When making a decision to approve or deny a loan, lenders look to answer one main question: Will you repay what you borrow? Your lender will ask for documents like your cash flow statements, credit score or business license to help them make their decision.
The documents you provide help lenders see your business as a whole and can help you secure financing. Let’s take a look at what documents you may need and why they’re important.
Your Business Plan
Before you apply for financing, it can be helpful to outline why you need the funds. This can help you determine what kind of funding is best for your business and how much you need to reach your goals.
Lenders may appreciate that you can show how the funding will help you grow or improve your business — whether it’s a line of credit to help manage your cash flow or a loan to expand your inventory.
Your Credit History
Lenders will likely look at your personal or business credit score. Both can be a critical part of your financing application, but what they are and how they’re calculated differ.
Personal Credit Score
You’re probably familiar with your personal credit score. It’s the number that credit card companies, landlords and others look at to help determine your creditworthiness. It can range from 300 – 850 points.
Your personal credit score takes your personal accounts into consideration. You can get a free report from one of the three credit bureaus every 12 months — the bureaus generally use the same algorithms to figure out your score.
Lenders may take your personal credit score into consideration when you apply for a loan, so it’s an important number to monitor.
Business Credit Score
Business credit scores are different from personal credit score in a few ways. To start, they don’t look at any of your personal financial history. The only accounts that will affect this score are listed under your business’s name.
Your business credit score also only ranges from 0 – 100 points and the three bureaus don’t necessarily measure it the same way. Keep in mind that you’ll need to pay to access your business credit report, and that it’s publicly available to anyone who pays.
It’s important to build and monitor both types of credit scores. Good credit can open many doors and help you build your business. Good credit won’t just make getting a loan easier — it can help you secure better financing rates, better insurance rates and better terms from venders.
Your Business Finances
You may need to provide some documents that show the inner workings of your business’s finances. This could include:
- Bank statements
- Cash flow statements or projections
- Tax returns
- Income statements
- Balance sheets
Your financial statements can help lenders get a better understanding of how your business works. They may ask to connect to your business bank account using a third party service like Plaid. This is a standard and safe practice that can make applying for and receiving funds easy and seamless.
Other Documents You May Need
There are few other important documents that you may need to provide. These documents help the lender verify your identity and the legitimacy of your business.
- IDs or Social Security Number — Lenders may ask you to provide your personal information to confirm your identity.
- Proof of Ownership — Your lender may ask you to provide proof of ownership. If there are multiple partners and you are not the majority shareholder, you may need to show a letter stating that you have authority to request funding on behalf of the business.
- Business License — This document validates your business structure and shows that your business is legitimate. It also provides proof that you’re compliant with local licensing laws.