For many small business owners as well as veteran-owned business owners, the loan application process can be tedious and overwhelming. It’s hard to know where to start and how exactly to present yourself to a potential lender. That’s why we’ve compiled this checklist for you to reference as you pull together your business loan application for a term loan, line of credit or if you’re mobilizing for contract financing from a factoring company.
What to Know Before You Go
Loan request approvals depend on how well you present yourself, your business and your financial needs to your business lender. The best way to do that is to know beforehand the answers to the most common questions lenders may ask:
1. Know why you’re applying for the business loan
Do you need more inventory to prepare for your busy season? Are you looking to expand into a second studio? Are you opening a second franchise location? Do you need to hire an accountant for tax season? Are you waiting for the government to pay an invoice? Having the details of exactly why you need the funds and how you will use them will help lenders determine if lending to you is a worthwhile investment.
2. Know what kind of small business loan you need
Modern small business lending includes everything from traditional bank loans, SBA business loans from banks, VA business loans to online small business loans. With the variety of loans available comes a variety of qualifications, requirements and interest rates. Before you spend time pulling together an application, choose which type of loan will best fit your needs.
3. Know how much financing you need
If you’re going to hire a web designer, launch a new product or open a second store, have a price point as close as possible to what you’ll really need. You don’t want to bite off more than you can chew, but you don’t want to lowball yourself either—running a business takes money. You want to make sure your loan actually covers those extra expenses.
4. Know when you can pay it back
Before you even look for a small business loan or VA business loan, have a timeframe in mind for when you intend to pay it back, whether that’s within a matter of months or years. This can help you determine how large of a loan you can afford and what type of business loan or line of credit you should look for.
5. Know and understand payment terms and prepayment penalties
Payment plans vary by lender and you should always ask if they charge anything for paying back your loan early. This is known as a prepayment penalty; however, some business lenders call this a prepayment discount. Other lenders will work the prepayment penalty into their payment terms. At StreetShares, we don’t charge anything for paying back your loan early. Understanding fully how payment terms work will help you save money on your business loan.
6. Know what you will do if your business is unable to repay the loan
While you intend to pay off your loan, sometimes things happen. Sales are slower than projected. Unexpected expenses come up. In the unlikely event that you do fall behind on payments, have a plan B set up so you can work with your lender to pay your loan back in full.
Ready to apply for a business loan? Click here.
What Documents You Need to Gather
Every lender has different documentation requirements to prove that your business exists and is a good candidate for a small business loan. Here’s a checklist of common things you need to gather when you’re applying for a loan:
7. Check your business and personal credit scores
Your interest rate, loan terms and ability to get a loan are all largely driven by your personal credit score or FICO. That’s why it’s best to have a good idea of where you stand before approaching a lender. If you don’t know what your personal or business credit scores are, you can get a free personal credit report once a year from annualcreditreport.com, which will include reports from Equifax, Experian and TransUnion.
8. Write a background statement for your business
While many conventional lenders may not require it, some lenders may want to gauge your expertise in your industry or have some documentation that provides context to your application. This background statement can be as simple as outlining your resume and the history of your business.
9. Assemble a solid business plan
It’s always a good idea to have this on hand, but it’s an especially good idea when you’re applying for a business loan. Lenders want to see the structure of your business, how it is filling a market need, and your projections for its future growth.
See also: "The Basics of Small Business Financing," a FREE resource to prepare for funding your small business.
10. Gather all relevant business documents
This one could be the more time consuming part of your application. While documentation requirements vary from lender to lender, here are some of the most common:
- Legal documents, including licenses, articles of incorporation, copies of third party contracts, franchise agreements or commercial leases
- Business and personal tax returns
- Financial statements, including profit and loss statements, payroll records and personal financial statements
- Bank statements from the past 6 - 12 months
- Disclosure of any asset liens
- A list of potential collateral
Ready to Apply for a Small Business Loan or VA Busines Loan?
This checklist includes documents you'll need if you were to apply for a business loan the traditional way through a bank. It’s always a good idea to have all of these items in place no matter where you decide to apply for a small business loan. At StreetShares, we initially require businesses to:
- Fill out a simple two-page online application
- Submit bank statements from the past six months
We may ask for additional documentation such as your personal and business taxes.
If you’re ready to apply, we’re happy to help. Just click here to start your application. It takes just a few minutes. Or feel free to call us at 800.560.1435 for any assistance.