Small Business Loan Paperwork: What You Need to Know

Applying for a business loan can seem daunting, especially when you consider the long and tedious process involving the paperwork. 

But it is something that can’t be escaped.  Every business loan requires you to submit a long list of documents to prove your business can handle the debt. These frequently include your personal financial information alongside your business’s revenue, income and tax information. 

Be ready to provide accurate documents and meet lender requirements when you apply. Having all your documentation in order can increase your chances of being fully or partially approved for funding.

Key Documents Required for a Small Business Loan

When you apply for a small business loan, the lender is essentially trying to figure out one thing: what is your ability to repay the loan? Whether you’re applying for a working capital loan, a term loan, or something else, this is the same case with every type of small business loan. Your financial statements and credit history can help them decide when to lend you money or not. With that in mind, let’s break down the list of documents that lenders will ask small business owners to produce as part of the loan application process:

Bank Statements

Your bank statements give a glimpse into your deposits, withdrawals, and balances. This provides your prospective lenders with an understanding of your business’s financial health and your ability to repay your loan. Based on your bank statements, a lender can estimate how much money you’ll be earning and spending in the future and calculate where their loan may fit into that balance. A bank may be deterred if you are spending more money than you earn.

Credit Statements

Your credit statements also help lenders determine your ability to repay a loan. This includes your personal as well as business credit reports. A good credit score can increase your chances of getting approved for a loan.

Financial Statements

While applying for a business loan, you need to ensure that you have all your business financial statements ready with you. This includes a balance sheet, income statement, and statement of cash flow. These documents will give your potential lenders an understanding of your business’s financial situation and your ability to repay the loan. The documents need to be accurate and up to date for them to be of any use.

Tax Returns

Keep your most recent tax returns ready with you if you are planning to apply for a small business loan. Your income is verified by your tax returns, and it also gives your lenders a glimpse at your debt-to-income ratio. If your debts are more than your income, lenders might consider you a high-risk borrower and may reject your application.

Business and Financial Documentation

Banks and other traditional lenders typically require a wide range of paperwork when you apply for a small-business loan. The financial and legal documents you may need for a small-business loan include:

• Personal and business income tax returns.

• Financial documents, such as P&L statements, balance sheets and cash flow statements.

• Personal and business bank statements.

• A photo of your driver’s license.

• Commercial leases.

• Business licenses.

• Articles of incorporation.

• Proof of collateral.

• Business plan.

• Existing debt schedule, if applicable.

• Legal contracts and agreements.

• A resume that shows relevant management or business experience.

• Financial projections if you have a limited operating history.

Online lenders may provide a streamlined application process with fewer documents and faster underwriting.

Business Plan and Loan Proposal

Lenders will want to know how you plan to use the money and see that you have a strong ability to repay. They may require a business plan that explains what your business goals are and how you plan to reach them. Some lenders may also ask for a business loan proposal, which details the purpose of the loan and how you expect to repay it.

These documents should clearly demonstrate that you will have enough cash flow to cover ongoing business expenses and the new loan payments. This can give the lender more confidence in your business, increasing your chances at loan approval. On the other hand, if you’re a new business that doesn’t have existing revenue to show a lender, a thorough business plan can help convince it that you will be successful in the future.

Conclusion

Each lender has its own lending criteria, and you’ll need to provide documents as per that to be considered for a loan. 

Ensuring that all these documents are in one place and are in complete order will make the process of business loan application easier. It’s also best to contact the lender to get a list of the documents needed to process your application. And if the lender needs some extra information during their review, don’t delay it. Promptly provide the paperwork to get a loan decision sooner. You can also consult with a financial advisor before starting the application process as you will be able to overcome a lot of hurdles, which you are unaware of.