Are you looking for business loans? Do you want to know more about the requirements? It might not be difficult for you to get a business loan if you have a good credit score and a proper business plan. However, there will be some formalities that every bank will do regardless of your credit score. Here are a few things that you will need while applying for business loans.
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To minimize the risk, the bank will ask for collaterals to support fifty or sometimes seventy-five percents of your loan. If your business has hard assets, then you can pledge it as collateral to get a business loan. Banks will carefully access your assets to ensure that they are not risking their money. Almost, all the small business need to pledge their personal assets for collateral to qualify a business loan.
Business Plan & Financial Details
Many loan applications will need a business plan document with a few exceptions. You can prepare a lean business plan with a brief summary of the product, team, market, company, and financials. In addition, you will have to give all the financial details of your business. It will include everything such as your current and past loans, bank accounts, debts incurred, credit card accounts, tax ID numbers, investment accounts, address, and your contact information in detail.
Account Receivable & Account Payable Complete Details
When it comes to the account receivables, it will include aging, sales and payment history, and account-by-account information. For account Payable, you will need the same information as the account receivable. But it will need some extra information. Banks will require the credit references and the information of companies that sell to your business.
Complete Reviewed or Audited Financial Statements
You will need a balance sheet with all the financial statements that include your liabilities, capital, and business assets. Also, you will need your profit and loss statement for three years. If you do not have three years statement, but you have a good credit score and assets to pledge as collateral, then exceptions can be made. It is better to have audited and reviewed statements to boost the possibility. However, it will not help much without collateral and a good credit score.
Final details will include everything such as net worth, social security numbers, asset details, credit card accounts, investment accounts, mortgage, and auto loans. If your business has multiple owners, then the bank will require financial statements from all the owners.
Insurance Information & Copies of Past Returns
The bank will also want your insurance details and the copies of the past returns.
Some commercial loans will include loan covenants that mean you will have to agree to keep some key ratios such as current ratio, quick ratio, and debt to equity within a defined limit. When your financials will fall below the limit, then you will be in default technically.
These are some basic requirements to qualify for a business loan. Better preparation will make the process fast, easy, and hassle-free.