The importance of each criterion for a business loan often varies per lending institution. One lending company may look at the annual business income while the other may give more weight on the business and the owner’s credit scores. This is something you want to discuss with a representative from the lending institution you are looking to sign up with. Here are some of the critical criteria that most lending institutions look at.
Financial institutions such as banks are sticklers for adequately completed forms. So if you are looking to take out a loan from a bank, make sure you have your application forms accurately and neatly filled out.
Lenders typically require bank statements for the last two years. This document will confirm your business’s financial status.
Lenders will look at your business’ financial statement to make sure that your business is earning and is clean and accurate.
Personal and business tax documents
Apart from the tax returns for your business, you will also be asked to provide copies of your personal tax returns. This document shows the lender whether you are filing accurate taxes.
Personal financial documents
If the business is unable to make payments on a business loan, your personal finances will serve as a cushion to the lender.
Personal and business credit report
Credit reports give lenders an idea if you are a good payer or not. This is why the lenders typically ask for both personal and business credit reports. Banks require a personal credit score of over 600 to get a business loan approved.
If you are applying for a secured loan, the lender will require insurance or collateral. For example, if you are trying to get an equipment loan, the equipment that you are getting will serve as the collateral for the loan.
Your business plan shows the lender the path that you are leading your business to. It tells the lender if there is a potential loss. Lenders don’t always ask for this document. But it is still best if you keep this document handy.