Most small business owners need a bank loan at one time or another, and applying for a business loan from bank includes a lot more than filling out application and other paperwork. Among all other things, you need to consider the state of your personal and business finances, how you are going to pay back the loan, and how much money you really need.
Here are a number of the important things the bank will ask while you need a business loan;
- Business Plan
There are exemptions, but the vast majority of business loan applications require a business loan document. At present, it can be short perhaps even a lean business plan; however banks still require general summary of business, products/services, business market, employees, and other financials.
- Business’ Financial Details
Be organized to offer the bank with all the financial information about any and all loans and debts, both latest day and old, as well as any credit cards, bank accounts, investment accounts, along with all of the supporting documents such as tax identification numbers and your complete contact information.
- Accounts Receivable Details
This indicates that you have to add the accounts receivable aging report by account, so as to the bank can evaluate their credit. Additionally, you need to add sales and payment records.
- Accounts Payable Details
This is the same details as you provided for your receivables. Additionally offer credit references, which would be businesses who are inclined to sell to you on account and can confirm the bank that you have good payment history.
- Financial Statements
On balance sheet, you actually require assets and liabilities of your business in addition to your capital, and make sure you provide the latest model. Profit and loss statements of at least last three years, in case you have been running that long. Your all financial statements should be audited, which indicates that a certified public accountant has come in from outside your business and checked them for precision.
In case you don’t have enough cash to pay for an audit, you could usually escape with reviewed statements, which involves a certified personal account, but costs less, due to the fact that the process is slightly less thorough and entails less risk for the accountant.
You can get a business loan in case you are a startup business. However for that, you need to have some sort of hard assets to pledge against the loan in order to minimize the risk to the bank. Receivables can make up some of the collateral, but the bank will take a look at every account to ensure that they are reliable.
In case you place your business inventory as collateral, the bank will regularly take a percentage of it; however they will take some reasonable steps for this. As the small business owner, you can also have to put up equity in your home to get the required funding.
- Personal Financial Details
The balance sheet has to list all your business liabilities, assets, and capital. Your profit and loss statements for the last three years, however exceptions can be made, once in a while, if you don’t have enough records, but you do have excellent credit as well as assets to pledge as collateral. Additionally providing the profit and loss history as much as you have can also help you in getting approved for funding effortlessly.
Having audited statements means that you have paid some thousand dollars to have a certified public accountant go over them and take some formal responsibility for their accuracy. CPAs get sued over bad audits. The larger your business, the much more likely you will have audited statements prepared as a part of your normal business course for reasons linked to possession and reporting responsibilities.
Having the statements reviewed is inexpensive due to the fact that the CPAs who evaluate your statements, have less liability if you got it wrong. Banks will not always require audited or even reviewed statements due to the fact that they normally need collateral, your assets at risk, consequently they care more about the value of the assets you pledge for the funding.
- Insurance Details
In case your business relies on at the founders to stay open, you may have to get life insurance for the key persons. The recipient for that insurance should be the bank, to fulfill the loan.
- Copies of Tax Returns
Start with the last three years of the business’ tax returns, but don’t be flabbergasted if the bank requests for more years’ of worth, in case you have been open that long.
- Agreement on Future Ratios
Most of the business loans have loan covenants. These are agreements include debt to equity ratio, current ratio and quick ratio within a specific range. In case your financials go out of that range, you have got defaulted, even if you keep up with the payments – so read the particular details on this.