Some of the Main Steps in the Business Loan Application Process
If you need a business loan to buy equipment, expand operations or expand your small business, there are a few essential steps that you should follow when applying for financing.
The initial step in seeking financing is to understand why and how much you require. This will enable you to decide what type of loan best meets your requirements and boost the likelihood that approval will come quickly.
1. Prepare Your Documents
When applying for business financing, organization is key. That means gathering all your documents before applying for a loan.
Certain business lenders will request that business owners submit specific financial statements, such as a balance sheet, P&L statement, cash flow statement, and bank statements. These statements help business lenders assess your business’s ability to repay the loan.
Another essential document is your EIN (Electronic Registration Number), which serves to verify the identity of your business. Having this number makes the process smoother for lenders and expedites loan approval faster.
Lenders might also want other info. This could include a customer list, tax returns, personal income statements, bank statements, and details about your past repayment history.
2. Review Your Lender’s Requirements
Business loans can be beneficial for many reasons, from working capital needs to expanding your company. But before applying, it’s essential that you comprehend the requirements and conditions of your lender so you can select the most advantageous solution for your business.
The size and industry of your business can also influence whether or not you qualify for a loan, depending on the lender’s criteria. For instance, some lenders require annual revenues to exceed certain levels before they approve an application.
3. Fill Out the Application
When applying for an SBA loan, a small business loan from your bank or credit union, or even one from the state or local economic development agency, there are certain forms that must be filled out. Each lender has their own requirements and eligibility criteria so be sure to inquire ahead of time about what documents they require before beginning the process.
Additionally, you must submit both a personal and business credit report. Your business credit score is significant as lenders view it as evidence of your company’s credibility and capacity to repay debts.
4. Submit Your Documents
Business lenders will request that you submit several documents. These requests aren’t random – they’re required by law and regulatory bodies in order to verify your business entity and ability to repay the loan.
Documents required for application will depend on the type of loan you request and your business. Generally speaking, most small business lenders require a set of standard documents as part of the application process.
These include financial statements (balance sheet, income statement and cash flow statement) as well as your EIN (Employer Identification Number), which is a unique number assigned to your business by the IRS.
The balance sheet provides lenders with a snapshot of your overall financial position and is especially critical in assessing whether assets exceed liabilities. It also assists them in calculating what you owe compared to what assets you own.
If you’d like to compare business financing options, visit our business financing comparison page.