Small Business Loan Requirements

Acquiring a Loan Can Be Difficult

Everybody knows that a small business loan is not an easy thing to simply acquire, there are certain requirements that are needed before approval can take place. Here are some of the things that you will require before you can be approved for a small business loan.

Documentation That Is Required to Obtain a Small Business Loan

There is basic documentation that is essential to being approved for a small business loan such as:

  • Personal Background Information—you will be required to provide some crucial background information about yourself to the lender. Information that you will be typically asked to provide are other names you have used, previous addresses you have had, your educational background and whether or not you have a criminal record.

  • Detailed Business Plan—all small business loan lenders require you to provide a business plan for your business accompanying the filled out loan application. The business plan should contain detailed projected financial statements, cash flow, balance sheets and profit and loss for your business. You should never be vague and everything should be typed rather then written. You want to appear as professional as possible.

  • Professional Resumes—some lenders may require evidence of your overall business experience and management skills; this is particularly true when a person wants a loan to star a new business. They need to be confident that you will be able to run a business and they will get a favorable return in their initial investment.

  • Financial Statements—you will usually be required to also provide your projected financial statements as part of your business plan. The ideal financial statement should include balance sheets from the end of the previous three fiscal years, cash flow projections which should clearly reflect how much cash flow you intend to generate to repay the loan and your income statements from the past three years which reveal to the lender your profits and losses

  • Personal Credit Report- during the loan process the lender will obtain your personal credit report but you can also obtain your own personal credit report. It is a good idea to obtain a credit report from some of the major credit rating agencies before you submit your loan application to any lenders. The reason you should obtain your own personal credit report is so that you can be aware of any inaccuracies and blemishes on your credit history.

  • Collateral---when it comes to loan companies the requirements regarding collateral can vary considerably. Some lenders do not require collateral while others require a good amount of collateral on most high risk loans. If you provide detailed and professional financial statements and business plans then you may not have to worry about collateral though you can benefit from creating collateral documentation and listing and describing all of your belongings and property and what they are worth.

  • Business Credit Report—if you already have a business then you will need to produce and submit a business credit report for your individual business. Just like you did with the personal credit report you should review your business credit report as well as this is very important before applying for the loan.

  • Legal Documentation—though it can depend on the specific requirements of the loan you are seeking. You will most likely need to provide some legal documentation to the lender such as: proof of contracts that may exist between you and 3rrd parties, business licenses, incorporation articles, commercial leases and any franchise agreements that you may have.

  • Bankruptcy Documentation—if you have filed for Chapter 7 bankruptcy in the past, then you will need to provide proofs of that fact for the lenders.

Common Questions that You Should Prepare Yourself For

Questions may vary from lender to lender but there are a few common questions they will ask such as:

  • Why exactly are you applying for the loan?

This of course is an important question and one of the most common, they do not simply hand out loans without first gaining a good idea why exactly you want or need the loan.

  • How do you plan to use the money given from the loan?

Elaboration upon your plans for the loan will be necessary as well and can be shown in detail with a well thought out business plan that outlines your definitive business plans for the future.

  • What assets do you need to purchase and who will be your suppliers?

They ask this question to gain more knowledge about the tools and items you will need for your business to be successful and also to learn of any business partners or associates that you may have.

  • Do you have any business debt and if so who are the creditors?

They must know if you already owe money as this will speak clearly about whether you can be trusted to repay the loan. They will ask for specific names of the creditors and will then check the level of debt you are in.

  • How do you play on repaying the loan?

This is where you present your concise, professional financial statement which should clearly show your projections for the future and your estimated cash flow amount which is a crucial part of your overall financial statement. It shows exactly how you plan to generate cash for your business and is proof that you indeed can generate the needed funds to repay the loan.

  • Are you able to put some sort of collateral?

Collateral can be an important tool you can utilize when trying to get approved for a loan. The lender will want to know if you have anything of valuable that can act as a more solid guarantee that you will be able to repay the loan such as a car, a home or other valuable personal property.

Questions You Should Ask the Lender

  • Do you have enough money to meet my business needs?

You should make sure that the bank that you have chosen to pursue your small business loan can actually be of assistance to you. Always take your time when deciding which bank to use.

  • What are the risks involved with the loan process?

This is one of the most important questions that you should ask the lender. As with any loan process there are inherent risks and you should be informed as to what those risks are. A perfect example would be if you chose to put up some sort of collateral, you would want to be informed as to the conditions of the agreement. You do not want to lose your home or other valuables because you were not well informed.

  • What is the average size of the loans you typically give?

This will give you a better idea of whether it is feasible and likely that the amount you need can be given and will give you a better idea of your chances for approval as well.

  • How long does the loan process typically take?

You should ask this question so you are aware that the time a loan takes to be processes varies from loan to loan and bank to bank. Some loans are processed in 2 weeks while others are processed in 6 weeks. Make sure you know what your general waiting time will be.

  • Are there any application fees or other fees involved with the loan process?

This is a very important question to ask. You do not want any surprises that become a financial detriment.

In closing, ask questions and be professional and your chances of obtaining a small business loan will increase considerably. Just be confident within yourself and make sure to provide the properly organized documents.


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