Filing for a business loan is an important stage in your entrepreneurial journey. Because the outcome of your business is dependent on whether you receive funding or not, it is critical that you take the time to create a solid application. Continue reading to learn about the main components of a business loan application.
Item Your Business Loan Application Must Include
Almost all business loan applications need you to present a business plan. This enables the bank or another lender to determine if you have an economically viable firm, ensuring that you will be able to repay the loan. While your ideas may be crystal clear in your thoughts, it is critical that you also put them on paper so that the bank can see your vision. Here are some of the main sections that should be included:
An executive summary is a brief description of your complete plan. It should discuss the business idea, how it will be or is being executed, some highlights on your company’s finances, and a little something about the staff that works for it. It’s essentially a synopsis of what you’ll write in the other parts. Because most people will only read the executive summary in-depth, this may be the most crucial element of your business plan.
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Description of the Business
The business description follows the executive summary. Make certain that it is clear and covers all of the important features of the business. For example, if you’re going to create a product, consider how you’ll manufacture it, whether you’ll need partners, and how you’ll distribute it. On the other hand, if it’s a digital platform, how will you earn income, how long will development take, and so on?
It is critical to demonstrate that your business is supported by a solid staff. This should primarily feature the executive team’s biographies, including the CEO, CFO, and anybody else participating at a higher level. Make sure to include a summary of their prior accomplishments to illustrate their competence in operating the organization.
Finance And Budgeting
This is a part that the bank will go through in great depth. While the concept is essential to them, they really want to know how much money you’ll need to invest, what your regular costs will be, and how you’ll make money.
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It’s critical to demonstrate to your lenders how we intend to run our firm using the borrowed funds. Give us a balance sheet, an income statement, and a cash flow statement. By reviewing these, the lender will be able to determine whether or not your firm will make enough profit to repay the loan.
Income Tax Returns
Applicants for a business loan must provide their personal and business income tax returns for the previous three years.
Depending on the conditions of the business loan, a lender may need applicants to present specific legal documents. So, before applying for a small business loan, make sure you have the following paperwork on hand:
- Business licenses
- Registrations details of your business
- Franchise agreements, if any
- Articles of incorporation
- Copies of contracts if you have third parties involved
- Commercial Leases
Report on Business Credit
If you’ve been running your company for a while, you should include a business credit report in your loan application. A solid company credit record may be a big help in having your loan authorized.
Also Read: Common Challenging Experiences Faced During Taking A Business Loan
Finally, provide a marketing or promotional strategy. How will you market your product or service? If you intend to use social media, how much will it cost and who will manage it? This part should be extremely clear and succinct, with an expected conversion and return on investment rate.
Documents in Support
Don’t forget to include some of the more generic paperwork in conjunction with your business strategy. While some of these, such as your identity, maybe easily available, you should allow yourself time to obtain the others. Before you begin the application process, make sure your business registration paperwork is in order and that you have any other prerequisites requested by the bank. The following are some of the fundamental documentation that a lender will request:
- Bank Statements
- Proof of Address
- Business Registration Documents
Prior to Applying
It’s generally a good idea to be well-prepared before beginning your application with the bank. Remember that the more times you apply for a loan, the more likely it is that your credit rating may suffer. Furthermore, every delay costs your company money in terms of output and sales. Here are some things to think about before submitting an application:
Examine Your Credit Score
Your existing CIBIL score will play a significant role in the lender’s decision-making process. So, before you even consider applying, it’s usually a good idea to check your credit score. Keep in mind that an excellent credit score is one that is 750 or above. If you fall far short of it, it may be difficult to obtain a loan.
Selecting the Best Banks
Your credit report records every time you apply for a loan. If you submit too many applications, your credit score may suffer. So, before you begin submitting an application, it is wise to shop around. Look for banks online first, and then visit with staff to determine whether you agree with their approach to business financing.
Obtain Writing Assistance
Last but not least, you should think about employing someone to assist you with the application process. Often, company founders excel in their core competencies but struggle with money and writing. Because the business strategy is an important part of your application, it could be a good idea to have someone assist you in developing it. Hiring a financial analyst to assist with the budget portion of your business plan may also be beneficial.
Applying for business financing is a major undertaking. It necessitates that you delve further into your company concept and actually establish that it is credit-worthy. It’s critical to take the time to put together a thorough application package that will persuade the lender to infuse much-needed capital into your company. Don’t forget to submit a comprehensive application, since this will shorten the time it takes to process.