Getting working capital for operational expenses can make or break your small business. If you require funding to fund your commercial projects and in search of business loans with little paperwork process, its best to go over the commercial loan checklist.

The process of getting commercial financing may seem intimidating, but the process is easy if you’ve the documentation ready. Lenders actually willing to assist small businesses secure the capital they need. They only afraid of working with borrower who can’t repay them or have bad credit histories.

The good news is that most of them have lenient qualification requirements—and, follow stack of business loan documentation through which they assess borrower’s credibility. If you get yourself fully prepared before applying for loans, you’ll have a better chance of qualifying along with easy loan application process.

THE BASICS

Every loan type has different documentation and it also vary based on what you’re looking for. Meaning, if you want to apply for an SBA loan, your business loan documentation will be different from a business line of credit.

No matter what business loan type you’re applying for, there are few things you need to understand and get yourself prepared for before you jump into the commercial loan application process. Every lender requires documents, so you should be ready to have those documents and pieces of information by your side including:

  1. Personal Credit Score History
  2. Business Credit Score
  3. Personal Information
  4. Business Information
  5. Business Permits
  6. Tax Returns

 

  1. Personal Credit Score History

When applying for a business loan, your personal credit score really matters in a lender’s decision to approve you for funds. Personal credit history acts as a solid indicator of your past performance of well you were able to manage your business’s finances. Lenders use this assessment to objectively assess your ability to handle the cash you need for commercial expenses.

Lenders can easily get this information from three different personal credit bureaus. Technically, although it’s not what you should be prepared for, but it’s something that needs to on your checklist so you know your personal credit score.

  1. Business Credit Score

Just like your personal credit score, your business credit score also plays an important role in your business loan qualification. It’s different than your personal credit score, but can affect your possibility of getting a commercial loan (or any other business loan type).

Many factors influence business credit scores like company size, business credit card payments, use of credit, and length of credit history as well as risk factors within your industry. Once you’re able to understand your business credit score along with your personal credit, you can have a better understanding of the business loan types you’re eligible for.

  1. Personal Information

As a business owner, your personal information should be added to your commercial loan documentation checklist including your name, physical address, SSN, valid ID, etc.

  1. Business Information

Just like your personal information, your business information should also be added to your documentation checklist including business physical address, business type, and employer identification number (EIN).

  1. Business Permits

Access to any business licenses and permits is also needed for lenders to ensure you’re legally operational. You need to make sure all permits or licenses are updated and valid before adding them to your documentation.

  1. Tax Returns

You also need to have tax returns for at least two years (both business and personal) to verify your income and revenue. Lenders will surely ask for business tax returns, but some might ask you for personal tax returns as well. So, make sure you file them properly and have the current tax returns for review.

THE FINANCIALS

After you’ve completed your basic documentation, the next step is to pile up your important financial records.

These financial documents are equally important for a business loan application. Lender evaluate these documents during the business loan underwriting process to ensure you have the revenue, cash flow, and financial health to carry the debt as well as to repay the lender.

If you’re unable to gather these documents, its best to work with your accountant to get them organized. They know your business books well—and can provide the clear picture of your financials to the potential lender.

  1. Current Business Bank Statements
  2. Profit & Loss Statement
  3. Cash Flow Projection
  4. Business Debt Schedule

 

  1. Current Business Bank Statements

Providing your current bank statements is an essential requirement of every lenders. First, it shows a lender how capable a business is or has the liquidity to repay the loan while being operational. Secondly, it shows how responsible you are while utilizing money—for example, do you save a good emergency fund, or spend a lot of cash when income is sturdy?

That’s why lenders will usually ask for two to three months of bank statements. Adding these statements to your documentation checklist should be your next step while getting prepared.

  1. Profit & Loss Statement

Lenders also ask for your business profit and loss statements to confirm the revenue. These are your business’ income statements.

  1. Cash Flow Projection

Being it a vital sign of your business financial health, the cash flow projection enables lenders to assess how you think of your future. The projection statement can vary; some might ask for 12 months projections, while some for two or three months’ only.

  1. Business Debt Schedule

Business debt schedules indicates how your business is planning to pay off or paying off its existing debts. The most common elements of your debt schedule includes business leases, credit, agreements, and any other intermittent payments your business owe.

THE SPECIFICS

There are additional specifics you need to gather when applying for the loan application. Most of the lenders won’t even mention these documents but you should have them with you..

  1. Loan Purpose
  2. Collateral
  3. Business Plan

 

  1. Loan Purpose

You should have a document of how you will use the loan being it an important document for the lender. How you will use the funds and for what purpose. If the cash is to finance an equipment, a quote needs to be provided for the equipment. In case of working capital, explanation is required for the projects on which funding is intended.

  1. Collateral

While applying for loan, you’ll have to provide collateral documentation to the lender. These documents will prove what type of collateral is you’re using to get your commercial loan approved.

  1. Business Plan

A business plan is an important element of your business loan application. Lenders use a business plan to understand exactly what you plans are for the company, whether you’re an established business or just starting out. This also provides insights into your company’s policy, purpose, and the approaches you’ll use to achieve your goals. This is particularly imperative for startups since they don’t have a track record.

Documentation for Real Estate Loans

If you need a commercial loan for a real estate purchase, or for renovation, lenders will require documentation of ownership, insurance, and much more. These documentation requirement will vary from lender to lender, so its recommended to discuss it with a loan specialist to learn exactly what should be added to your checklist precisely. Here is a list of following documents you need to compile:

  • Basic information on the parties involved (Owners, Development & Management Company, etc.)
  • The deed of the property
  • Contracts for sale and purchase
  • Existing liens
  • Property tax receipts
  • Property leases and/or rental agreements
  • Pictures of the property
  • Evidence of any insurances

Documentation for SBA Loans

If you’re applying for the US Small Business Administration’s (SBA) loan programs, you’re require to submit documentation as well. SBA makes financing quickly available to small businesses by collaborating with a network of lender across the country. They guaranteeing a portion of these loans, making it low interest rates loans with longer repayment terms—some up to 25 years for real estate financing.

It is the most desirable financing option, but that too comes with a lot of paperwork. These loans are the most paperwork-intensive in case of commercial loans. You’re required to provide personal data including your equity investment along with many of their exclusive forms, like SBA form 912 or SBA form 159. Here is a resource to help you get started with an SBA loan application.

The Bottom Line

Every commercial loan involves somewhat different documentations, but if you’re organized well and prepared early, getting funding without the hassle is as easy as eating as a pie. This checklist will not only get you a realistic picture of business financing options, but also improve your chances of getting a quick ‘YES’ on your loan application.

Small Business Financing News │ Merchant Advisors | blog
An Ultimate Guide On Commercial Loan Documentation Checklist
An Ultimate Guide On Commercial Loan Documentation Checklist
Looking for funding to fund your small business? The road ahead is full of twists and turns because it does require a lot of time and research to locate the best funding program that suits your business. Due to theRead more
When you need commercial financing for your business , you need to understand what is involved. Here is a commercial loan documentation checklist.
MichaelGavin
Merchant Advisors
Merchant Advisors
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