Applying for a Loan: Financial Documents to Give Your Lender
You are ready to start the business of your dreams: a hybrid comic book/coffee shop, complete with a fancy espresso machine and original copies of the Green Lantern and Spider Man. But what you don't have is the capital to find a rental spot and pay for all those initial start-up costs. Looks like you will need to apply for a small business loan.
Applying for a small business loan can be an intimidating process, but if you come to your initial meeting prepared, and armed with the right financial documents, you will be in a much better position to get approved. Here's a list of some important financial documents you should have readily available when applying for your loan.
A good business plan
is like a blue print for your company. A business plan contains a description of your company, and includes information such as your target market, competition, organizational structure, employees, operating procedures, and financial information.
: A balance sheet
lists your company's assets, liabilities, and capital (owner's equity) as of a given date. Your company's assets, minus its liabilities, equals its capital.
An income statement
(also known as a profit and loss statement) lists your company's income and expenses, and shows how much money your company has made (or lost) during a given time period.
Income Tax Returns
: Some lenders may require you to submit your personal income tax
returns going back as far as three years. Don't delay the process. Bring those documents with you when you apply for your business loan.
: A sales forecast
is your estimate of future sales. Most businesses try to predict sales using three different figures: the "best-case" scenario, the "worst case" scenario, and the "most likely case" scenario.
Cash Flow Statement
: The cash flow statement
shows when your company expects to get the money that is owed by its customers, and when the company expects to pay out the money that it owes to others. Because it is done on a monthly basis, it shows when the company will have extra cash that it should keep for future month's bills, and when the company may need to borrow to meet expenses.
: Your company's operating budget
is a projection of its income and expenses, and projected income (or loss) over a given period of time. It differs from the Income Statement because the Income Statement reflects your company's actual income, expenses and profit (or loss) over a given period of time.
Be prepared to submit a credit report
, especially if you already run a business. It is extremely important to review your credit score and history before applying for a loan so there are no surprises.
Consulting with an Attorney
When you are applying for a loan, it is imperative that you understand the legal consequences of your actions. Contact an experienced business law attorney in your area to help you manage the loan application process and answer the important questions.
For more information, visit FindLaw's Starting a Business section.