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Documents required for a small business loan

Smart Business Financing

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Documents Required for a small Business Loan

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Finance companies and banks provide small-time business owners an option of a small business loan in case they don’t qualify for the traditional commercial loan. Much like any other banking transaction, there are documents and requirements needed for a business loan application. In this article we are going to discuss what your checklist should include when you are thinking of applying for that business loan.

Small Business Loan Checklist

All loan programs require applicants to fill in a form asking for personal information of the applicant. This is a protocol in any banking transaction but just remember that there is a lot more to it aside from the fill-in form because there are going to be documents that the banking firms are going to need from you. Here is a list of the documents required for a business loan.

Personal Background: This piece of information can either come in the fill-in form or be required as a separate document. Some of the additional information being provided by the applicant in here are former addresses, criminal records, aliases used and educational attainment.

Resumes: it is much like the personal background but the resume focuses more on your professional experience. Some lenders assess their clients based on their knowledge in the industry that they are in. If a mechanical engineer is currently operating a factory workshop then a loan for him would easily be granted, given that his business is relevant to his professional career.

Business Plan: Lenders need an assurance that the business loan is indeed going to be spent for the business that is why requiring applicants to present a business plan is necessary. A business plan should cover financial statements, cash flow, gains and losses plus a balance sheet.

Personal Credit Report: Lenders obtain credit reports of applicants as a way for them to tell about the applicant’s credit reputation. In order to be unbiased, lenders purchase credit reports from all of the top 3 credit bureaus. This is the fair assessment for an applicant than relying on a single credit report which may be misleading.

Business Credit Report: Aside from the personal credit report the banking firms will also require a business credit report if the applicant’s business or entrepreneurship has been up for at least 9 months. You should be wary of your business credit report if you are still a startup businessman and make sure you are able to clear the blemishes and red marks before you present your business credit report to the lenders.

Income Tax Returns: Applicants’ income tax returns for the past 3 years is also required by most banks and finance firms.

Financial Statements: Some loan programs require businessmen with more than 20 percent of shares in the business to present signed personal financial statements as part of the business loan requirements. The financial statement presented must also cover projected business cash flow after the small business loan has been granted same as the business plan. The latter may come as a separate document and it is a must that you inquire about it beforehand because banks and finance firms have varying requirements.

Bank Statements: The banking statement of the applicant for the past 6 months is regarded as the most important requirement. It is because there are lenders who only require this alone and a small business loan would be accessible right away.

Collateral: The issue of collateral as a form of guarantee to the lenders is very complex and may vary for each lending company. There are lending companies who do not require any collateral but for those who have this implemented the main factor is the cost/market value of the property being held as collateral. The value should be somewhere near the total amount of the business loan. A disparity of 30% in terms of cost can already be considerable.

Legal Documents: A legal document or two may be required by most banks and the easiest way to deal with this is to let your lawyer handle this aspect of business loan requirements.

Questions that Lending Companies often Ask

Lending companies may vary in terms of approach towards their loan applicants but the goal stays the same which is to extract the most amount of personal information and financial status of an applicant. Expect lending companies to be nosey when it comes to your plans for the money that you are going to borrow. They will also ask you about your sincerity and dedication towards your business and may contest your expertise and knowledge about the industry that you are in. During the interrogation process, always be honest with your replies and do not give your answers through pretensions. The lenders will appreciate it if you are honest about your need for the money and financial situation.