When we talk about business loan requirements, what are the most common documents you need to gather to start your application? Is there any way to prepare yourself and thus increase your chances of getting approved?
To be prepared is half the victory.
Miguel de Cervantes, Spanish author and poet.
Yes, that’s right. Getting your loan application approved is much easier if you are prepared. That means being ready with the documents that you will be asked to provide.
You can create a folder and keep in it physical copies of the important papers relating to your business, so when you are asked, you can furnish this to comply with the bank’s business loan requirements. But it’s even better to keep digital copies and save them on a cloud drive like DropBox or Google Drive. This way you can access them quickly at any time, and wherever you are.
Now let’s see in detail each of these requirements. As you read, keep in mind that you can cut this list in half (saving yourself the time, paperwork and the occasional headache) by approaching an alternative lender like Camino Financial.
10 Documents Required by Most Lenders
1. Bank Statements
This is one of the most important business loan requirements. Your lender would want to know how much money is deposited into your bank every month and the manner in which it is used.
They will also look for:
- The name of your business on your bank statement. Your official business name should appear in the bank’s records.
- The fees that you pay your bank. For example, a lender would like to see if your balance falls below the required minimum that you are required to maintain. This could entail a penalty in the form of a monthly maintenance fee.
- The figures in your bank statement and your financial statements (explained below) should be consistent. If there is a difference between the two, you should be a position to explain the reason why this has happened.
At Camino Financial, the process involved in checking your bank statements is fast and easy. You don’t need to visit your branch to get your statements, or print and fax documents. All you have to do is submitting an electronic authorization so we can download the last 6 months of your banking activity. Rest assure this process is completely safe and your information remains private. We work with Plaid, a third party that guarantees a secure download of your activity without compromising your account or information.
2. Tax Returns
You will have to provide your personal tax returns if your venture is a sole proprietorship or a partnership. These are “pass-through entities”, which allow your business’s profits to be reflected in your personal tax return. At Camino Financial we require the last year of your personal tax returns (that should include your reported business income). This is not required for our microloans (from $5,000 to $50,000).
Of course, if your business files a tax return (because it’s an LLC or a corporation), you would have to furnish this as well and provide your business tax returns. Strong tax returns showing a profit can significantly impact the interest rate you will pay on your loan. At Camino Financial, we only request your business tax returns for loans over $50,000.
3. Proof of Business Registration
You will have to tell the lender how your business is structured. Most small ventures fall into one of four categories. Your firm could operate as a sole proprietorship, a partnership, a limited liability company, or a corporation.
Documentation for different types of business structure
|Type of business structure||Documentation required|
|Sole proprietorship||Proof of DBA Registration|
|Partnership||Business partnership agreement|
|Limited liability company (LLC)||Articles of organization and the LLC operating agreement|
|Corporation||Articles of incorporation, Bylaws, Written Action of Incorporator, Agreements between shareholders|
These documents are viewed as critical business loan requirements as they help to establish your ownership of the business. Remember that your lender would like to be sure that they are dealing with the correct person when they are in the process of appraising your loan application.
4. Business Licenses and Permits
Keep a copy of these in the folder that you prepare to submit to the lender. If your business is involved in an activity that is regulated by a federal agency, you will require a federal license or permit. Certain business activities need a license from the state, county, or city.
Ensure that the license and permit copies that you provide your lender have not expired. If any of them need to be renewed, complete this activity well in time.
It’s a good idea to put in a little effort into finding out about the different licenses that your business needs. Noncompliance could lead to your loan application being refused. It could also expose your company to penalties as well as legal liability.
5. Employer Identification Number (EIN)
This is a nine-digit number assigned by the Internal Revenue Service (IRS). It is also called the Federal Employer Identification Number or the Federal Tax Identification Number.
EINs need to be obtained by corporations and partnerships. Sole proprietorships need an EIN if they have employees. Remember that some banks may require an EIN to open a business bank account.
If you don’t qualify for an SSN or an EIN, you can apply for an ITIN. The ITIN is issued regardless of immigration status since both residents and foreigners have the tax obligation to file returns and tax payments. ITIN stands for “Individual Taxpayer Identification Number”: it’s a tax identification number generally used by foreigners who do not meet the requirements to have a social security number. Remember that at Camino Financial we just need this number as part of the application. If your business still doesn’t have an ITIN, learn here the easy steps to get it.
6. Financial Statements
One of the business loan requirements that you have to fulfill is to provide your financial statements. Before taking a credit decision, a lender would like to see the following:
- Profit and loss statement
- Balance sheet
- Cash flow statement
These three documents will provide details about your company’s financial performance for the previous year and the years before that. You should be prepared to furnish your financial statements for the last two years or more.
A lender could also ask you to provide financial projections. When you prepare these, remember that you must also mention the assumptions that you are making. For example, if you say that your sales will increase in the next year, you should be ready to explain how you plan to achieve this.
