years.
Why? Lenders want to verify your income and check for red flags like inconsistent earnings or unpaid taxes. Even if you’re applying for a loan to start a business, personal tax returns are often required to show your creditworthiness.
Business plan
A solid business plan is your chance to shine. If you’re wondering how to get a loan to start a business, this is especially important. A business plan outlines your goals, strategies, and how you plan to use the loan.
What should your business plan include?
Executive Summary: A brief overview of your business and its purpose.
Market Analysis: Data about your industry, target audience, and competitors.
Financial Projections: Forecasted revenue, expenses, and profitability.
Loan Purpose: A detailed breakdown of how you’ll use the loan, like buying equipment, hiring staff, or expanding operations.
Legal paperwork
Legal documents are non-negotiable, especially if you want a fast approval process. The required paperwork can vary, but here’s a list of common ones:
Business Licenses and Permits: Proof that your business is authorized to operate.
Articles of Incorporation or Organization: For LLCs and corporations, this outlines your company’s structure.
Partnership Agreements: If you have business partners, lenders may want to see your agreement.
Contracts: Include any major client or vendor contracts that show steady income.
Pro Tip: Organize these documents in a digital folder to keep everything easily accessible.
Bank statements
Your bank statements give lenders a clear idea of your cash flow and financial discipline. They’ll typically ask for the past six months of both business and personal bank statements.
For someone trying to get a new business loan, these statements show whether your savings and income can support the business if needed.
Personal identification
This might seem basic, but it’s crucial. Lenders need to verify your identity and ensure that your application isn’t fraudulent. Common documents include:
A government-issued ID (like a passport or driver’s license).
Social Security Number or Taxpayer Identification Number.
Credit reports
Both personal and business credit scores play a big role in whether you get a business loan. Lenders often request access to your credit report to evaluate your financial behavior.
If you’re wondering how to get a loan to start a business without stellar credit, don’t worry. Some lenders focus more on your business potential than your credit history, especially alternative or online lenders.
Collateral documentation (If applicable)
Not all business loans require collateral, but if yours does, you’ll need to provide proof of ownership. Collateral could be property, equipment, or other valuable assets that back your loan.
For example:
Property deeds for real estate.
Inventory lists or machinery invoices for business assets.
Additional Documents for Specific Loans
Different loans have different requirements. If you’re applying for an SBA loan, you’ll need additional forms like the SBA Form 1919 and personal financial statements.
If it’s a loan for a new business, you may also need projections for at least three years and a detailed startup budget.
How to Stay Prepared
Lenders appreciate applicants who are well-prepared. To improve your chances of getting approved:
Stay Organized: Keep all your documents in one place, preferably in digital format.
Double-Check for Errors: Ensure your financial statements and tax returns are accurate.
Ask Questions: If you’re unsure about any requirements, don’t hesitate to ask the lender.
Final thoughts
Getting a business loan doesn’t have to be stressful. With the right documents in hand, you can confidently present your case to lenders. Whether you’re aiming to get a new business loan or exploringhow to get a loan to start a business, preparation is key.
Remember, these documents not only help you secure the loan but also show lenders that you’re serious about your business. So, take the time to gather, review, and organize everything. It’s a little effort that goes a long way.
Good luck! Your dream business is just a loan away.
Angela Spearman is a journalist at EzineMark who enjoys writing about the latest trending technology and business news.
