What You Need to Apply for a Commercial Loan
The ability to secure debt financing for operating costs, or to simply access additional working capital, can be the difference maker for many companies. If you’re preparing to apply for a business loan and want to ready yourself for the sometimes paperwork-intensive process, the best thing you can do is go through a commercial loan documentation checklist.
Although accessing commercial financing for your company can seem daunting, the process is a thousand times easier when you come to the table prepared. Lenders actually aren’t terrifying gatekeepers—in fact, they want to help business borrowers secure the capital they need. They’re just cautious of working with borrowers who can’t repay them.
The good thing, though, is that they’re always looking for a consistent set of qualifications—and, in turn, a consistent stack of commercial loan documentation via which they evaluate those borrowers. Gather your paperwork in advance, and you’ll not only have a better chance of knowing the types of small business loans you’ll qualify for, but you’ll have a smoother process when you finally apply.
Part I: Commercial Loan Documentation Checklist Basics
One thing is a given: The commercial loan documentation required across types of loan products will vary according to what you’re seeking. For instance, if you’re looking for a business line of credit, your commercial loan documentation checklist will be much shorter than that of an SBA loan.
Regardless of the type of commercial loan you want, here are a few things you should have at the ready—or at least have a strong understanding of before you go into the commercial loan application process. All business lenders require documents (business loans with no document requirements don’t really exist), so be prepared to offer these documents and pieces of information.
1. Personal Credit Score
Yes, you’re applying for a business loan, but your personal credit score plays a large part in a lender’s decision to supply you funds.
As the business owner, your past responsibility with money is generally a solid indicator of how responsible you’ll be with your business’s finances. Since your personal credit score is a numerical assessment of your history with debt, business lenders can objectively evaluate how well they think you’ll handle any kind of money they give you for commercial expenses.
You don’t have to have documentation for this, per se. Rather, your lender can access this information on their end through whichever of the three different personal credit bureaus they use to measure scores. So, although this isn’t something you technically need to gather in your checklist, it should be on it, because you absolutely need to be aware of your personal credit score.
2. Business Credit Score
Similarly, your business might also have a business credit score, which you should know. It’s different than your personal credit score, but it’ll also affect your chances of securing a commercial loan (or any other business financing product for that matter).
Your business credit score is affected by similar factors to your personal credit score—like credit utilization, length of credit history, business credit card payments, etc.—but also the size of your company and risk factors within your industry. There are also different scales for measuring business credit and additional bureaus, like Dun & Bradstreet, which measure business credit.
Along with your personal credit score, you’ll want to add knowing your business credit score to your commercial loan documentation checklist. Combined, you’ll have a better gauge of the loans for which you’ll actually be eligible.
3. Basic Personal Information
Since you’re the one applying for the loan on behalf of your business, you’ll have to be ready to add some personal information to the commercial loan documentation checklist. Things like your name (or any other name you’ve ever used), address, SSN, valid ID, etc.
Note that if you’re applying for an SBA loan, the personal part of the loan application process is far more intensive. We’ll touch on this more below.
4. Basic Business Information and Permits
You’ll want to have things like your business operating address, entity type, and employer identification number (EIN) at the ready. If you don’t know your EIN, or can’t find it, you can track it down through documentation you already have or with a phone call (it’s also called a business Tax ID, if that helps). Additionally, if you need to apply for an EIN, you can do that, too.
You’ll also want to have easy access to any business licenses and permits that you needed to open your business (lenders want to make certain you’re operating legally, of course). Perhaps this goes without saying, but make sure everything is up to date and valid before you add this to your pile of commercial loan documentation.
5. Two Years of Tax Returns, Both Personal and Business
Part of the loan application process involves the verification of your income and revenue that you stated to the lender. The way that they do that? By taking a look at your tax returns. They’ll almost certainly ask for your business tax returns, but they might ask for your personal tax returns, too.
Part II: Commercial Loan Documentation Checklist Financials
After you’re done gathering the basic commercial loan documentation, you’ll want to start culling some essential financial records.
For longer-term loans specifically, you can think of these as the heart of the business loan application. During the business loan underwriting process, lenders will evaluate these documents to make sure that you have the revenue, cash flow, and general financial health to sustain the loan—and, of course, repay the lender.
If you have any trepidation pulling these yourself, we’d highly recommend working with your bookkeeper or accountant to get them in shape. After all, they know your books inside and out—and can make sure you’re presenting an organized and (most importantly!) accurate picture to your potential lender. It’ll become obvious quickly if numbers in your financial statements don’t quite add up—and you never want to take on a loan that you can’t sustain, anyway.
6. Recent Business Bank Statements
Nearly every lender will ask to see recent business bank statements. Your business bank account balance can actually reveal a lot about your financial acuity as a business owner.
