Business Loan Application

How to Prepare your Small Business Loan Request

Here is a list of what you should have organized and ready to provide:

• Personal Federal Income Tax Returns – The last 2 years for loans greater than $25,000. 1 year for loans less than $25,000.
  In most cases, anyone who owns at least 20% of the business will need to submit tax returns and a Personal Financial Statement.
• Business Federal Income Tax Returns – The last 2 years for loans greater than $25,000. 1 year for loans less than $25,000.
• Personal Financial Statement outlining personal assets (real estate, cash, automobiles, securities), liabilities (loans, credit card debt), monthly household income, and monthly household payments.
• If your business is an LLC or a Corporation, have the organizational papers available.
• If your business is a startup (0-2 years) provide a business plan and one year of financial projections.
• Valid Identification for all owners/guarantors evidencing US citizenship or Permanent Resident Alien Status.

The following items are also part of the loan application:

• A Debt Schedule for the business, showing all business loans (including the loan you are applying for) with details on the original loan amount, interest rate, payment amount, and current balance.
• Details of how much cash or other assets you’ve invested in your business.
• A detailed list of how the money will be used.

Supporting Resources

Business Plan Template
Startup Financial Projections Template
Personal Financial Statement

Applying for a Business Loan

• Know what is on your credit report, and have an idea of what your credit score is. Request a free credit report and dispute anything that is incorrect and be ready to explain any gaps in payments.
• Be prepared to discuss how much of your own cash you’ll be putting into your business if it’s a startup. If you’re not putting cash in, document the equipment or other assets you’re contributing that will be part of the business.
• A personal guaranty to repay the loan will be required and personal and business assets will be used as collateral.
• Know that a loan will come with closing costs and fees. Inquire if these costs can be rolled into the loan or paid out-of-pocket.
• Retain any turn down (application decline) letters you receive from funds as mission lenders may request those.
• Your loan officer’s job requires that the review the 5 C’s of credit when evaluating your loan request: character, capacity, capital, conditions, and collateral.

PRO tip

Providing this information upfront will speed up the process of getting an answer on your loan request.

The 5C’s of Credit

1. Character
2. Capacity
3. Capital
4. Conditions
5. Collateral

Character

• Be prepared to help your lender understand that you’ve got what it takes to launch and manage this business.
  • Do you have the skills and licensing necessary?
  • Describe your experience, connections, and know-how that is necessary for the success of this business.
• Your loan officer will want to check your credit report, and usually that of anyone who owns 20% or more of the business.
• Know what is on your credit report, and have an idea of what your credit score is. Request a free credit report and dispute anything that is incorrect and be ready to explain any gaps in payments:
  • If you have late payments, bankruptcy, foreclosure, or tax liens on your record, be ready to explain what happened. Try to show your loan officer how things have changed since these things happened.
  • Also, be prepared that these things may be a reason for denial.

Capacity

• Your loan officer is going to calculate cash flow using your tax returns or your business plan projections. That’s why it’s important to have these items readily available.
• Your loan officer is looking to see if there is enough cash flow available so that under reasonable expectations, you can make your loan payment.
• Your personal debt payments are also considered. Pay down any personal debts if you can.
• Be ready to answer any questions or point out unusual expenses that might not be recurring items.

Capital

• The amount of personal investment in your business is considered your startup capital. Usually, this comes from personal savings or other resources, but the contribution of some high-cost equipment to the business (that is fully paid for) could be considered part of your startup capital too.
• Lenders look at the amount of start-up capital you will have. They are more willing to approve a loan when the business owner has invested some personal money in the business. It’s unusual for a small business to get started with 100% borrowed money.
• If investing your own capital in your business is not possible, you’ll need to rely more heavily on the other C’s. If your character, capacity, collateral, and conditions are particularly strong, you might be able to offset the lack of capital.

Collateral

• Almost every lender looks for some type of collateral when they make a business loan. In other words, on what can the bank file a lien or mortgage to secure the repayment of the loan?
• Have an idea ahead of time what you will offer for collateral to the lender.
  • Will you have business assets the lender can put a lien on?
  • Are you buying real estate for the business that you will mortgage?
  • Will you pledge personal assets? (i.e., vehicle, boat, land, real estate, CD)

Conditions

• Are the current economic conditions right for the likelihood of success for your business?
• Have you addressed who your competitors are, and how you’ll differentiate yourself from them?
• Help your loan officer understand who your target market is. How will potential customers find you?
• Help your loan officer understand how the market and economic conditions will support the success of your business.