What Do Banks Require for a Loan?

Banks can make applying for a small business loan a daunting process. First, you’ll need to pick a bank and determine the loan you’re looking for before you begin. Second, unlike online marketplaces like Lendio, you apply for a loan from a single vendor. That means you can only qualify for the loans that vendor offers. If you don’t qualify for those loans, you need to head to another bank or lender and try again. Oh, and did we mention it usually costs you money to apply for a loan at a bank?

Um…

Sorry, didn’t mean to scare you off. Still want to know what kind of documents you’ll need?

Sure. It can’t be that bad, I guess.

Well, the documents you’ll need will vary depending on the type of loan you decide you want to apply for, so make sure you do your research before even trying. But let’s pretend you’re looking for an SBA (Small Business Association) loan as an example.

The documents that the SBA suggests you have prepared before heading to the bank are:

  • Personal background information such as previous addresses, names you have used, criminal record, and your education history are usually required.
  • Your resume. We know, we know, you aren’t applying for a job right? Well, banks often still want to know your experience related to running a business before taking a chance on you. This is especially true if you’re a startup.
  • Expect to have a highly documented business plan. Virtually any bank will require a solid business plan to be submitted alongside the loan application. This should include further documentation such as projected financial statements, including profit and loss, proof of cash flow, and the balance sheets from your business.
  • While a bank will also do a hard credit pull, it’s recommended that you come prepared with a credit report from all three major consumer credit reporting agencies prior to submitting your loan application. It’s also recommended that you try to clear up any issues negatively impacting your credit score before you begin.
  • As if a pulling your personal credit ahead of time wasn’t enough, if your business is currently in operation, it’s recommended that you also pull your business credit reports and resolve any negative issues before the process begins.
  • Expect to provide personal and business tax returns for the previous three years. Yep, we agree – this is getting a little crazy.
  • If you own more than a 20% stake in your company, you’ll need to provide signed personal financial statements. It’s also a good idea to provide projected financial statements.
  • Banks often require an entire year of personal and business bank statements to be submitted. We’re almost done! Hang in there…
  • Depending on your loan, a bank may require you to provide documentation of collateral. You might be able to avoid this if you have strong financial statements, but as most small businesses won’t meet those stringent requirements, be prepared to offer documentation of the cost or value of the personal or business property you’re putting up.  
  • Finally, you may be required to submit a number of legal documents including business licenses and registrations required for you to conduct your business, articles of incorporation, copies of contracts you have with any third parties, franchise agreements, and commercial leases.

You’re kidding,right? Please tell me you’re kidding.

Unfortunately not. In fact, you can also be expected to answer questions about why you’re applying for the loan, your intended use of the funds, what assets need to be purchased and who you purchase them from, what other business debts and creditors you have, and even questions relating to who the other members of your management team are.

Okay, I was wrong. It is that bad.

It’s okay. Banks just aren’t optimized for providing small business owners like yourself the kinds of funding you need. That’s why we created Lendio!

Thank goodness!

You got that right.