There’s no doubt about it. Finding a small business loan is stressful.
You have a lot of steps to take and a lot of boxes to check off. First, you need to figure out what kind of business loan you need to apply for. Then, you need to figure out which small business lender you should apply to work with.
And once you’ve found your lender, the hardest part—actual business loan application—is still ahead of you.
Before you dive deep into the application process, take a step back and consider our business loan application checklist. Here is everything a lender might ask you to provide when applying for a business loan:
Let’s evaluate all of these in closer detail.
During the business loan application process, the lender will ask you a lot of questions, and not every lender will ask the same questions. In fact, each lender will have different requirements for their applications.
To make sure that your application process is seamless, you should be prepared to provide any of the information lenders might require, plus all of the documentation necessary to prove your answers.
Let’s go through every question a lender might ask you in your loan application and what kind of materials you’ll need to answer them.
Your business loan application will start broad and narrow in, so, the first step to any business loan application will be introduction. It might seem too obvious, but the lender will want to know exactly who you are, and what your experience is.
This is the easiest step: Make sure you have a license or government-issued ID.
Lenders will want to make sure you are who you say you are. They usually ask you to provide this during the closing process of your loan.
Lenders might also want to know you just a little better. On top of identification, you should be prepared to provide a document that states your personal background.
Well, lenders want to make sure you check out. They can do this by knowing your previous addresses, names you’ve used, your criminal record, educational background, etc.
The next logical question your lender will have: “What do you do?”
As an entrepreneur, you live and breathe your small business, but your lender doesn’t. You’ll need to introduce your business and convince lenders that financing it is a smart move.
Most lenders will require a business plan in your small business loan application. Your business plan is a great opportunity to convince the lender that investing in your business is a smart move.
If you don’t already have a business plan written, here’s the gist of it: You’ll need to describe your business’s goals, both financial and qualitative. Financial projections should include your future sales, profits, cash flow, income, and so on. After that, get into the deeper issues.
What makes your business unique in your market? Why do you provide an important product or service with potential? Where do you see your business growing?
Note that traditional commercial lenders like banks will absolutely want to see a business plan. (That means you’ll need one for your SBA loan application, too.)
Depending on the type of business loan you’re applying for, certain industry types will be a no-go for lenders.
Private clubs, religious institutions, private clinics, agricultural businesses, fishing vessels, and more have special criteria they need to meet in order to qualify for an SBA loan.
After the SBA, lenders will take different approaches to your business’s industry type. Some industries are obviously riskier than others, so know what type of industry will be a deal-breaker for your lender.
This is another easy question to answer: How long has your business existed?
As you can probably guess, the longer the better. If you’ve been around for more than five years, it’s obvious that you can withstand all the challenges that can shake a small business.
Following the same theme, lenders might ask you for proof of ownership. The way you prove your ownership will depend on the kind of business you run.
Next item on the business loan application checklist is your customers. Lenders might want to get a sense of who your business’s clients are. They’ll want to know who you do business with, what kind of customers you have, whether they pay you on time, and so on.
Your latest Accounts Receivables Aging Statements will show the lender how long your invoices go unpaid, which is especially relevant if you’re considering invoice financing.
This helps lenders gauge what kind of customers your business works with, and how their financials look, too. How they pay you has a direct impact on your cash flow.
This is the heart of your business loan application, so it’s an equally big part of your preparation checklist. Yes, lenders want to make sure they know who they’re lending to, but in the end, they really want to know if you can afford your business loan.
Lenders are letting you borrow money after all, and they want to make sure they’ll get their money back. Depending on the loan you’re applying for, lenders will require different documents to see where your financials stand.
Lenders will typically ask for two years of bank statements. If your business hasn’t existed for two years, give whatever you have and supplement what’s missing with other documentation.
In general, lenders will want to see that your financials are healthy. They can also use your bank statements to calculate your average bank balance.
Your business’s balance sheet gives a good snapshot of your financial health and says a lot about how your business functions.
Put simply, balance sheets will make clear what you have and what you owe, showing how well you manage your assets and liabilities.
By including your business’s profit and loss statement in your business loan application, lenders can get a sense of your business’s revenue and expenses. Most lenders will ask for both a year-to-date profit and loss statement, updated within the last 60 days, and statements from the last two years.
If you’re applying for a traditional term loan, you’ll definitely need to provide tax returns in your business loan application.
Lenders will want to see tax returns to verify your income and revenue. To do this, you’ll probably need to provide both your personal and business tax returns.
By checking your business credit score, lenders get an idea of how your business has handled debt in the past. If your business has never borrowed money or used a business credit card before, you won’t have a business credit score.
Business credit scores don’t matter so much because business lenders will rely heavily on a business owner’s personal credit score while underwriting a business loan application.
Your personal credit score will show how trustworthy you are as an individual borrower. And because you’re a small business with not much experience under your belt, lenders will use your personal finances to gauge how you’ll manage your business finances.
Because your credit score is such an important part of your business loan application, make sure you’re staying on top of it. You’ll want to aim for a score of at least 600, and if you can get higher than that, you’re in good shape.
Lower than 600, though, and you might have a hard time finding a good deal in terms of interest rates. Check out all the business loans for bad credit to find your most affordable options.
This might not be your first time ever filling out a business loan application, so you might already be familiar with this section of the checklist you’ll need to complete. In fact, if you’ve taken out a small business loan before, lenders will want to know that.
But, they won’t just want to know about any debt you owe. They’ll want to be filled in on any other payments you send to people, from rent payments to outstanding invoices.
Your business debt schedule will show all of your company’s outstanding loan, credit amounts, and monthly payments. A debt schedule will clue lenders in on who else you owe, and how you’re managing that outstanding debt.
Lenders could ask you to provide a schedule of income and the expenses associated with any property your business owns or rents.
Most banks and mortgage brokers have their own specific forms to put together, but they’ll all have the same information:
If you rent the property:
If you own the property:
This requirement will only show up on a few business loan applications, but it’s worth mentioning.
Lenders might want to see a landlord subordination form, which is a landlord’s assurance that the tenant (you) will be able to stay in his or her property for the duration of the lease. (Even when the landlord no longer owns that property.)
If you run a brick-and-mortar shop, this form is incredibly important for a lender to see in your business loan application. Getting kicked out of a property is bad news for both a small business owner and their lender.
Your latest accounts payable statement shows the money your business owes on bills and invoices from vendors you work with. You should be able to show your accounts payable on your balance sheet.
If you want to create your own, you can put together a report of all your company’s outstanding invoices and bills—just like that A/R Aging Statement you put together earlier.
Your business loan application might seem overwhelming, but it doesn’t have to be. By breaking it down into simple questions that a lender might ask you, you can easily compartmentalize everything you might need to provide.
Follow these best practices when you’re completing your business loan application:
When you’re providing all this information on your business loan application, be realistic about your business’s capacity.
Now you have all the information you need to complete your business loan application. While it may seem like a lot of work at first, once you get started you’ll find that it’s manageable. Furthermore, working diligently to complete your business loan application will ensure no hangups during the underwriting process. So take your time and be thorough, and you’ll get the financing you need in no time.4