6 Essential Documents You’ll Need When Applying for a Business Loan

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One of the most common ways to invest in your business is by applying for a business loan. Whether it’s to buy new equipment, purchase inventory, or upgrade software and systems – a business loan  can give you some financial stability and an opportunity for growth and expansion.  The loan process can be a bit overwhelming if you’ve never applied for a loan before or if your paperwork isn’t organized.

Each lender may have a slightly different process, but generally there are several specific documents that you’ll need to produce in order to get approved. If the documents aren’t provided or the information isn’t correct, it could mean your loan gets denied. Below are 6 documents that are frequently requested and why you need to supply them.

  1. Credit Report – although it is likely that the bank will request your credit report, you’ll need to show that you have a history of paying your debts on time. While a lower credit rating won’t necessarily mean your application is denied, keep in mind that it could affect the interest rate and loan amount. How your business is structured will determine if your business or personal credit history is used.
  2. Bank Statements – just like with applying for a mortgage or personal loan, your business lender will want to review the past several months of bank statements. Your loan is more likely to be approved if you can show that you are earning revenue and managing your expenses in a healthy way.
  3. Tax Returns – This shows the bank lender how your company has performed in the past. Your lender will look at revenue and deductions – writing off a significant portion of your taxes allows you as the business owner to minimize your expenses, however having too many tax deductions that reduces your adjusted gross income too low could complicate things.
  4. Income Statement – This will clearly show revenue vs. expenses and how you handle cash flow. Even if expenses exceed revenue, which is often the case for newer businesses, it won’t automatically eliminate you from securing a loan.
  5. Balance Sheet – This differs from the income statement because it’s a snapshot of your current financial situation, where your Income Statement is historical. The balance sheet shows you current assets, liabilities, and source of equity. This shows how much you currently own vs. currently owe.
  6. Budget and Future Cash Flow Projections – Lenders will want to know your plan for how you will use the loan funds. Often, many businesses will come prepared with 2 scenarios – how their business will operate without the funding and how the business will operate and produce better outcomes with the funding. This will show the lender your need for the funds and how you can grow and make your business better with the addition of a loan.

Keep in mind that the items above may vary depending on the financial institution and financing option you pursue. Additional paperwork may be needed as each lender has their own prerequisites. Your goal is to assure lenders that providing your business with financing will be a mutually beneficial venture.  There are numerous variables to be considered during the loan underwriting process, so having the documents mentioned in this post available will certainly be in your best interest.

Margret Warner

Margret K. Warner
Vice President, Commercial Lender

Author: Margret Warner

Margret Warner started her career at Litchfield Bancorp in 2000 as Branch Manager in Washington Depot and has subsequently served as Branch Manager of the Litchfield office, Business Development Officer and is currently a Commercial Lender based in the Watertown market. With over 25 years of banking experience, Margret brings her extensive knowledge of the financial services industry to area businesses. Margret resides in Torrington and is committed to the communities where she works and lives as a member of the Watertown Rotary and advisor of Leadership NW. In addition, she serves on the board of the Watertown/Oakville Chamber, the United Way of Northwest Connecticut, VNA Northwest, Inc., and the NW CT Chamber of Commerce. She is a graduate of the esteemed ABA Stonier Graduate School of Banking, and holds a BBA in Accounting from Hofstra University.