Applying for a Loan Lesson 1
Applying for a Loan
This course will review the loan application process and provide you with a comprehensive checklist, which includes reviewing the loan application form, preparing resumes and a business plan, and preparing and submitting your business credit report, income tax returns, financial statements, AR/AP reports, and other collateral and legal documents.
There are several critical factors that go into determining your credit worthiness for a loan. This course reviews types of equity, earning requirements, working capital, collateral, and other assets and factors to consider when applying for business credit.
Microloans and More
An overview of microloans – loans up to $50,000 to small businesses and certain not-for-profits, Venture Capital – a type of equity financing that addresses the funding needs of entrepreneurial companies that for reasons of size, assets, and stage of development cannot seek capital from traditional sources, and Angel Investors – high net worth individual investors who seek high returns through private investments in start-ups.
**DISCLAIMER: NOT ALL COURSES ARE REQUIRED. PLEASE FEEL FREE TO TAKE ONLY THOSE COURSES THAT INTEREST YOU.
Of course, each loan program has specific forms you need to fill out. But for the most part, you’ll need to submit the same types of documentation. So it’s a good idea to gather what you’ll need before you even start the application process.
Here are the typical items required for any small business loan application:
Loan Application Form
Forms vary by program and lending institution, but they all ask for the same information. You should be prepared to answer the following questions. It’s a good idea to have this information prepared before you fill out the application:
Why are you applying for this loan?
How will the loan proceeds be used?
- What assets need to be purchased, and who are your suppliers?
- What other business debt do you have, and who are your creditors?
- Who are the members of your management team?
- Personal Background
Either as part of the loan application or as a separate document, you will likely need to provide some personal background information, including previous addresses, names used, criminal record, educational background, etc.
Some lenders require evidence of management or business experience, particularly for loans that can be used to start a new business.
All loan programs require a sound business plan to be submitted with the loan application. The business plan should include a complete set of projected financial statements, including profit and loss, cash flow and balance sheet.
Here are some resources for preparing your business plan:
- Essential Elements of Writing a Good Business Plan
- Templates for Writing a Business Plan
- Personal Credit Report
Your lender will obtain your personal credit report as part of the application process. However, you should obtain a credit report from all three major consumer credit rating agencies before submitting a loan application to the lender. Inaccuracies and blemishes on your credit report can hurt your chances of getting a loan approved. It’s critical you try to clear these up before beginning the application process.
Business Credit Report
If you are already in business, you should be prepared to submit a credit report for your business. As with the personal credit report, it is important to review your business’ credit report before beginning the application process.
Income Tax Return
Most loan programs require applicants to submit personal and business income tax returns for the previous three years.
Many loan programs require owners with more than a 20 percent stake in your business to submit signed personal financial statements.
You may also be required to provide projected financial statements either as part of, or separate from your business plan. It is a good idea to have these prepared and ready in case a program for which you are applying requires these documents to be submitted individual.
The following forms may be used to prepare your projected financial statements:
- Balance Sheet
- Income Statement
- Cash Flow
- Bank Statements
Many loan programs require one year of personal and business bank statements to be submitted as part of a loan package.
Accounts Receivable & Accounts Payable
Most loan programs require details of a business’s most current financial position. Before you begin the loan application process, make sure you have accounts receivable and accounts payable.
Collateral requirements vary greatly. Some loan programs do not require collateral. Loans involving higher risk factors for default require substantial collateral. Strong business plans and financial statements can help you avoid putting up collateral. In any case, it is a good idea to prepare a collateral document that describes cost/value of personal or business property that will be used to secure a loan.
Depending on a loan’s specific requirements, your lender may require you to submit one or more legal documents. Make sure you have the following items in order, if applicable:
- Business licenses and registrations required for you to conduct business
- Articles of Incorporation
- Copies of contracts you have with any third parties
- Franchise agreements
- Commercial leases
- Organizing your documents
Keeping good records is essential for running a successful business, but even more critical when applying for a loan. Make sure required documents are orderly and accurate. All information you provide will be verified by your lender and the organization guaranteeing the loan. False or misleading information will result in your loan being denied. Finally, make sure you keep personal copies of all loan packages.