Small Business Borrower’s Checklist - Accion Opportunity Fund

Borrower Checklist

Applying for a loan? Before applying, here are the essential docs everything a borrower needs to organize and prepare for their lender.

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Applying for a business loan can feel both exciting and challenging. You’re ready to start or grow your business, and you know that securing financing will help you reach your goals. But as you’re probably anticipating, the process isn’t always the simplest. Knowing what to expect and preparing yourself ahead of time, can make the entire application process easier and even get you the best financing deal for your business.

Follow the checklist below to make the process of applying for a business loan as smooth as possible.

 

1. Research Lenders

As with any major purchase, you should take the time to shop around for potential lenders so you’ll feel confident that you have the best possible deal.

When shopping for a loan, ask for recommendations from friends and family, and look at what others are saying about the lender(s) you’re considering before beginning the application process. You wouldn’t eat at a restaurant with hundreds of 1-star reviews on Yelp, so why would you take a loan from a lender who has a significant number of negative reviews online?

 

2. Check Your Credit Report and Credit Score

Before applying for a loan you should review and understand what’s on your credit report. You can download a free copy of your personal credit report from each of the three large credit bureaus-Equifax, Experian, and TransUnion-from AnnualCreditReport.com once a year.

By reviewing your credit report before applying for a loan, you’ll be able to identify any errors or negative information reported, and then take the appropriate steps to rectify them or prepare an explanation for potential lenders.

Your free credit report will not inform you of your credit score. However, several credit card companies like Capital One and Discovery can provide you with your credit score for free. Don’t get to caught up on your credit score, the information in your credit report is much more valuable.

 

3. Prepare a Business Plan

A business plan is a crucial component in your loan application, providing lenders with an inside look at your business’s goals and strategy.

Typically, a business plan will include the following elements:

1) The Executive Summary

2) Company Description

3) Organization and Management

4) Products and Services

5) Market Analysis

6) Sales and Marketing

7) Financial Information

8) Funding Request

4. Create a Cash Flow Statement

The cash flow statement shows the amount of money your company is expecting to spend and receive, and reveals the health and viability of your business. The stronger the financial projections in your cash flow statement, the stronger your application.

Items to include here are your beginning cash balances, sources of cash, uses of cash, net cash used, and ending cash balances. All details included in your cash flow statement need to be substantiated.

 

5. Prepare Your Profit and Loss Statement (P&L)

Lenders will closely examine your company’s P&L to see how income is generated and what costs and overhead are involved in your business. Like your cash flow statement, your profit and loss statement ideally should show that your business is generating a profit (that is, revenues should be greater than expenses). Be sure to include a breakdown of your sources of income and expenses.

If your company isn’t yet profitable, that’s not necessarily a problem. Lenders will look to see if the company has the capacity to be profitable in the long term.

 

6. Gather Required Documents for a Loan Application

Before you get started with your loan application, gather the documents you’ll need to have on hand.

Personal documents:

  • Two valid forms of identification, with at least one photo ID: driver’s license, passport, signed credit card, social security card
  • Recent utility bill showing your name and home address. Be sure the previous month’s balance was paid in full
  • A copy of your mortgage note, if you have a mortgage
  • If applicable, proof of second job income or other additional household income

Business documents:

  • Copy of signed business lease, plus riders, if applicable
  • Proof of business ownership (articles of incorporation, EIN registration, Schedule K)
  • Business plan
  • Monthly breakdown of financial projections for next 12 months
  • Photos of business space, inside and out

Financial documents:

  • Three most recent consecutive business bank statements
  • Three most recent consecutive personal bank statements
  • Last two years of business and personal taxes, federal only
  • Year-to-date profit and loss statement for your business

7. Be Prepared with Extra Documents an Underwriter Might Request

These are documents that help a lender evaluate the creditworthiness of a business. The documents may include:

  • Details on the value and quality of collateral (if you are applying for a secured loan)
  • Proof that the income from the business can adequately service the debt through financial statements and accounting records
  • Documentation that shows the amount of equity invested in the business, if you have equity investors
  • Paystubs or any proof of income from work outside of business, if necessary
  • Supplements to the application if not properly filled out.

While this level of documentation might seem tedious, this advance preparation will speed up the loan process and help you get the funding you need to grow your business.

 

8. Compare Lenders by APR

Today there are tons of small business financing options – microlenders, the SBA, alternative funders, family and friends, or even possibly your suppliers or vendors who trust you and your product-all-in-all a good thing for small business owners. However, it’s critical you compare all of these options.

In order to get an accurate picture of the cost of the loan, it’s important to consider the Annual Percentage Rate (APR)-and not just the interest rate of the loan. Comparing APRs across lenders is the only way to get a clear picture of who’s capital is coming at the cheapest price.

Not sure what the APR is from a lender? Ask them to specify exactly where you can find your APR in the loan offer. By law they have to provide you with it.

Following this checklist will not only make the process of shopping for capital smoother, it’ll help make it as short as possible.

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