You will need financing for your business at some point. Whether you’re going to use the money to bounce back from losses, improve your current business or expand to a new market, a business loan can help you get the financing that you need so you can make things happen for your business.
There’s one catch, however. Applying for a business loan can be long and tricky, which is why you have to go to the battle prepared with the necessary documents to make sure that you get the approval that you need. Here are five steps to help you prepare the documents that you’ll need for your application:
Bank statements are some of the first few documents that lenders would like to look at when you’re applying for a business loan because they prove the legitimacy of your business and your cash flow to show that you are capable of repaying the loan should you get approved.
That is why it’s very important to manage your money well to prove that you are earning and balancing your finances properly. Most lenders would require at least 6 months of your bank statements, which you can request from your bank.
We all know that lenders look into credit history when applying for any type of loan, but especially for business loans. Although a poor credit score or history doesn’t necessarily mean that you won’t get any chances of approval, it could mean higher interest rates for you.
Depending on the structure of your business, lenders will look into both your personal and business credit histories to see if you have good payment history.
This is when having an accountant becomes beneficial because you’ll be able to organize your tax returns in the past years that you’ve been in business in a way that they reflect consistent revenue. But if you’re a startup, you can ask an accountant to create a tax return projection for the upcoming year that lenders can use to determine if you will qualify for a business loan or not.
Lenders these days are extra careful with businesses they approve for a loan because some have great ideas but don’t necessarily know how to manage their cash flow to keep their business running and thus, repaying their loans.
Budget and cash flow projections are a way of proving that you have your finances sorted out and it shows lenders that you have a clear plan for the future of the business, which gives them some sort of security that you can pay the loan if they approve you for it. If you know you are going to be considered a high risk merchant business, be sure to talk to your credit card provider about protections for your account.
As a business owner, it’s an imperative that you learn these steps so you can prepare for your business loan application and get a higher chance of an approval.
If you do get approved for a business loan, make sure to repay them on time, so it’s easier to apply for more loans in the future.