When applying for a small business loan, companies are asked to present certain documents. The list includes your resume, personal background, and personal and business credit report.
Collateral, Legal and Other Documents
Legal documents to present include commercial leases, business licenses, franchise agreements, and other formal agreements. Depending on the loan type, some financial institutions also require collateral to guarantee prompt repayment. Banks accept different types of collateral, including goods that are held for lease or sale, raw materials, machinery and equipment, facilities, works in process, agricultural liens, and others. A substantial collateral is usually required if the borrower is considered high risk.
Financial Statements
Banks also ask that applicants present their business and personal financial statements. Business financial statements include information such as administrative and general expenses, gross profit, revenue, net income after and before tax, income tax, etc. You may be asked to submit a copy of your projected financial statements together with your application. Many banks also require that businesses present their business and personal income tax returns.
Business and Personal Credit Report
Your credit report is an important factor that helps banks to assess whether you are a risky borrower. The score is based on factors such as your credit mix and new credit, level of indebtedness, borrowing and payment history, and others. A score of 500 to 579 is considered bad while those with a score of 720 and up have excellent credit. If your score is anywhere between 680 and 719, you have a good chance to get approved for an unsecured loan. A poor credit score signals that the borrower has a history of delinquencies, consumer proposals, bankruptcies, and missed and late payments.
Other Documents Required
Banks require documents such as your business plan, resume, and personal background. They request personal information such as your educational background, employment history, criminal record, and so on. Describe your business and management experience, skills, and competencies in your resume. This is especially important for startups. Finally, a business plan increases your chances to qualify for a loan with attractive terms and interest rate. Enclose your balance sheet, projected financial statements, cash flows, and profit and loss statement. A business plan normally includes your expense budget, cash flow projections, mission statement, and executive summary. The information to include depends on your sector, i.e. daycare services, consulting, insurance, real estate, product development, etc.
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