After being stilted for a couple of years, small businesses are emerging from the pandemic with growth ambitions. However, many will require a capital infusion to carry out their growth strategies. Banks want to lend, but for small businesses that want to borrow, it is more important than ever to have thorough documentation. To do this, there are five essential documents that you’ll need when asking your bank for a loan.

Five Key Business Loan Documents

Business Plan

The business plan is the most critical document a lender considers for determining the loan worthiness of a business. While creditworthiness is a crucial factor, the bank needs to know that the business has the management capacity to repay based on a verifiable and credible strategy for generating sufficient revenue.

The business plan should include a profile of the business, which includes its mission, objectives, description of product or services, key people, customer profile and market focus, the form of ownership, revenue history, and any evidence of distinction.

In addition, be prepared to tell your story. Your loan officer will be interested to learn about your business and prospects from your perspective - where the idea came from, what kinds of decisions you have made, how you navigated the economic downturn, etc.

This is your opportunity to demonstrate your passion and build the case for your business as to why it is a good risk for the bank.

Marketing Plan

The bank will want to know what the business knows about its market and how it differentiates itself from its competitors. The stated demand for the company’s products or services must be supported with credible and current data. The plan needs to include specific strategies for building the brand, generating new customers, and retaining current ones.

Loan Purpose

This document needs to include the contemplated amount of the loan and the specific funding purpose. The funding purpose should describe in detail how the capital will be used to achieve the objectives or strategies outlined in the business plan. While the amount may be an estimate, the bank will want to see how the capital infusion will translate into an increased capacity to repay the loan.

Business and Personal Financial Statements

The business financial statement should include a three-year balance sheet and profit-loss record. The balance sheet should provide details of assets such as equipment and real property. Cash flow projections should be based on a strict accounting of current receivables as well as intended customer receivables based on existing contracts. Some banks may require at least three years of tax returns as well.

The personal financial statement is equally weighted in the bank’s consideration of the overall financial management capacity of the business. Also, because an owner may need to provide a personal guarantee of the loan, the financial condition and creditworthiness of the owner are paramount in the loan decision.

Loan Guarantee

Some business lenders are hesitant to loan capital without some solid form of guarantee or collateral. Banks will look to the existing equity position of the business, which includes equipment and property assets as collateral. They will also consider the owner’s equity position and capacity to raise funds. All sources of collateral should be fully described in a loan guarantee statement.

Although these key documents comprise the critical foundation of the loan request package, it is common for the bank to ask for additional supporting documents. It’s also recommended that the loan package be professionally prepared along with a carefully orchestrated presentation. A business that knows how to present itself competently can more quickly earn the confidence of the bank lending officer.