Foremost, your statements will show a lender whether or not you have the liquidity to pay off your loan while keeping your doors open. (This is especially pertinent for seasonal businesses, whose bank balances fluctuate with the weather.) But what’s more is that a lender can gauge your general responsibility with money—for instance, are you the kind of owner who leaves yourself a good emergency fund, or do you spend through piles of cash when revenue is strong? Do you have a lot of overdrafts or NSFs (non-sufficient funds notices)?
That’s why lenders will request a minimum of three months of bank statements. You should add at least four, if not more, to your commercial loan documentation checklist just in case; each lender is different, and some will have specific requirements.
7. Profit & Loss Statement
Lenders will request your most recent profit and loss statement as another way to verify your business’s revenue. You also might know your P&L as your income statement.
8. Cash Flow Forecast
Since cash flow is one of the most important indicators of the financial health of your business, the cash flow forecast helps lenders see how you think the future will look. Some lenders might ask you to provide projections 12 months out, and others may only ask for one or two months’ worth of forecasting.
9. Business Debt Schedule
Business debt schedules provide lenders with insights into how your company is paying off—or is planning to pay off—its existing debts. This includes leases, loans, contracts, and any other periodic payments your company owes to others.
Part III: Commercial Loan Documentation Checklist Specifics
A few additional pieces of commercial loan documentation round out the checklist. Again, some lenders won’t even mention this stuff. But many of these items are things you’ll want to have anyway—and questions you’ll want to know the answer to—even if they don’t explicitly come in handy during your application.
10. Use of Loan
Also called the “loan purpose,” this is important for the lender—they need to know what exactly you’re going to do with the money. These funds need to be spent on a business purpose. And some loans have explicit use cases around them, like equipment financing, for instance.
By providing the lender a loan purpose, you and the lender can make certain that the amount of money you’re requesting actually matches up with what you intend to do with it—so specificity is good here. In the case of equipment financing like we mentioned before, you’ll need to provide the lender a quote for the equipment. In the instance of working capital, you’ll need to explain the kind of projects you’ll be intending to tackle.
And if you can’t answer this question in detail? It’s probably not the right time for a commercial loan.
11. Collateral Documentation
Collateral documentation provides a comprehensive glimpse at your obligations to pay back your debt to the lender. Basically, these documents spell out what exactly you’re using as collateral in order to get your loan approved.
12. Business Plan
A business plan lets your lenders know what you plan to do with your company, whether you’re just starting out or you’ve been in business for years. The plan should provide a comprehensive glimpse into your company’s strategy, purpose, and the methods you’ll use to accomplish your goals. This is especially important for new businesses that don’t have a ton of track record for lenders to go off of.
Here’s more on how to write a business plan if you need help.
Part IV: Additional Commercial Loan Documentation for Real Estate Loans and SBA Loans
The commercial loan documentation above is all great to pull together for your business loan application process. And, if you’re going to be applying for any kind of real estate loan, or an SBA loan, you should be prepared to gather it all.
Here are a few extra notes for those types of loans specifically, as they’re even more document-intensive:
Real Estate Loans
For commercial loans involving real estate, whether you’re buying property or doing a renovation, lenders are looking to see a lot more paperwork regarding ownership, insurance, and more. You’ll certainly want to speak to a loan specialist to find out exactly what you’ll want to add to your checklist specifically, as these requirements will vary lender to lender.
That said, if you want to get a jump on the process, consider pulling the following commercial loan documentation:
- Basic information on the parties involved (development company, management company, current owners, etc.)
- Property deed
- Purchase and sale contract
- Information on any existing liens
- Tax receipts on the property
- Leases and/or rental agreements on the property
- Photographs of the property
- Proof of any required insurance
If you’re applying for an SBA 504/CDC loan for a real estate loan, keep reading.
The US Small Business Administration’s SBA loan program helps make financing available to small businesses by partnering with small lending institutions across the country. By guaranteeing a portion of these loans, the SBA offers loans that are some of the most desirable available, with their low interest rates and long commercial real estate loan repayment terms—some up to 25 years for real estate in the SBA 504/CDC program.
Great financing, of course, comes with some hoops to jump through. Namely, in the form of paperwork. SBA loans are known for being the most paperwork-intensive of the commercial loans out there. Along with many of their own proprietary forms, like SBA form 912 or SBA form 159, you’ll also have to provide more personal information to the SBA, such as proving equity investment into your business.
Putting Together Your Commercial Loan Documentation Checklist
Although every commercial loan requires slightly different amounts of documentation, there’s one thing you can take away from this list overall: Be organized. Of course, it’s easier said than done. But if you have all of your ducks in a row for your application process, you’ll not only have a more realistic picture of your business financing options, you’ll also have a better chance of less back and forth with your lender.
And what does that mean in the end? Cash in hand, faster.
Meredith Turits is a contributing writer for Fundera.
Meredith has worked as a writer and editor for more than a decade. Drawing on her background in small business and startups, she writes on lending, business finance, and entrepreneurship for Fundera. Her writing has also appeared in the New Republic, BBC, Time Inc, The Paris Review Daily, JPMorgan Chase, and more.