Gathering documents while applying for a small business loan is often a hassle. Yet there’s no way to avoid loan documentation when you’re trying to secure funds.
The best way to minimize the hassle is to be prepared and understand how to value a small business. In other words, know all the loan documents your lender is likely to ask for when you approach them.
To make it simple for you, here’s a list of all the loan documentation you need when you approach a lender so that you don’t have to find a documentation specialist for the job.
The List of Business Loan Documentation You’ll Need
SBA 7(a) Loans/Bank Loans
SBA’s 7(a) Loan Program is one of the most popular borrowing options for small businesses. It’s worth noting that SBA does not extend loans itself. Rather it guarantees small business loans made by participating lending institutions. (As a result, much of the information you’ll need is the same documentation you’d need to apply for a loan from a more traditional lender.)
What makes SBA loans attractive to many small businesses is the low interest rates, but it also involves lengthy paperwork.
Once you have decided to apply for an SBA loan, you will have to gather all your documents. The process will then begin with your local lender, working within the SBA guidelines.
Here are all the documents you will need to submit.
SBA Loan Application: This is the first thing you will have to complete to process your request. You can find the most current form here (PDF).
Personal Background and Financial Statement: To evaluate your eligibility, the SBA requires you to complete a few forms where you will have to provide personal background and financial information.
Business Financial Statements: You must also be able to show that you can repay the loan. For that, you need to provide the following financial statements: Profit and Loss Statement and Projected Financial Statements.
Ownership and Affiliates: You must include a list of names and addresses of any subsidiaries as well as affiliates. These may include concerns in which you hold a controlling interest and other concerns that may be affiliated by franchise, proposed merger, stock ownership or otherwise with you.
Business Certificate or License: Your original business license or certificate of doing business is also needed. If your business is a corporation, you need to stamp your corporate seal on the application form.
Loan Application History: You should include records of any loans you may have applied for in the past.
Income Tax Returns: Add signed personal and business federal tax returns of your business’ principals for the last three years.
Résumés: Also include personal résumés for each principal.
Business Overview and History: Provide a short history of the business and its challenges. Add an explanation of why you need an SBA loan for your business.
Business Lease: Provide a copy of your business lease, or a note from your landlord.
For Purchasing an Existing Business: Provide the following information: 1) current balance sheet and P&L statement of business to be bought, 2) last two years federal income tax returns, 3) proposed Bill of Sale including Terms of Sale, 4) asking price with schedule of inventory, machinery and equipment, furniture and fixtures.
Alternative Lenders
If your business does not meet a traditional bank’s financing requirements and you are wondering how to get a business loan, you may want to consider alternative lenders.
Alternative lenders provide financing to even those small businesses that haven’t been around for a long time. And they have a less paperwork-intensive application process that can be completed online.
Here are the types of loan documentation that most alternative lenders are going to ask you to submit.
Tax Returns: Make sure you submit the last three years of signed personal and business federal income tax returns.
Bank Statements: Submit three most recent bank statements for your business and personal accounts.
Cash Flow Statements: Include your balance sheet, cash flow statements and profit-and-loss statements.
Personal Identification: Includes social security, driver’s license or any such current government-issued photo ID.
Business Lease: Provide a copy of your business lease, or a note from your landlord.
Peer-to-Peer (P2P) Lending
P2P lenders help businesses by connecting capital from retail and institutional investors via platforms such as Funding Circle, Prosper and Lending Club. Over the years, P2P lending has become a popular source of funding for a large number of small businesses.
Here are the documents that you will have to submit when you approach a P2P lender.
ID Documents: Make sure you get your ID documents in place to set up direct credit as soon as you can.
Proof of Social Security: Provide a copy of your Social Security Award Letter or Form SSA-1099 for the last tax year.
Proof of Pension or Annuity Income: If you receive income from a pension or annuity, include a copy of your award letter or most recent statement.
Online Marketplaces
These days, a number of online marketplaces have become a popular source of small business financing. These marketplaces operate like exchanges, centralizing and streamlining the loan application process. They connect businesses to a range of traditional and alternative lenders. Some of the well-known players are Fundera and Biz2Credit.
Some of the loan documentation that you should provide when you approach an online marketplace for funding include the following:
Personal Background: Submit your ID and address proofs along with the proof of your professional qualification.
Income Tax Returns: Include the personal and business federal tax returns of your business’ principals for the last three years.
Signed Application: Provide all the basic information about yourself and your business.
Bank Account Statements: Submit six most recent bank statements for your business and personal accounts.
Business Lease: Provide a copy of your business lease, or a note from your landlord.
How to Write a Business Plan for a Loan
In nearly all of these instances, you’re likely to need a business plan to prove that you’re set up to earn revenue and repay your lenders. A business plan is a pretty basic concept that most entrepreneurs are already familiar with. But when you’re trying to get a loan for your business, it may help to tailor some of your information to that particular situation.
You should still include all of the basic components of a traditional business plan, including the executive summary, description, opportunities and competition analysis, marketing and contingency plans. However, when applying for a loan you should pay special attention to the financial information. Be sure to include what you will use the money for and how it will help you grow and become more profitable. Include specific projections and back them up with facts. Additionally, you should be transparent about any future loan requests you anticipate going forward, all backed up by your current bookkeeping and financial records.
Paperwork may sound like a lot of work, but preparing in advance can actually help save time. Just make a quick checklist of all the documents you need to submit before you begin the process. You may also want to speak to a representative to gather and organize your papers on time. Once you have prepared yourself, it will be easy to complete the work.
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Aira Bongco
Thanks for explaining everything. Financing will always be an important part of a business so it is really important to know that you have options and know how to apply for them.
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riya
Very informative article. If one has all the required documents, then a business loan can be applied on online platforms like Lendingkart for quick and easy processing.