When you apply for a regular loan, you do not generally have to provide a huge amount of documentation. However, with business loans, things are slightly different. For lenders, a business loan represents more of a risk, and this is why the process can often take much longer than with a personal loan. In addition, this heightened risk means that you have to produce more documentation when you apply for business loans. Making sure you know what you need to provide to the lender can help the process to move along more quickly.
Am I Eligible for Business Loans?
One of the things you need to consider if you are planning to apply for a business loan is your eligibility. Different lenders have different requirements when it comes to eligibility, so make sure you check their websites before you make your application. In addition, there are some common requirements that may apply across the board. This includes:
- Your credit rating and history
- How long the business has been in operation
- What your yearly revenue is
- Your personal credit status and history
- Your income levels
- Collateral options where applicable
- Details of what the funding is for
There may be other criteria you need to meet as this can vary from lender to lender. By doing some research and checking online before you make any applications for business loans, you can find out more about whether you are likely to qualify.
Details of Documentation Needed
Lenders are likely to ask for a range of documentation along with your application. It is very important to find out exactly what the lender needs in terms of documents, as otherwise your application could be delayed or even rejected. Some documentation may need to be sent with your application, and some may be required after your application has been received in order to verify the information you have provided.
Make sure you get all the necessary documentation together before you submit your application and if there is anything you are unsure of, contact the lender before you apply to get clarification. Some key documentation that many lenders will ask for when you apply for business loans includes:
Statements from the Bank
When you apply for a business loan, one of the things the lender will want to check on is your financial status. You will, therefore, have to provide bank statements to enable them to do this. In general, lenders will normally ask for statements going back around two years.
Profit and Loss Statements
All lenders will, of course, have a vested interest in the finances of your business. They may, therefore, ask you to provide revenue statements including both the most recent one and previous ones going back two years or so.
Most lenders will need to know what your business’ financial standing is before they can approve a loan application. One of the ways in which they may do this is by asking you for balance sheets that provide details of capital, assets, and liabilities.
Your Personal Credit Score Details and Financial Information
Some lenders will also ask for your personal credit score details and personal financial information, particularly if your business has not been operational for all that long. This includes providing them with copies of your credit reports from the various agencies and details of any personal debt and assets you have.
Your Tax Returns
Another thing you may be asked for by lenders is details of your business and your personal tax returns. Again, a request for your personal tax returns is more likely if you have not been in business for very long.
Details Relating to Collateral
In some cases, lenders may request that you secure the loan against an asset such as your home because this then reduces the risk to the lender. If this is the case, you will need to provide documentation relating to the asset you secure the financing against. In addition, you may be required to take out insurance to ensure the loan can be repaid in the event of your death or that of any partners you have.
Providing a Business Plan
Not every lender will ask you to provide a business plan when you apply for business loans. However, it is a very good idea to have one prepared if you are looking for business finance. This means you will already be prepared in the event you are asked for one. In addition, a solid business plan can increase your chances of getting the loan you need.