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In 2022, it can be overwhelming to apply for a small business loan. Data shows that over 30% of small businesses in the U.S. don’t get loan approval. And if you’re an entrepreneur looking to scale operations or need working capital to make it through a rough patch, being turned down can be devastating.

Thankfully, paying close attention to the loan application requirements can significantly increase your chance of success. Many applicants are rejected right off the bat, simply because their paperwork was incomplete.

In this article, we’ll outline everything you need to include in your loan application so you have the best chance to get approved for a small business loan.

Essential Required Documents to Secure a Small Business Loan

The business loan requirements may also vary depending on the lender you’re working with and the loan options you’re looking at. As a rule of thumb, you’ll want to have documents covering the basic details of your small business rather than dwell on every piece of financial record or document.

Here’s a list of documents you will need to apply for and get approval for a small business loan:

Business Plan

Your business plan needs to highlight different aspects of your company like product or service offerings, how you earn a profit margin, and a record of annual expenses. Lenders usually take a close look at the financial aspect of your business plan like income statements and balance sheets.

Your business plan also shows lenders that you understand the current marketplace and whether you have the management skills to run optimized and profitable operations.

Make sure your business plan covers your target market, key competitors, management team, mission statement, long-term goals, product or service you offer, marketing strategies, business value proposition, financial projections and annual revenue, business location, and number of employees. Of course, realistically, you should already have a strong business plan in place if you’re thinking of taking out a loan. If you haven’t developed one yet, that may be a sign of a deeper problem than lack of cashflow.

Credit Score

As a small business owner, you should be monitoring your business credit scores (and your personal credit score). Since it takes a lot of time to build a solid credit history for a small business – you may need to start by focusing on your personal credit score as it carries significant weight. Financial institutions can instantly pull your credit history and credit score like bank statements.

No matter what type of loan you’re applying for – your credit score will be one of the first things your lender looks at. After all, your credit score shows your business debts (and monthly payments), and your ability to cover the debts when you apply for a loan. With a high credit score, there is a good chance you’ll get approved for the loan.

At its core, a credit score determines interest rates, which can increase or decrease your interest rate on a loan. Before applying for a small business loan, you can request your business credit report from a reliable credit bureau.

Proof of Time in Business

Typically, small businesses that have the best shot of getting approved for a loan are the ones that have been in business for at least two years. But opt for alternative lenders if your small business is still new and navigating uncharted territories.

Startup loans are designed to serve the best interests of new businesses that don’t have a long track record. Since new businesses don’t have any history of repaying debt, lenders consider such businesses risky. So, before applying for a small business loan, find out the lender’s requirements of “time in business” to determine your eligibility to apply for a small business loan. And be ready to provide proof that you’ve been operating for at least that length of time, for example, your business’ tax returns.

Proof of Collateral

The majority of lenders require small businesses to put proof of collateral that banks can use in case they’re not able to repay the loan amount. The most common collateral includes real estate, vehicles, inventory equipment, accounts receivable, and other high-valued items.

Most borrowers pledge assets that serve as collateral to get the funding. Not every lender requires strong collateral, but the loan amount depends on the collateral value. You may also be able to make a personal guarantee, but this can be risky if your business falls behind on payments.

Reports of Accounts Payable and Accounts Receivable

On top of your cash flow history and future projections, lenders require loan applicants to provide reports of their accounts payable and accounts receivable. Lenders will need to see updated profit and loss statements for the last two years to determine the annual profit and revenue generation capabilities of the business, as well as your liabilities.

Loan Application Requirements for SBA loans

U.S. Small Business Administration (SBA) loans are some of the most sought after loans due to their low interest rates. But these loans are notoriously difficult to get approval for, and approval typically takes longer than with traditional loans. Contrary to what many believe, the SBA doesn’t actually loan money—it just provides a guarantee to banks and lenders should the business default, thus reducing the lender’s risk.

Before you can apply and get approved for the SBA loan program, you need to meet its standard criteria:

  • Your business must operate for profit
  • The business should be within the SBA parameters of what makes a small business (business sizes vary across industries, follow the SBA size standards_
  • Your business must operate within the United States or its territories.
  • Your business should have some invested equity.
  • Your business must demonstrate the need to secure funding in order to run legitimate business operations.
  • Your business cannot have any debt obligations to the state or federal government.

SBA loans feature low rates and flexible repayment terms. However, application requirements can vary depending on the type of business loan you want to secure.

Typically, it takes 2-3 weeks for SBA to review documents and draft a suitable loan offer. At the time of the underwriting process, small businesses are often required to submit additional information to support their unique circumstances.

If you want to secure an SBA loan, don’t forget about additional requirements that include:

  • Business lease copy
  • Business licenses and certificates
  • Personal background check
  • Personal financial statement
  • Resumes of business owners
  • Statement about business overview and reason to get SBA assistance
  • Income tax returns for the last three years

Loan Application Requirements for Online Lenders

If you’re intimidated by the thought of all of these requirements, you may want to check out online lenders like Biz2Credit. While still offering competitive rates and strong financing options for small businesses, they typically make the application process less tedious than business banks and traditional lenders. For example, Phil Quilter, owner of Taj Lounge, was able to get a loan with Biz2Credit with no hassle at all, and has been a happy customer since 2010.

Final Thoughts

If you’re looking to secure a small business loan to expand operations, make sure to review the current requirements. And whether it’s a traditional bank loan, online loan, or credit union, make sure you prepare by collecting all your business financing and bookkeeping records ahead of time. If you wait until you start the application, chances are you won’t have everything you need, and the process will take much longer than you anticipate. Preparing everything before you start will save you time and increase your chance of success.

FAQ: Documents Required to Get a Small Business Loan

Q: Do lenders have different documentation requirements for different types of small business loans?

A: Most lenders have specific requirements to apply for and secure a small business loan. You can get the help of a financial expert who can walk you through the required documentation for different business loans. If you’re aware of your financial needs, you can also count on a third-party financial expert to submit your loan application at your behest.

Q: Is it challenging to secure a small business loan if you’re business has not been operational for a long time?

A: The time you’ve been in business is an important factor in securing a small business loan, and some lenders won’t consider you for a loan if you’ve been in operation for less than two years, but you may have a better chance with an online lender.

Q: What should be your response when you cannot present a specific document?

A: A lot depends on the lender’s underwriter when you’re unable to present one or more specific documents. You can explore alternative options to substantiate the required information.

Q: Can you still apply for a business loan when you’re missing a few documents?

A: You can, but it may hurt your chances of being approved, so it is better to collect all of your documents ahead of time and put the work in to ensure that you have everything you need before you start.

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