Do you want to increase your chances of success to get a bank loan? If YES, here are 15 requirements banks will request to grant your business loan application.
When you approach a bank, financial institution or a commercial lender for loans, they would ask for a set of documents to help them decide on the following-:
- The strength of your business and ability to repay the loan and in cases of individual borrowing; your proof of employment and income.
- Legality and structure of your business.
- Your credit history.
- The amount you would need.
- Your tax returns.
In order to get your loan approved, you would have to carefully package your loan application form and back it with the necessary supporting documents to increase your chances of getting the loan approved. Some of the documents your bankers would ask for are-:
15 Requirements Banks Need to Grant a Bank Business Loan Application
1. Credit Report-: Your bank would request for a credit report in order to access your financial worth and gauge your level of credit worthiness. Before you apply for a loan, it is advisable for you to obtain your credit report and see if you have a good credit score. You should also look out for any errors or discrepancies and try to clean up your credit record before you apply.
2. Financial Statements-: If you are applying for your business, your company’s financial statements showing your financial history in the past 3-5 years would be requested for. The elements of your financial statement that would be reviewed include-:
- A list of your business assets and liabilities
- Income statement
- Cash flow statement
- Balance Sheet
- List of debtors and creditors
If your company has been growing steadily and making profits over the past 3 years, the chances of getting your loan approved would be greatly increased.
3. Bank statements-: Potential lenders would also want to see your bank statement. Your bank statement would show your spending habit, your income, whether you have existing loan facilities that you are servicing and your financial strength generally. Here are a few things to avoid in your bank statement to increase your chances of loan approval.
- Negative Balances-: Negative balances occur as a result of over-drawing your account. Your prospective lenders may take excess negative balances in your account to mean a lack of proper financial management skills and this may prevent them from lending you their money.
- Untraceable cash deposits-: Money coming in and out of your account should have a verified source. Your bank statement is taken as a proof of your income and financial liquidity and untraceable deposits may seem like you are trying to inflate your earnings. So, in the months preceding your loan application, you should keep your bank account clean of any untraceable cash or at least be able to explain the source.
4. Business Plans-: Another document that would be requested for and used to gauge your ability to repay the loans is your business plan. Your business plan would help to reveal;
- Your vision and goals for the business
- Your financial forecast to reveal how the business would recoup the funds when injected into the business
- How you intend to repay the loan
- How you would drive customers to the business
- Your competitors and how they may threaten your business
- The level of risk they would be taking by investing in your business
Therefore, you should take out time to write a good business plan to be submitted along with your application in order to increase your chances of getting your loan approved.
5. Business Incorporation documents and Business Profile-: Another document you would be required to provide is your company incorporation documents to show who the owners are, the structure of your business and how profits and liabilities are shared.
6. Title Documents of Assets-: You would also be asked to present copies of title documents to prove ownership rights for any collateral that you want to present to the bank. These documents would be used to verify that the property is really yours and that there are no existing claims on the assets. You may also be asked to submit the originals when your loan is approved, to be returned upon repayment of loan.
7. Proof of Tax Payment-: You would also need to provide the bank with your tax payer ID number and evidence of tax filings to prove that your earnings show that you are fiscally responsible and to show that you don’t have any significant tax liabilities.
8. Proof of Insurance-: The bank would also want to know that the assets you are presenting as collateral have being properly insured.
9. Payment Slips-: Banks may also require payment slips for up to six months as proof of income for individual borrowers.
10. Marketing Plan-: Your marketing plan is quite different from your business plan. When lending you money for business, some banks would want to ascertain that you have carried out your due diligence, and have figured out who your customers are, what their tastes and preferences are like, how you would reach them, how you would beat your competitors and most importantly, how you would set your prices to gain patronage. All these are instrumental to the success of the business and bankers usually request this along with a business plan.
11. Valuation Documents-: For people who are borrowing money for development of property, mortgage and other real estate loans, a valuation document would be required to determine the value of the property.
12. Survey and Building plans-: Survey plans are also required for building loans.
13. Bill of Quantity-: Another document required for real estate and construction loans; it is a document itemizing the materials, labor and costs of constructing or refurbishing a structure.
14. Management Profile-: The bank would also be interested in the qualification and experience of people who would be in charge of managing the funds when released. Borrowed funds are at the mercy of the people who would manage it and if they don’t do a good job, the bank may lose it funds. Therefore, the bank would ask for a profile of the key managers of the business.
15. Lease agreements and Franchise Agreements
These are the most common documents used to back loan applications. Ensure that you gather them (as applicable) and have them ready before you apply for loans.