If you are like most small business owners, the thought of taking out a loan to grow your business is daunting. Loan documents are critical when small business owners seek financing. But which documents do you need for your loan application, and where do you start? Relax – we’ve got you covered. In this article, we reveal a list of 14 essential documents for small business loans.
What personal and financial information do lenders need?
So what are loan documents? Loan documents are a set of forms and applications used to apply for a loan, including the promissory note, surety agreement, and disclosure statement. The loan documents give the lender all the information he needs to make a decision about the loan. In addition to business and financial information, the lender may also request statements of personal information, such as your credit score and your debt-to-income ratio.
The 4 Main Types of Loan Documents
There are four main types of loan documents that a borrower must provide when seeking business financing, including:Loan estimate. The loan estimate is the first part of the lender’s paperwork and outlines the terms of the loan. Rate Lock Form. The rate lock is a written agreement between the borrower and the lender that guarantees the borrowing rate for a specified period of time. Information about the borrower. The borrower information is a form that contains the personal information of everyone listed on the loan application. The closing disclosure provides final details about the loan, including any terms or riders.
14 documents needed for loan approval
Wondering what documents are needed for a small business loan? The entire agreement, or loan package, consists of a number of documents that the borrower and lender sign. And while some lenders do not require a personal guarantee from the business owner, other lenders may. The loan application process can be lengthy, so it’s important to start collecting the necessary paperwork as soon as possible.
1. Updated Business Plan
An updated business plan is one of the first things a lender will ask for. Your business plan should include your company’s financial history and balance sheet, as well as your current and future goals. This document will give the lender a better understanding of your business and help them determine if you are a good candidate for a loan.
2. Business income tax return
Corporate income tax return is another important document that lenders will request. This paperwork gives the lender information about your company’s income and expenses. It is important to note that lenders will usually request tax returns for the past three years.
3. Bank statements
Bank statements showing cash flow for the past three months are also required by most lenders. This document will help the lender understand your company’s financial situation and determine whether you are able to repay the loan.
4. Company Registration
Lenders also need proof of your company’s legal registration. This can be in the form of a business license, articles of association or a partnership agreement.
5. Business Licenses
Business licenses are required to operate in most states. This document shows the lender that your business is legit and that you are acting within the law.
6. An EIN
EIN, or Employer Identification Number, is a unique number assigned to your company by the IRS. This document is required to open a business bank account and is used by the lender to verify your company’s identity.
7. Financial statements
Financial statements include your company’s balance sheet, income statement, and statement of cash flows. These financial statements give the lender a better understanding of the financial situation of your company. When applying for a loan, it is important to ensure that these statements are current and accurate.
8. Loan Purpose and Use
Unlike personal loans, business loans usually have to be used for a specific purpose. The desired loan amount can be used to purchase inventory, expand your business, or hire new employees. Lenders will want to see how you plan to use the loan funds and how it will benefit your business.
9. Loan History
If you have taken out a business or personal loan in the past, lenders will ask for information about your repayment history. This document shows the lender how you have handled previous loans and whether you are a responsible borrower.
10. Securities and guarantees
Many lenders require collateral for a business loan. This means that you have to put down something of value, such as your house or car, to secure the loan. In some cases, a personal security deposit may also be required. This means that you, as the owner of the business, are held personally responsible for the loan.
11. Credit Report
Your personal credit report is another important document that lenders will request. Your credit report shows the lender your credit history and whether you have been responsible for previous loans. A good credit report and score will increase your chances of being approved for a loan.
12. Account Details
To complete the loan application process, you must provide your company’s account information. This includes your bank account number, routing number, and account balance. The lender will use this information to deposit the borrowed money into your account.
13. Budget and Future Cash Flow Estimates
A budget and cash flow forecast are important documents that show the lender what your plans are for the future. This document helps the lender understand how you plan to use the borrowed money and whether you will be able to make the repayments.
14. Income Statement
An income statement is a document that shows your company’s income and expenses over a period of time. This document will help the lender understand your company’s financial situation and determine whether you are able to repay the loan.
Other information business owners may need
In addition to the standard loan documents, there are some other information that business owners may need to provide, depending on the different lenders. They may need your information about your living situation, proof of address and proof of business experience.
Frequently Asked Questions
What should you know before signing a business loan agreement?
Entrepreneurs should be aware of the interest rate on the loan, as well as any formation expenses or other associated costs. They must also receive a loan estimate from the lender, detailing the monthly payments and the total cost of the loan.
What is proof of business for an SBA loan?
For an SBA loan, business owners must provide proof of business activity, such as tax returns, bank statements, or financial statements. They may also be required to provide a business plan or other documentation that outlines their business model.
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