Preparing for a business loan is crucial, whether you are seeking capital for a new startup or looking to fund your company’s growth. This includes preparing financial statements, conservative revenue forecasts and other documentation that lenders may request.
Choosing the right lender is also important. Look into options like microlenders and community development financial institutions to find the best option for your company.
Prepare Your Financials
If you want lenders, investors or crowdfunders to invest in your business, they need to know that your business has both earnings potential and a reliable financial history. This means you need to prepare a formal business plan and the necessary financial documents that show your business’s income, growth and profitability.
Lenders also look at your company’s internal financial statements, such as profit and loss (P&L) reports and accounting records. These statements show how much free cash is left in your company after paying all expenses. They may also ask for interim financial statements, which are used in cases where tax returns haven’t been filed for a full year.
Other documentation you’ll need depends on the type of loan and lender you’re applying to. It could include a commercial lease agreement, bank account statements, business credit report and details about the owners of the company, including their Social Security numbers and addresses. Having all of these documents prepared ahead of time will make the application process go smoothly and show that you are serious about your request for funding.
Find the Right Lender
Taking the time to research different lenders can help you understand your options and determine which type of business loan is right for you. Lenders vary in their requirements, so it’s important to compare terms and rates to make the best decision for your company.
It’s also a good idea to review your company’s revenue and expenses before applying for a business loan. This will allow you to accurately determine how much funding you need and ensure that you can afford the monthly repayments.
In general, lenders will prefer businesses that have stable, consistent revenue and a positive cash flow. Your credit score is another important factor that will impact your eligibility, and some lenders require a minimum personal credit score of 700 or higher to qualify for a business loan. It’s also helpful to consider a lender with experience financing companies in your industry. This can streamline the application process and help you secure the funds faster.
Collect Your Documents
Lenders look for a variety of different documents when reviewing business loan applications. These documents help them understand the strength of your business, and how you will manage the money you borrow to ensure that it’s paid back in a timely manner.
Most lenders will want to see your most recent financial accounts. These should include a P&L and a balance sheet, showing how much you’ve been making, spending, and earning. They’ll also examine your current debt ratio and whether you’ve been late on previous loans.
Other key documents are your business plan and a cash flow forecast, which will show how you’ll use the funds and how you’ll repay them over time. Some lenders may also request documentation of any collateral you might offer to secure the loan, such as real estate or equipment. They may also ask to see the articles of incorporation, partner agreements or any other legal documents pertaining to your business structure.
Start the Application Process
Once you’ve found the right lender, collected your documents and determined which type of financing is best for your business, it’s time to begin the application process. The application will vary depending on the lender, but it is important to include as many details as possible to speed up the process.
Generally, lenders will evaluate your business loan application by looking at your financial trends over the past two years, including revenue and cash flow. They will also want to review your credit report. In order to get the best rate on your business loan, it’s important to have a strong personal credit score and a solid history of paying back debt. However, it’s not impossible to get a business loan with bad credit, though that may mean paying higher interest. Some lenders also require collateral like equipment, accounts receivable and real estate, or request that the owner pledge personal assets in case of default.