Business Loan Checklist: 3 Must-Have Documents to Get Approved

Business loans provide capital to companies to finance growth and expansion opportunities. For small businesses and startups in particular, business loans are an essential source of financing since they may not have access to other funding sources like the stock market. With the capital from a business loan, companies can cover expenses related to launching new products and services, investing in equipment and technology, hiring additional employees, renovating facilities, or refinancing existing debt.

Business loans offer several benefits that make them attractive. They provide flexible access to capital that doesn’t require giving up equity in the business. Loan terms like interest rates, repayment schedules, and collateral requirements can often be negotiated with the lender. Business loans also help companies preserve cash flow and avoid tapping into emergency reserves.

However, to qualify for a business loan, there are key documents you need to prove to the lender that you are creditworthy and likely to repay the debt.

Business Plan

Lenders want to see that you have a solid business plan outlining your strategy and financial projections before they approve a loan. At a minimum, your business plan should contain:

  • Executive Summary – A high-level overview of your company, products/services, objectives, and projected growth. This acts as an introduction to your full plan.

  • Company Description – Details on your company’s history, ownership structure, location, mission statement, and overall nature of the business.

  • Market Analysis – Research and analysis on your industry, target customers, competitors, and where you fit in the competitive landscape.

  • Marketing Plan – Your strategy for promoting, pricing, selling, and distributing your products/services to reach your target customers.

  • Operations Plan – How you will produce your products or deliver your services. Details on suppliers, workflow, production/delivery methods, and general operations.

  • Management Team – Background on your key team members and their experience. Demonstrates you have the expertise to operate the business successfully.

  • Financial Projections – Detailed projections including income statement, cash flow statement, and balance sheet for at least 3-5 years. Supports the viability of your business model and ability to repay loans.

Having a comprehensive business plan shows lenders you have conducted thorough market research, developed a solid growth strategy, and realistically forecasted your finances. This provides confidence you are prepared to operate a successful business.

Financial Statements

Financial statements provide lenders with a detailed look at the financial health and performance of your business. These documents help lenders assess the viability and risk of lending to your company.

At a minimum, you’ll need to provide historical and projected profit and loss statements, balance sheets, and cash flow statements.

Profit and loss statements (P&Ls) show your revenue, expenses, and net profit or loss over some time. Historical P&Ls demonstrate the track record of your business, while projected P&Ls estimate future performance.

Balance sheets illustrate your business’s financial position at a specific point in time. They list assets, liabilities, and equity to showcase your company’s net worth.

Cash flow statements outline the money flowing into and out of your business from operations, investing activities, and financing. These statements demonstrate your business’s ability to generate cash and pay back borrowed funds.

Present 3 years of historical financial statements if your business has been operating that long. If not, provide as much history as possible. Projections should cover at least the term of the loan you are requesting.

Accuracy and realism are crucial when putting together financial statements for a lender. Any red flags or discrepancies in these documents could negatively impact your loan application. Work with your accountant to ensure your financial statements are complete, consistent, and free of errors. Thorough financial statements can go a long way in securing business financing.

Ownership and Management Credentials

Banks want to know they are lending to capable, experienced managers who will succeed in operating the business. To demonstrate this, you’ll need to provide background information on all owners with 20% or greater ownership stakes, as well as key executives and managers. This includes:

  • Brief bios highlighting the education, career history, and relevant experience of each owner/manager. Focus on accomplishments, skills, and successes that show the person is qualified to operate the business.

  • Resumes for all owners and key managers. These should provide additional details on work history, specific achievements, and unique qualifications.

  • Professional licenses, industry designations, and relevant certifications held by owners/managers that demonstrate their capabilities.

  • Previous business ownership/management experience and track record of owners and executives. Concrete examples of successful ventures they led are helpful.

  • Evidence of technical expertise, niche skills, and specialist knowledge for industries requiring these.

Providing professional bios and credentials shows the lender your team has the required skills, experience, and abilities to profitably run the business being financed. It reduces the bank’s risk and builds confidence you are worthy of loan approval.

Personal Financial Statements

Lenders will want to review personal financial statements from the business owners and guarantors to assess their financial strength. This allows the lender to evaluate the individual’s personal assets, liabilities, and net worth outside of the business.

The personal financial statement should include:

  • Personal balance sheet – This statement lists the individual’s assets (such as cash, investments, and real estate) as well as liabilities (such as mortgages, and credit card debt). It provides a snapshot of the person’s net worth.

  • Tax returns – Previous years’ tax returns help demonstrate the person’s income streams and financial history. Tax returns for the last 2-3 years are typically required.

  • Personal credit report – The credit report gives the lender insight into the person’s payment history, outstanding debts, credit score, and other information relevant to their creditworthiness.

By examining these personal financial documents, the lender can better evaluate if the individual has the financial means to personally guarantee repayment of the business loan if the company is unable to repay it. A strong personal financial profile from the owners instills confidence in the lender that the guarantee can be fulfilled if needed.

Collateral Assets

When applying for a business loan, lenders will want to see that you have adequate business and personal assets to use as collateral. Collateral helps secure the loan by giving the lender recourse if you default on repayment.

The main types of business assets used as collateral include:

  • Real estate – This includes commercial property, land, warehouses, retail space, etc. Real estate tends to make strong collateral.

  • Equipment – Machinery, vehicles, manufacturing equipment, and other physical assets owned by the business can potentially be used. Updated valuations are usually needed.

  • Inventory – For retailers, wholesalers, and manufacturers, the inventory itself may be usable as collateral. Perishable or rapidly depreciating inventory has less value.

