Most business owners will need to apply for commercial financing at some point. Although the process can seem intimidating, loan applicants have a much greater chance of success by ensuring they are well-prepared in advance. That starts with knowing why they need the money and how much they would like to borrow.
Valid Reasons for Needing Commercial Financing
Starting or expanding a business are always good reasons to explore commercial financing. Some other common reasons include recovery from an unforeseen disaster, purchasing new equipment, making repairs, or improving cash flow while waiting for customers to remit payment on outstanding invoices.
If the financial need is small, business owners may want to explore other means of financing first such as using a personal credit card or savings account. Loan applicants must typically state the reason for seeking the funds and what they intend to do with the money if approved.
Gather Paperwork Before Applying for a Business Loan
Obtaining traditional commercial financing through a bank loan requires applicants to submit significant documentation to prove they are an acceptable risk. Typical paperwork requirements include:
- Bank statements for the past three to six monthsÂ
- Business balance sheetÂ
- Business registration detailsÂ
- Partnership agreement if applicableÂ
- Proof of identity and business locationÂ
- Profit and loss statementÂ
- Tax returns for past two years Â
It can be frustrating for business owners to start the loan process only for the lender to say they require additional documents. While the above represent the most requested forms of documentation, every lender does things differently. Applicants for commercial funding should find out requirements in advance and ensure they can locate the documents before applying.
What Business Lenders Like to See
Traditional banks prefer to work with businesses that have operated at a profit for at least two years and that have a detailed business plan in place. They also look for candidates with high credit scores. A good score on a business credit report is as close to 300 as possible while a good personal credit score is as close to 850 as possible.
Please contact Painted Horse Financial today to learn more about preparing to apply for traditional commercial financing or to explore alternative options.
