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  • Writer's pictureThe Self-Made Entrepreneur

Making Sense of Business Loans: Know Your Options & Get Ready

Business Loan Application Form and a cup of coffee

Every successful business hits a point where they want to do more but might not have enough money on hand. That's totally normal. Sometimes, to make your big dreams come true, you might need a little financial help from outside. But before you jump into getting a loan, it’s super important to know what you're getting into and to get everything ready. Just like you wouldn’t start a road trip without checking your car and packing some snacks, you shouldn’t seek a business loan without some groundwork. The better you prepare, the smoother the ride to growing your business with outside capital will be.

Why Preparation Matters

It's not just about having a great business idea or even a proven track record. Lenders want to see the nuts and bolts of your operation. They want evidence of foresight, stability, and financial savvy. By the time you realize you need a loan, it might be too late to start prepping the necessary documentation. This is why acting in anticipation is crucial.

Common Documents to Prepare

When considering a loan application, lenders delve deep into your financial history and the viability of your business. Here's a handy guide to the standard documents required for 5 common business loans:

1. Term Loans: A lump sum of cash upfront that you repay in scheduled installments. This is a traditional type of loan and is often used for specific investments like expanding business operations or purchasing equipment.

  • Business plan: A roadmap of where your business is and where it intends to go.

  • Credit reports: Both personal and business.

  • Financial statements: A glimpse into your financial health for the past 2-3 years.

  • Tax returns: Personal and business, from the last 2-3 years.

  • Ownership: Who's involved and in what capacity?

  • Loan history: A snapshot of your borrowing history.

  • Licenses and registrations: Essential for legal verifications.

  • Personal financial statement: A peek into the owner's financial landscape.

2. SBA Loans: Loans backed by the U.S. Small Business Administration (SBA). They offer favorable terms and are designed to assist small businesses that might not otherwise qualify for traditional financing.

  • SBA-specific forms: Necessary bureaucratic paperwork.

  • Business debt schedule: A snapshot of your outstanding debts.

  • Resumes: Credentials of your business's key players.

  • Business history: A deep dive into your company's journey.

3. Business Line of Credit (LOC): Similar to a credit card, it allows businesses to borrow up to a certain limit and pay interest only on the amount borrowed. It offers flexibility since you can draw and repay funds as needed.

  • Business tax returns: From the previous 2-3 years.

  • Financial statements: An overview of your assets, liabilities, and cash flow.

  • Debt schedule: Your current liabilities.

  • Personal credit score: Vital if your business is relatively new.

4. Equipment Financing: A loan specifically for purchasing business-related equipment. The equipment itself often serves as collateral for the loan, making it easier to obtain than some other types of financing.

  • Equipment details: What are you buying, from whom, and for how much?

  • Business credit report: An indicator of your repayment ability.

  • Financial statements and tax returns: Key indicators of your business health.

  • Ownership details: Who's at the helm?

5. Invoice Financing: A way for businesses to borrow money based on amounts due from customers. Businesses can get an advance on a percentage of their outstanding invoices.

  • Invoice ledger: What do you intend to finance?

  • Customer creditworthiness: After all, they're the ones clearing the invoices.

  • Legal documents: Articles of Incorporation or Organization.

  • Business tax ID & bank account: Vital for transactional reasons.

While the above offers a well-rounded view of general requirements, remember, every lender might have their nuances. Always consult with the lending institution in question. Organized, updated, and accessible documentation not only speeds up the application process but also enhances your credibility so you get the loan without unexpected surprises.

As you endeavor to give your business the financial boost it needs, remember that the road to securing a loan begins long before you walk into a lender's office, like the bank. Simply put, it starts the day you decide to keep your business's financial house in order. Therefore, do yourself a favor by taking the time to make sense of business loans today so you can plan, prepare, and then proceed with confidence.


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