The small business loan approval process can be complex. Before you start an application, it’s a good idea to be as prepared as possible. Generally, small business lenders will ask for tax returns for the last three years, asset information, an income statement along with a year of bank records and collateral if required.
To help you get organized, we’ve outlined seven of the most common questions you may be asked on a loan application below.
About half of U.S. small businesses shut down within their first 5 years. If you’ve passed that benchmark, lenders know that you’re on track for growth. For a SmartBiz® SBA loan, you must have two or more years in business. There are many options for funding a startup or younger business but you’ll get the best rates and terms the longer your business has been around.
Cash flow statements tell lenders how much money you have available at any given time and if that flow is steady enough to take on debt. A company needs sufficient cash to meet its expenses, repay loans to its investors, and reinvest for further business growth. If you manage your business’ cash flows well, you can keep expenditures in check and have enough cash reserves to meet contingency expenses.
If you’re struggling to manage cash flow, visit the SmartBiz Small Business Blog. Our article, A Guide to Managing Cash Flow, gives a high level overview of this important statement. You can use various accounting software like Xero® , QuickBooks®, and Sage® to generate cash flow reports.
Use of funds allowances and restrictions vary from lender to lender. For an SBA loan from a bank in the SmartBiz network, there are several ways to use loan proceeds to fuel growth, including:
Take time to look at your business plan and current financial situation before you start an application. Not knowing how much you need can stop the process dead in its tracks. Work with a financial professional to determine how much you need to reach your financial goals if you’re not sure.
Strong credit scores generally lead to lower cost and faster funding. When working with a lender, both your business and your personal credit scores will be considered.
Business credit is based on your business’s financial history and is tied to your business’s employer identification number (EIN). An EIN is a unique nine-digit number that is assigned to a business entity and allows the IRS to easily identify businesses for tax reporting purposes. All businesses that meet certain criteria must have an EIN before they can begin operating.
Personal credit is based on your personal spending history and is tied to your social security number.
Although different, business credit and personal credit are often connected and business owners should monitor both carefully and strive to keep scores high.
A loan term is the duration of the loan until it's paid in full. For example, an SBA loan from a bank in the SmartBiz network has a 10-year term. Monthly payments are typically low as the balance is spread out over more months.
Do you need funding ASAP or can you wait? Fast business loans are generally more expensive. If you have the time and strong credit scores, consider applying for an SBA loan or Bank Term loan with SmartBiz.* Simply start an application here.
Although taking on a loan might sound intimidating, getting the right loan at the right time can help your business flourish. Check out our blog post on how a small business loan can help spark growth: The Benefits of Long-Term Debt for Your Small Business.