If you plan on applying for small business loans, it’s wise to prepare yourself beforehand so you’ll have a better chance of getting approved. Small business lenders like business owners who are prepared to apply for small business loans. It makes for a much faster and smoother process. Being properly prepared to apply for small business loans means that you have all of the supporting documentation, that a lender will require, readily available. Below is a list of the supporting documentation you may be required to submit to lenders when submitting small business loan applications. I strongly suggest that you print off this list and working on gathering all of this documentation for you apply for small business loans. As you get each item, you can cross them off the list.
- Up to Date Business Plan – Depending on how long you have been in business, you may or may not need a business plan if you’re applying for small business loans. Business Plans are usually needed for startups that have no track record. The business plan helps lenders understand how you will operate the business, get customers, and generate revenue. A good business plan will help lenders determine if you have the ability to pay back small business loans in the time frame they specify. Not convinced you need a business plan? Take a look at this article by Angel Investor Tim Berry for Entrepreneur Magazine and find out 15 reasons why you need a business plan.
- Business Tax Returns – If your business is established, lenders will want to see your business tax returns so they can have proof of your what you spent (expenses) and earned (revenue). Business tax returns help lenders determine if your business is profitable enough to receive small business loans.
- Personal Tax Returns – If your business is a startup, lenders will want to see your personal tax returns to determine if you earn enough income to pay back small business loans on time. They will compare your current income to your existing debt to come up with your debt-to-income ratio. If you have a debt-to-income ratio that is under 36% (in some cases 30%), you may have a better chance of getting approved for small business loans. Click here to calculate your debt-to-income ratio. Knowing your debt-to-income ratio before you apply for small business loans will help you determine if you need to pay down some of your debts before applying.
- Business Bank Statements – If your business is established, some lenders may ask to see the last 6 to 12 months of your business bank statements to determine the frequency of your deposits. They will want to know how often revenue is coming into your business. The frequency of your deposits will help them determine how much you qualify for and if you can pay it back in a timely manner.
- Year-to-Date (YTD) Financials – Your year-to-date financials is your profit and loss statement. You profit and loss statement should outline your expenses, profits and/or losses for the last twelve months. This (in addition to your business tax returns) will help lenders determine whether or not your business is profitable enough to obtain small business loans. Keep in mind that your business tax returns and your profit and loss statement should match. If there are any discrepancies in the numbers, lenders will notice and your run the risk of being denied.
- Company Debt Schedule – Your debt schedule should outline all of the money you have borrowed from lenders. The debt schedule will help lenders determine if you have borrowed all that you can borrow based on your revenues and/or equity in the company. According to the SBA, most lenders don’t want you to have more than four times the amount of equity you own in the company in outstanding debts. If you are over this amount, your focus should be paying down your existing debt so you will have a better chance of getting approved for additional small business loans.
- Check Your Personal and/or Business Credit – It’s good to know your personal and/or business credit history and score because most lenders will check it whether you have a startup or existing business. I strongly suggest using MyFICO to check your personal credit and NAV to check your business credit. MyFICO provides the most accurate personal credit reports. More than 90% of the lenders in the market use the FICO scoring models to analyze your personal credit history. Therefore MyFICO will give you the most accurate look at your credit history. NAV enables you to look at both your personal and business credit and compare the two. Most lenders have minimum personal and business credit score requirements to get approved for small business loans. If you know your credit scores before you apply, you can work on and resolve any possible issues beforehand.
- Copy of Contracts – If you have an established business and you have contracts with other companies, you may be able to get small business loans based on the amount of those contracts. Be sure to have a copy of the contracts on hand in case a lender asks to see them.
- AR Aging Reports – If you have already started invoicing your clients and are waiting to be paid, you may be able to qualify for small business loans based on your outstanding receivables. You will need to have an accounts receivables aging report readily available because a lender may ask to see them.