What documents are required to apply for a short-term business loan?
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Short-term business loans can be a great way for companies to get funds to cover unexpected expenses, deal with a cash crunch or take advantage of a time-sensitive business opportunity. When you apply for any loan, you’ll have to fill out an application and provide the lender with some documentation about your company.
Knowing which documents you’ll need and having them ready will help the application process go more smoothly. Here’s a look at common documents you’ll want to have ready before applying.
Updated business plan
A business plan is a written document that describes your company, what it does, how it will use the loan and how it plans to make money.
Having a business plan shows lenders that you’re organized and have a good sense of how your business operates. It also lets them see how you’ll make the money you need to repay the loan.
When writing your business plan, be realistic. Don’t assume you’ll generate massive profits because lenders will think you’re unrealistic. This could lead to a loan denial. Also, make sure to acknowledge and address potential risks. This will show the lender that you understand your industry.
Where to get help writing a business plan
Writing a business plan can be tricky. Thankfully, there are many resources available for people who need help.
SCORE is a Virginia-based nonprofit organization that works with the U.S. Small Business Administration. It offers help and resources to companies nationwide.
One such resource is a business plan template you can use to guide you as you write your business plan. You can also work with a SCORE mentor to get personalized help.
The Small Business Administration also assists businesses, including information on writing a business plan.
One of the key things lenders care about when you apply for a loan is whether you’ll repay the loan. That means lenders will want to analyze your company’s financial situation to make sure it can handle repayment.
Lenders will look at your bank statement to see how much money is in the account and how much you usually spend per month. They’ll also note any unusual expenses. Be ready to provide the last few statements for each bank account your business has.
Lenders will also want to look closely at your company’s income statements. Even if you have a lot of cash in the bank, spending more than you make is a bad sign and could lead to default.
Lenders will examine your income statement to make sure that your revenue is stable or growing rather than shrinking. They’ll also make sure that your income is sufficient to handle payments on a new loan.
Personal and business tax statements
Many lenders will also ask for recent tax return information. They can ask for both your personal and company tax documents.
Expect to need your business’s tax return showing revenues and expenses and Schedule L of Form 1120 showing your company’s balance sheet. These documents will let the lender understand your company’s performance over the past few years.
The lender may also ask for your personal tax documents, especially if you’re running a new company and have to offer a personal guarantee. Be ready to provide your Form 1040 showing your full tax return details and Schedule C, which details your income from the business if you’re a sole proprietor.
Business licenses and permits
You should also be ready to provide your business formation documents and any relevant license or permits. For example, if you run a restaurant, have your health inspection certificates, permits and food service licenses ready.
This will help the lender confirm that your company is legitimate and that you comply with local law.
Additional business and financial documentation
On top of the above documents, be ready to provide some or all of the following to your lender:
- Your driver’s license
- Your Social Security number
- Franchise agreements (if applicable)
- A current list of accounts receivable
- A list of current debts
- Projected financial statements for the next year
Applying for a short-term business loan can help your company get the money that it needs, but the process can involve a lot of paperwork. Make sure you have the required documents ready for your lender to help the process go smoothly.
Frequently asked questions
Every lender sets its own requirements and some lenders focus on people with less-than-perfect credit. That means it generally isn’t too hard to get a business loan unless you have very bad credit or your company is quite new. In those situations, you may have trouble finding a loan and almost certainly have to offer a personal guarantee. If you find yourself in that spot, try working with a lender that you already have a relationship with, such as a bank you have accounts with. Or apply for a type of loan specifically aimed at borrowers with bad credit.
The SBA requires a variety of documents, including:
- A borrower information form
- Statement of Personal History – SBA Form 912
- Personal Financial Statement – SBA Form 413
- Business financial statement
- Business certificates and licenses
- Loan application history
- Income tax returns
- Business overview and history
- Business lease
- Additional documents (if applicable)
- Current balance sheet and P&L statement of business to be purchased
- Previous three years’ federal income tax returns of the business to be purchased
- Proposed bill of sale including terms of sale
- Asking price with schedule of inventory, machinery and equipment, furniture and fixtures
- Franchise, jobber or licensing agreements
- Proof of equity injection
- Additional SBA forms may be required based on the specific use of proceeds or fees paid by the applicant to a loans package, broker or agent
As with any loan, SBA loans look at your company’s ability to repay a loan, your credit score, income, existing debt, business plan and other factors.