7. Accounts Receivable Aging and Accounts Payable Aging
These two reports are of particular interest to the lender because they provide information about the manner in which you manage your working capital.
Accounts receivable aging would usually be required only for a firm that operates in the business-to-business (B2B) segment. Many B2B companies, supply goods or services to their customers on credit terms. If your customers are slow to pay you, it will show up on your accounts receivable aging report.
If your clients delay payments on a regular basis, there is a greater chance of your level of bad debts increasing. This would affect your cash flow as well as your profitability.
Your accounts payable aging report provides the lender with information about the number of days of credit that you receive from your suppliers. If your suppliers allow you generous credit terms, it is to your advantage. However, if you delay payments beyond the stipulated credit period regularly, it will reflect poorly on your company.
8. Details of Your Other Loans
You will be required to provide the lender with information about your other borrowings. Every bank or financial institution that you approach will consider this to be one of the key business loan requirements.
Why would a bank want to know about your other loans? Lenders know that the cash flows that your business generates will be used to repay the money that you have borrowed from different sources. If you have taken on a significant amount of debt, you may not be in a position to meet all your obligations. If they think that your debt burden is higher than you can handle, they are likely to turn your loan application down.
9. Proof of Collateral
You may be required to furnish real estate or other assets to secure your loan. Some lenders will consider your loan application only if you are in a position to provide collateral of sufficient value. Banks and other traditional lenders typically don’t advance unsecured loans.
What if you don’t have any collateral to put up?
Fortunately, it is possible to raise a small business loan without providing collateral. This is not part of the business loan requirements at Camino Financial. You don’t even have to provide a personal guarantee.
10. Business Plan
Most lenders usually don’t need a business plan as part of their business loan requirements. But still, it’s a good practice to prepare yours. It will help you calculate exactly how much you need to borrow. It also helps you calculate the Return On Investment (ROI) you expect to get in return, and in how long. Those are valid questions that most lenders will ask you to evaluate during your application.
A good business plan is a document that details your business goals and how you plan to meet them. Your document should include a brief description of your business, the manner in which you market your products or services, and how you plan to increase sales volumes.
Every relevant aspect of your operations should find a place in your plan. Here are some of the specific details you can include in your plan:
- Your product’s or service’s attributes – what are you selling? How is it better than what the competition offers? You need to convince the lender about the merits of your product and its ability to retain or increase its market share.
- Customer analysis – describe your current market and the manner in which you plan to increase sales.
- Supply chain – how do you source your raw materials and supplies? Could prices rise and affect your profitability?
- Industry analysis – entrepreneurs should be familiar with the sector in which they operate.
- Your finances – how will you raise the money for your expansion? How much money have you invested in the business?
- Cash flow – most lenders want to know how the money that your company receives from business operations and other sources is used.
Does gathering all this information seem to be a difficult task? You needn’t worry – it’s relatively simple to prepare your business plan. Of course, you need to have a high degree of familiarity with your company’s operations and the manner in which your industry works.
Have in mind that the documents required vary greatly depending on the lender you approach. Check out the chart below to compare the list of documents required by most traditional lenders or banks, and the documents required by Camino Financial, an alternative online lender providing microloans and small business loans:
|Traditional Lenders||Camino Financial|
|Tax Returns||X||X (only for loans $50k or above)|
|Proof of Business Registration||X||X|
|Business Licenses and Permits||X||X|
|EIN||X||X (in default, ITIN)|
|Accounts Receivable and Account Payable||X|
|Information on other Debt/Loans||X|
The bottom line
When you are getting your documents ready for the lender, don’t just put the copies into the folder that you are preparing. Read each paper carefully and understand it. This will help you during the loan appraisal process. It will also provide you with a way to ensure that you don’t submit the wrong documents.
Keep in mind that in this article we have just shown you the most common documents that most lenders will want to see when you submit your loan application. But there are other business loan requirements: you’ll have to comply with certain conditions (for example, at least two years in business). For a complete list of that type of requirements, and to see how they compare with the requirements of Camino Financial, we invite you to read the post A Complete List of Business Loan Requirements.
Many small business owners get discouraged when they learn they have to arrange for documentation from various sources. This takes time and effort.
Remember that the application process to obtain a small business loan from Camino Financial is simpler and faster than with most lenders. Our business loan requirements are less strict and the list of documents we need from you is shorter. As you have seen, you can apply even if you don’t have a Social Security Number (in default, all we require is your ITIN), or collateral.
All that you have to do is to start the process is submitting this online application. Applying will not affect your credit score. A Small Business Loan Specialist will be assigned to your case to guide you through the rest of the process. Think this: in the time you need just to gather all the documents required by other lenders, you could have in hand the cash you need to grow your business by choosing Camino. You can receive your loan within 5 to 10 business days!