Preparing a Great Startup Loan Application
Get PreparedYou have the idea, the people, the business plan, the family electrician, and the blueprints, all ready to go. All you need is the money. Now is the time to prepare a loan application. Make yours stand out. Much like employers ripping through resumes, lenders will be receiving plenty of loan applications. Do your research before completing any forms, and follow this three-step approach to a great startup loan application.
Preparing for your startup loan application process requires some footwork, but it’s definitely worth it. First, there is the experience factor. More history as an entrepreneur guarantees less collateral you will have to present against the balance of the loan. Is this your first entrepreneurial venture? It will help to have a guarantor with sufficient income to lessen collateral. If neither situation applies to you, fear not. Experience and low collateral assist in the startup loan process, but are not absolutely necessary.
Also, according to John Seelinger of SCORE, an organization that mentors startup business owners, the two most common mistakes made when applying for a loan are incomplete tax returns and incomplete/erroneous financial statements. Before you submit anything to a lender, triple-check it for accuracy and for completeness.
THE PAPERWORKSpeaking of submitting paperwork to a lender, what paperwork should you even have? Let’s compile the basics.
Personal Info SheetAs silly as this may seem, get behind your computer and type out a sheet with the following: name, current address, social security number, any other names used, any relevant previous addresses, any criminal record, and anything else relevant to your startup business and/or its success. Attach a few copies of your finalized and updated resume to this sheet.
Business PlanTypically, a business plan includes a summary of the business, an analysis of the current market for the particular business at hand, information about your team and other members of management, a sales strategy, and financial projections that take as much as possible into account. If this seems daunting, much help exists for creating business plans. Also, even if you plan on taking out a smaller loan that may not traditionally call for a business plan, have one anyway. The professionalism attached to a business plan may make or break your chances.
Credit ReportBe sure to acquire a report from all three major agencies: Experian, TransUnion, and Equifax. Also, be sure to acquire both personal credit reports and business credit reports.
Income Tax ReturnsA very common mistake is submitting incomplete tax forms. The previous three years of forms are typically required for a startup loan application. Check with an accountant before submitting anything to ensure completeness of the forms.
Financial StatementsThis includes financial statements and bank statements from everyone with 20% stake or more in your business. This also includes a collateral statement, which will show all personal or business property that can be used to back the loan amount.
Legal DocumentsFinally, depending on your situation and your lender, one or more of the following may need to be submitted: business license or registration, articles of incorporation, copies of any contracts, franchise agreements, lease paperwork.