A business may start off well and grow steadily with time. However, require a little capital boost to ensure that the business keeps running smoothly. This means obtaining financing from outside sources. The most common of these is a business loan. What do you need to be considered for a business loan?
1. An Application Form
Application forms may vary from one institution to the next, but the information required usually remains the same. Be sure to fill out every detail on the form. Most loan applications often get rejected or take a longer time to process because some details were left out.
Some companies want to find out whether you have previous management experience or whether you have run a business before. This will allow them to find out whether you will be able to bring the business to profitability since their money will be invested in it.
3. Business Plan
All loan providers will ask for a business plan. This is because it shows how you intend to use the money once received and gives detailed insight into your future plans for the business. Remember to include information on your projected cash flow, profits, and loss. This will provide a picture of how you expect the business to look like on paper within a certain amount of time.
4. Business and Personal Credit Report
Your personal credit report and that of your business will be required. It is important to look for these from the three main credit rating agencies in advance so that you go through them. Look at them carefully and take note of any problems that may need fixing. Any blemishes may deny you a loan so be sure to take care of these before it is too late. It may be wise to find these credit reports a few months in advance so that you have time to clear up any issues and improve your chances.
5. Personal and Business Financial Statements
How your business accounts are looking for is very important. Financial statements have information on the right and current financial position for your business in detail. All losses, profits and wherever the money goes is highlighted. You should also include future projections for the business. This will show how profitable and feasible the business is in the long term. Get these done properly so that they reflect the right position.
Personal financial statements may be required if you own more than 20 per cent of the business. They may ask for between six months and a year’s worth of financial statements.
6. Income Tax Returns
An honest taxpayer usually makes an honest and diligent businessman. It is also required by law to submit tax returns. Make sure you file your tax returns on time while keeping the details as true as possible and ensure that you keep any related documentation close by. Giving false details to reduce your tax burden will definitely have consequences in the future.
It is not always a requirement but collateral may be asked for. Collateral is a valuable item that may be used to guarantee the loan in the event that you are not able to pay back the loan. It could be real estate, business inventory or anything else that will not depreciate in value very quickly.
8. Legal Documentation
A business usually has some documentation that is required for legal purposes when starting out. This may include the articles of incorporation, registrations, and licenses that allow you to legally run the business, any contracts that you may have entered into with other parties such as franchise agreements and commercial leases.
These requirements may vary from lender to lender but most of these are common to all. Be sure to keep your documents and records in order so that you can easily find them when you need them for such a purpose. Any information you give to a prospective lender should be as accurate as possible because they will do their own investigations and if they find out you misrepresented the business you may lose favor with them. When you finally do succeed and obtain a loan, be sure to keep a copy of the terms and conditions governing that loan as a reminder because anything can happen along the way.