All the Small Business Loan Documents You Need Explained

In this article, we cover:

• Core documentation needed for a small business loan
• Additional documentation that might be needed for a small business loan
• Documents for SBA loans
• Why does a small business lender need so many documents?

Small business owners might perceive the loan application process as intimidating or stressful. However, most lenders have a standard list of documents that small business owners must produce for them to apply for and have their loans processed. Knowing what documentation is required ahead of time and taking the time to gather it can significantly de-stress and speed up the loan approval process for your small business. The amount and history of the documents lenders will ask a small business to produce will vary. Be prepared to provide up to two years of history. Not all lenders will require two years on all documents, but many won’t require more than two years when determining what business financing options you qualify for.

Core documentation needed for a small business loan

When you apply for a small business loan, the lender is essentially trying to figure out one thing: what is your ability to repay the loan? Whether you’re applying for a working capital loan, a term loan, an SBA loan, or something else, this is true for just about every type of small business loan. The lender wants to know your debt and income and will use things like financial statements and credit history to help them decide. With that in mind, let’s break down the list of documents that lenders will ask small business owners to produce as part of the loan application process:

• Bank statements: Your bank statements show lenders how much cash you have on hand, your cash flow in and out of your bank account, and provide a general understanding of your business’s financial situation. You will need to produce bank statements for all of your business banking accounts. Bank statements are generally easy to produce and are available via online banking. As a general range, you will be asked to produce anywhere from 3 months to two years worth of bank statements depending on your situation.
• Credit statements: Another way to help lenders assess your ability to repay a loan is to understand your credit. This might mean they will want to obtain your personal credit report in addition to your business credit report. A good credit score will increase your chances of being approved for a loan.

• The lender needs to pull credit reports to see what your debt-to-income ratio is. If you have outstanding debt obligations, it will impact your ability to repay the loan. For example, if you just took out a loan and are now trying to get another loan, the first loan will appear on your credit report and will factor into your debt-to-income ratio. Sometimes easier said than done, but try to clean up your credit file (i.e., pay off existing debt) before applying for the loan. Any purchases made on a business credit card or business line of credit will also factor into your credit report.
• Tax returns: Around two years of both corporate and personal income tax returns might be requested by the lender. The lender will use the tax returns to understand how much money you’re earning, the sources of income, and if it’s been consistent over the last few years. This will also factor into your debt-to-income ratio.
• Financial statements: The lender will ask for your business financial statements including a balance sheet, income statement, and statement of cash flow. Similar to the documents above, these financial statements will help your lender understand your business’s financial situation and ability to repay the loan. These financial statements should be up to date and accurate.

If you have business partners or co-owners, they will likely need to produce the documents for their personal finances as well.

Additional documentation that might be needed for a small business loan

Try to figure out ahead of time all the additional documentation that your lender requires before starting the loan application process. This documentation will vary depending on the lender, the type of loan, the loan amount, the industry your small business is in, and your business history. For example, a traditional financial services institution like a bank or credit union might require more documentation and have stricter eligibility requirements for a startup with no business history than an online lender. Here is a list of additional documentation that you might need to produce:

• Business licenses: Depending on your industry, you might need a license to legally operate your business. Have all this information ready. For example, if your business is in real estate, have all relevant licenses up to date and available for the lender to review.
• Commercial leases: Does your business currently rent out commercial space to operate? What are the terms of your lease? The lender will review this information to understand the debt-to-income ratio of the borrower.
• Articles of incorporation: How is your business structured, what state is it registered in, etc.?
• Resume: For those with limited or no business history, a lender might want to review your resume to see if your experience will support your ability to operate a business.
• Business plan: If you have no business history, you might need to produce a detailed business plan to show the lender how you intend to operate your business when you anticipate being profitable, and more importantly, show how you will be able to repay the loan.
• Financial forecasts: An extension of your business plan. Your financial forecasts will dive deeper into the market opportunity for your business and forecasted revenue.
• Financial statements: In addition to the financial statements listed above, you might also need to produce profit statements, loss statements, accounts receivable, etc. All of this will help your lender determine what loan options work best for you.
• Franchise documentation: Do you now, or plan on, owning and operating a franchise business? The lender might ask for documentation about your franchise. For more information on franchises, please see our blog post Ways to Get a Business Loan for Opening a Franchise.

Considerations for a new business

It’s important to explore and understand all your options when it comes to financing your business needs. For example, as an early entrepreneur, you might find that trying to obtain a bank loan isn’t the best approach in your current stage of business because you don’t have the annual revenue quite yet. Or maybe you’re uncomfortable with the financial institution asking you to put up personal collateral to secure the loan. Using an online lender like Biz2Credit can be a useful approach because their experienced customer service team can help guide you toward the ideal loan program for your business.

Documents for SBA loans

For U.S. small business administration loans, business owners will need to produce additional documentation. Proof of business activity, a business plan, or other documentation outlining their business model will be needed. Let’s look at the approval requirements for each of the SBA loans as you will need to produce supporting documentation:

• SBA 7(a) loans: Operate for profit, be considered a small business as defined by SBA, conduct business in the United States or its possessions, have reasonable invested equity, use financial resources like personal assets before seeking financial assistance, be able to demonstrate a need for a loan, use the funds for a sound business purpose, not be delinquent on any existing debt obligations to the U.S. government.
• SBA 504 loans: Operate as a for-profit company in the United States or its possessions, have a tangible net worth of less than $15 million, and have an average net income of less than $5 million after federal income taxes for the two years preceding your application
• SBA Microloans: Generally, the SBA-approved lenders who make all credit decisions and set all terms for your microloan require some type of collateral as well as the personal guarantee of the business owner.

Why does a small business lender need so many documents?

A small business lender asks for all of the previously discussed loan documents to determine your ability to repay a loan. There are many qualifying factors when underwriting is reviewing your business loan application. The lenders are looking at your current liabilities (i.e., what do you already owe?) and your financial information (i.e., how much revenue are you bringing in?) to figure out your interest rate and repayment terms. Lenders are in the business of risk management and reviewing all of your loan documents is their way of trying to put as many low-risk loans on their balance sheet as possible.

If you’re not an existing business, and you’re a startup business without any history, your personal finances and personal credit score will play a role in whether or not you’re able to secure funding. Traditional lenders might have tougher loan requirements for startup businesses.

Overview of the loan application process

Assuming you have all the required documentation gathered, the loan application process can be pretty quick depending on the type of lender. The steps below are general and might change depending on the lender, but you can expect to encounter a loan application process that looks like this:

1. Initial setup/profile: whether you’re using a traditional lender or an online lender, you will need to provide basic business information to help them understand your funding needs.
2. Submit Your Application: The lender will likely have a general questionnaire that goes beyond your profile setup in step 1 and then will provide a mechanism for you to provide business documentation. A secure online portal will give you the ability to submit your documents as PDFs or connect your business’s bank accounts.
3. Review funding options: Once your documents have been securely uploaded/submitted to the lender, they will review and process them to provide your funding options. You can review your options and determine what you would like to move forward with.
4. Underwriting to make final approval: The underwriting team – depending on the lender might be an actual team of humans or might be automated by software – will make the final approval determination.
5. Receive funding: Depending on the lender, you might receive your funds via wire, ACH transfer, or physical check.

The most important thing is to gather all of your documentation ahead of time before starting the application process.

Getting Started

There are many ways to get a business loan for your small business and Biz2Credit is a great place to start. Our helpful staff will provide you with exceptional customer service and will work hard to understand the needs of your small business, the intended uses for your loan, and the best terms that can be offered. Get in touch today to find out the small business loan financing that can help you.