Having a business idea is good. Actualizing that idea is better. However, for your business to succeed, you need enough resources. And one of the best ways to finance your business is through a business loan. It’s important to get it right when it comes to applying for a business loan. Among other things, it’s important to get the process right. On these lines, here are the top questions your bank will ask you before giving you a business loan.
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Eligibility Requirements
A business loan is a commercial loan meant to spur the growth of small businesses. These loans can be issued to new businesses or already established businesses. You can use these loans to scale up the operations of your business. Even more, if you are planning to start a new business, a business loan can be a decent source of finance. However, it’s important to understand the dynamics of a business loan. In particular, you need to evaluate your eligibility.
The following are the eligibility requirement for a business loan:
- The minimum vintage if your business should be 3 years
- The owners of a business should be at between 25-55 years of age
- You must have an Income Tax Return filled in the past 3 years.
- Your business turnover must be audited by CA
- You must have all the financial records—including financial statements and other business registration documents.
Collateral
Your bank will request you for collateral before approving your loan. So, unless it’s a federal based Small Business Administration loan, you will be asked to give a collateral. The collateral will act as security. It will show your bank that you are serious about the loan and you can pay it back in time. If you fail to pay the loan, the collateral will be auctioned to cover the loan amount. Your bank will carefully assess the collateral and determine if it’s adequate. In most cases, you can give account receivables, title deeds, car log books, commercial property documentations, etc. as collateral against a business loan.
Do You Have a Business Plan?
If you are a new startup, your bank will want to see your business plan. So, don’t rush into taking a business loan if you don’t have an already prepared business plan. In the business plan, the bank will be concerned about the business structure, source of finance, area of specialization, products, the marketing team, and other financial related issues. So, prepare a good business plan before making a small business loan application.
Do You Have All The Financial Details Of Your Business?
You should also prepare your business’s financial details. From current loans to past loans—preparing the financial details of your company will increase your chances of securing small business loans. So, prepare all the accounts; credit card accounts, bank accounts, as well as investment accounts. Also, you need details like ID numbers, tax details, contact information, as well as other necessary supporting details.
Have You Prepared Accounts Receivable Details?
Besides preparing all the accounts for your business, your bank will also require you to have aging and sales history. You will also have to prepare your company’s payment history, account information, etc. Your bank will have to verify the authenticity of these details before allowing you to proceed to the next step.
Do You Have Accounts Payable Details?
Additionally, you will also have to prepare accounts receivables and credit references. So, do your research and learn how to prepare account payable information for your business loan application needs.
What about the Reviewed and Audited Financial Statements?
When it comes to the operation and success of any business, the balance sheet plays a pivotal role. And that’s what banks require before advancing a loan to you. The balance sheet should contain information such as assets, liabilities, as well as capital. Also, you should have a clear profit & loss statement—preferably for the last 3 years. However, you might be exempted from creating a 3-year profit $ loss statement if your business is new in the market.
Also, you need to have audited statements. So, do your research and understand how to have your statements audited. It may cost you a few dollars. However, it’s an important component of your business.
Have You Prepared Your Personal Financial Details?
Personal financial details are also important. Your bank will request you to supply them with your social security numbers. Even more, you will need to show them your net worth, liabilities, as well as assets. So, things like vehicles, credit card accounts, loans, and mortgages should be included in your financial details. However, if the business has multiple owners, all the members will have to submit all their individual financial statements.
Insurance Details
The main aim of your bank is to reduce risks when advancing a loan to your business. Thus, expect to be asked about insurance information. Banks prefer businesses with insurance policies. This means that even if your business gets into problems, they will be cushioned against financial related risks. For instance, if the owner dies, the insurance company will pay off the loan. In a nutshell, having an insurance cover increases your chances of securing the best business loan.
Do You Have Statements of Your Past Returns?
You will also be asked to submit your past returns copies. This should prove that you are tax compliant. So, prepare your tax returns plus that of your company. Banks want to partner with businesses and individuals with clean business records.
The Bottom-Line
Finally, you have decided to go for it. You want to implement your business idea. You want your own business. Congratulations. At last, you are going to actualize your dreams. However, did you know that the lack of finances can kill your business idea? Well, don’t let the lack of finances impede your business growth. Take a business loan and let your business flourish. The above are key things your bank will ask before approving your business loan.