Money is essential to run a business. Sometimes, the money available at hand might not just be enough for the business. A Business Loan is the best solution available to a business owner in such a case. Money borrowed for a business is known as a business loan. Availing a business loan is not an easy task although it is available with all the banks. To avail a business loan a business owner needs to fill an application form with a particular lender. Along with filling the application form applicants need to satisfy the eligibility criteria of that very particular lender. The loan application is approved only when the application form is filled correctly. Almost all the banks/lenders need similar details through an application form. Of course, there are different loans which have specific forms which you need to fill out if you want to avail any particular type of business loan. Whatever be the type of business loan, all require same set of documents, hence it would be wise to find out more in advance before applying.
Business Loan application varies from loan to loan and with lender to lender. But the information asked in the application form are almost same and one should be prepared to answer the following question once they decide to apply for a loan.
- Why are you in need of this loan?
- How do you intend to use the loan amount?
- What other debts you have, and who are your creditors?
- Personal Background
- How much are you paying or your previous debt?
Banks are in the money-lending business to lend money and earn profit on it as the interest on the loan. They need security and stability to reduce their risk. When it’s about a start-up business loan or a conventional business loan, it is not possible to show past data to prove how well settled the business has been. This makes it toughest for the startups to secure a business loan.
Your business loan application should be genuine with all the correct and relevant details along with the supporting documents. To increase the chances of application approval you should include some important points in your business loan application so that the lenders feel confident about you and approve your loan application.
Things You Should Include in Your Business Loan Application
- Cover Letter
A cover letter is a personal business letter that can be addressed to the manager of a financial institution i.e. a bank to discuss your loan application required for your venture. The letter is a way to request your lender to consider your loan application and providing you suggestion on the same. The letter should also contain a description of your business like what is your business and in which field, it deals with.
- Business Plan
A sound business plan is required to be submitted along with the loan application. The business plan submitted should include –
- Company description
- Market analysis
- Complete set of projected financial statements.
- Profit and loss statements.
- Cash flow and balance sheet.
- Required funds
- Management strategies
- Marketing Strategies
- Personal Credit Report
Lenders obtain applicants personal credit report as the part of the application process. However to be sure one should obtain his/her credit report from all three credit rating agencies before submitting their loan application to any lender. Inaccuracies in the credit report can make you deprived of getting a loan approved. It is also important to clear these before beginning the application process.
- Business Credit Report
A business credit report is also an important thing to be included in a business loan application if you are in business for long. A business credit report with good credit can be a strong factor for getting your loan approved.
Listing your available collateral is also an important thing which should be included in a business application. The list of available collateral can include- stocks and bonds, equipment, home equity, inventory, and receivables etc. A collateral is given to reduce the risk of a lender in case the borrower is not able to make the repayment. Demonstrate your understanding towards your banker. Each and every collateral listed should be described with its cost and current market value. It may also be needed to provide documentation of the value. So if you apply for a small business loan be prepared with the documents and paperwork of your collateral.
- Financial Projections
It’s important to show your lenders that how our business will go by using the funds from the loan. Provide a Balance sheet, projected income statement and cash flow statement. By viewing these the lender will get to know that whether your business will generate sufficient profit to pay off the loan or not.
- Income Tax Returns
A business loan requires applicants to submit their personal and business income tax returns for the last three years.
- Legal Documents
Depending on the business loan requirements a lender may require the applicants to submit some legal documents. So, before you apply for a small business loan make sure you have the following documents-
- Business licenses
- Registrations details of your business
- Franchise agreements if any
- Articles of Incorporation
- Copies of contracts if you have a third parties
- Commercial Leases
- The Loan Amount you need
The amount you need as the loan is very important to be mentioned in the loan application. Also, mention how you will use that amount. If you are planning to buy a new equipment, then it should show the approximate price, including the installation price, and then show the balance amount after total calculation from the borrowed amount.
- About Your Team and Management
Lenders know that a business totally depends on the people who are working for it along with the business owner. These people include the management team, operations team, and the technical team. Although all the employees working are important but most of the lenders consider only these. It may also include an outside consultant.
- Bank Statements
In order to approve for business loans, lenders look closely at the business’s financials so that they can get an idea of how was the business performing. Lenders also want to confirm that whether an applicant can afford the loan and can pay it back or not. Because of this, business and owners bank statements are some of the most common small business loan requirements.
- Disclosure of Other Business Debt
It is possible that an applicant might have some previous debt. A business debt schedule let the lenders know the current state of any debt an applicant owes. A business debt schedule will showcase the outstanding loan and credit amounts as well. It also outlines the monthly payments with interest and payment dates to the borrower. Hence, it is important for the business loan lenders to know this before lending to business owners/ applicant who already have other loans. This is also to make sure that the borrower wouldn’t be able to afford the additional loan payments or not.