In terms of personal assets, the main options are:

  • Personal real estate – This includes your home or other properties owned. Having equity in real estate provides a source of collateral.
  • Personal vehicles – Cars, boats, and RVs that are fully owned can potentially serve as collateral. The lender will require current valuations.
  • Investments – Stocks, bonds, and other securities may be accepted by some lenders if adequately liquid.
  • Cash value of life insurance – Using the cash value portion of your policy as collateral is an option.
  • When providing collateral for a business loan, it’s important to accurately document the asset valuations. The lender will usually require supporting materials like property appraisals, titles, financial statements, etc. The more collateral you can provide, the better your chances of securing financing.

Business Licenses and Tax IDs

To qualify for a business loan, lenders require documentation that your business is properly licensed and registered. This includes:

  •  **Business licenses:** Copies of current business licenses from your state, county, or city showing that your business is registered to operate legally. Common licenses include general business licenses, sales permits, and occupational licenses for regulated businesses.  
  • **Sales tax IDs:** A copy of your state sales tax ID number if you collect sales tax. Even if your business is exempt, you still need to provide your tax ID registration.
  • **EIN:** Your IRS Employer Identification Number (EIN), which identifies your business for tax purposes. Sole proprietors can use their SSN instead. But all other business structures need an EIN.

Having valid business licenses and tax registrations proves to lenders that you’ve completed all steps to legally form and operate your company. It also allows them to verify your business with state agencies and check tax compliance. While requirements vary by location, most lenders will want to see copies of your core business licenses and tax IDs directly from the issuing government agencies. These show your business is following regulations and help establish legitimacy.

Other Legal Documents  

To complete a business loan application, lenders will need to review all of the legal agreements and contracts signed by your company. This allows them to fully understand the structure and operations of your business.  

Some of the key legal documents you may need to provide include:

  • **Lease Agreements**: If you lease your commercial space or any equipment, you’ll need to provide copies of your current leases. This shows lenders your ongoing rent and equipment costs.
  • **Insurance Policies**: Submit copies of all active insurance policies like general liability, property/casualty, directors and officers liability, etc. Proper insurance shows lenders you’ve mitigated risks.
  •  **Shareholder Agreements**: If you have shareholders or silent partners, share any shareholder agreements detailing ownership stakes. Lenders want to know who truly owns the company.
  •  **Franchise Documents**: If you operate under a franchise, provide the franchise agreement and documents filed with any franchisor. This discloses key franchise terms and fees.
  •  **Surety Bonds**: Construction companies and contractors may need to submit surety bonds required for bidding on public projects. This guarantees contract performance.
  •  **Licenses and Permits**: Any licenses, permits, or regulatory approvals should be provided to lenders as applicable. For example, liquor licenses for restaurants/bars, environmental permits, etc.

  Having these legal documents in order shows lenders you operate legitimately and can handle business contracts and commitments responsibly. It provides them with the full picture before extending your financing.

Summary of Key Documents Needed

Here’s a quick recap of the key documents you’ll want to gather:

  • **Business Plan** – This comprehensive plan outlines your company’s objectives, products/services, target market, competitive analysis, marketing strategy, operations, and financial projections. It shows the lender you have carefully thought through your business concept and expansion needs.
  • **Financial Statements** – You’ll need to provide recent years of financial statements, including profit and loss statements, balance sheets, cash flow statements, and tax returns. These verify the financial health and performance of your business.  
  • **Ownership/Management Credentials** – Your resume and documentation of industry experience demonstrate you and your team have the necessary skills to manage the business and expansion. Educational credentials are also helpful.
  • **Personal Financial Statements** – Lenders will review your personal income, assets/liabilities, credit score, and history to assess your ability to provide personal guarantees if needed.
  • **Collateral Assets** – Banks want to see you have business assets or personal assets that can be used as loan collateral to secure the debt. Real estate, equipment, accounts receivable, and inventory are commonly used.
  • **Licenses and Tax IDs** – Copies of all relevant business licenses, permits, and professional certifications show your business is properly set up and compliant. Your EIN confirms you have registered your business for tax purposes.

Having these key financial, operational, and legal documents ready will help ensure a smooth loan application process. With preparation and a strong application, securing financing for your business growth is very achievable.

Next Steps for Applying

The application process for securing a business loan varies by lender, but there are some common steps to expect and tips for increasing your chances of approval:

  • **Choose the right lender** – Research different banks, credit unions, online lenders, SBA loans, etc., and select the best fit based on factors like rates/terms, loan amount, eligibility, and application requirements. 
  • **Complete the loan application thoroughly** – Provide all required info and documentation. Double-check for accuracy. Follow all instructions closely.
  • **Have supporting paperwork ready** – In addition to required docs like your business plan and financials, be prepared with tax returns, personal financial statements, proof of collateral, etc.  
  • **Be ready to explain your funding needs and business details** – Have clear reasons why you need financing, how much you need, and specifics on how you’ll use the funds. Explain your business goals, operations, financials, and growth projections. 
  • **Follow up promptly on any requests** – Respond quickly if the lender asks for clarification or additional documents. Delays can impact the application.
  • **Build relationships** – Connect with the loan officer, provide complete info upfront, and maintain open communication throughout the process. 
  • **Anticipate potential objections** – Be ready to answer tough questions or push back on any weaknesses. Provide context, plans to correct issues and your commitment.
  • **Prepare a presentation** – For some loans, you may need to present in person. Practice to showcase your business strengths.
  • **Be patient** – Understand that the underwriting process takes time. Persist and stay optimistic if not immediately approved.

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