Applying for loans can be overwhelming, and this is especially true when it comes to business loan requirements. From articles of incorporation and tax returns to balance sheets and collateral, there’s a lot to keep track of. If you’ve found yourself asking “what’s needed for a business loan?”, we’re here to lend our expertise. Let’s take a closer look at how to qualify for a business loan.
Commercial Loan Application
One of the first things you’ll need to do to qualify for a business loan is complete a commercial loan application. The information you’ll need to provide varies based on the financial institution and type of loan, but you can expect the questions below:
- Business and personal contact information (name, address, phone number, email address, etc.)
- Industry or nature of business
- Years in business
- Loan type (equipment purchase/refinance, inventory purchase, business expansion, etc.)
- Amount you’d like to borrow
Personal Financial Statement
Your lending institution will also require you to provide a personal financial statement. In essence, this shows your net worth, which is your assets minus your liabilities. Your personal financial statement helps potential lenders make informed decisions about how much to lend you — or whether to lend you money at all. If your assets are less than your liabilities (meaning you have a negative net worth), you may have to provide collateral to qualify for a small business loan.
When it comes to business loan requirements, potential lenders will also want to see your business documentation. This includes your EIN number, articles of incorporation, and operating agreement.
Employer Identification Number (EIN)
Business loan requirements also dictate that you’ll need to provide the potential lender with your EIN. This unique, nine-digit number is assigned to businesses by the IRS and is used to report employment taxes to the government. It can also be used for identification purposes, where it’s referred to as a taxpayer identification number (TIN).
Articles of Incorporation
This document legally establishes the creation of your business as a corporate entity. Your articles of incorporation are filed with the Office of the Secretary of State in your area. They’re also referred to as a corporate charter, articles of association, or certificate of incorporation. Your articles of incorporation will contain the following information:
- Business name
- Name and address of registered agent
- Corporate structure
- Names and addresses of board of directors
- Name and address of incorporator
- Duration of corporation
You’ll also need to provide your operating agreement, which documents your business’ financial and functional processes (rules, regulations, provisions, etc.). These are particularly important for LLCs, since the operating agreement protects members from personal liability. Operating agreements contain the following:
- Percentage of members’ ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and losses
- Buyout and buy/sell rules
Personal & Business Credit Reports
Potential lenders will also pull your personal and business credit reports during the loan application process. Your credit scores give lenders insight into your financial responsibility, both personal and professional. It also helps underwriters gauge the risks of lending money to you.
Your credit history and score have a big impact on the loan terms and interest rates that are available to you. In many cases, lenders require a personal credit score of at least 650. Most creditors use Dun & Bradstreet to pull business credit reports. If you’re applying for a Small Business Association loan, lenders will also pull your FICO Small Business Service score.
Personal & Business Tax Returns
Still asking yourself, “what do I need for a business loan?” Your personal and business tax returns also play a role in the loan application process. You’ll need to provide three years of personal tax returns, along with any applicable schedules. These may include Schedules A, B, D, and E. You’ll also need to provide three years of business tax returns, along with any applicable schedules. These may include Schedules C, SE, and K-1.
Business Financial Statements
Potential creditors will also want to see business financial statements, which include a profit and loss statement and a current balance sheet.
Profit and Loss Statement
This document analyzes your revenue, costs, and expenses over a period (typically a fiscal quarter or year). It’s also referred to as a cash flow statement or an income statement. Ultimately, it helps potential lenders determine whether you can generate the profits necessary to cover your monthly loan payments.
Your balance sheet contains your business’ assets, liabilities, and shareholder equity at a given point in time. Lenders use your balance sheet to calculate your net worth and determine how much they can safely loan you. The balance sheet formula is simple: liabilities + shareholder equity = assets.
If your credit score is less than stellar and you have business liabilities, you may need to provide collateral to qualify for a business loan. Offering collateral can improve your chances of qualifying for a larger loan amount, longer repayment terms, and lower interest rates. Common types of collateral include:
- Cash and investments
- Real estate
- Business assets
Still wondering how to qualify for a business loan? Ready to apply? Diamond business loans offer flexible terms, competitive interest rates, and are accompanied by our unbeatable customer service. Contact us today to get started!