Lending firms will need some information and documents when lending money to businesses. The process is daunting if entrepreneurs knock traditional lending bodies such as banks. For financing of small to medium-sized companies, banks follow a complex and lengthy process before they approve any commercial loan application. Fortunately, online lenders have an easy approval process and if your documents are in place, you will get the loan approvedto fund your business.
The lenders, however, will not fund your business without any kind of security. That is because traditional lenders or banks do not use depositors’ funds to fund businesses. It is illegal and unethical. The US law does not provide such provisions to the banks in the country.
That is the reason why online lenders are so popular nowadays when it comes to offering business loans. According to an article published on https://www.huffpost.com, these lenders on the internet offer commercial loans with amazing convenience and speed. Today, getting a business loan is not like what used to happen 20 years ago. The borrowers do not need to visit any bank, make an appointment, wait for a loan officer, produce loads of paperwork, and then hang around again for several weeks or months to get the loan application approved. However, lenders will need the following things to approve a commercial loan. Here are they:
1. Audited financial statements
As far as the balance sheet is concerned, it lists the assets of a company, capital, and liabilities. It is one of the most essential documents lenders need during the loan application process. Next, is the profit and loss statement of the business and it should go back at least for a period of three years. Then, there are a couple of online lenders where exceptions are possible sometimes, even if the business owner has an average credit history but has a great credit score and adequate assets to use as collateral in case of a default. Then, entrepreneurs have to provide as much as profit and loss records as possible, at least up to three years back.
Then, businesses need to produce audited financial statements. What does that mean? Well, you have paid some money, in thousand dollars at least to let a CPA check your profit and loss and other financial statements and take the onus of their correctness or accuracy in the job they have done. Remember that CPAs often face legal suits due to poor auditing of financial statements of companies. If the lender is funding a big business, the more is the necessity of audited statements. The businessman owners keep such documents prepared for ownership as well as reporting responsibilities.
The entrepreneurs prefer reviewing financial statements because it is affordable and does not cost them more than $1,000. That is because if you incorrectly assess your business documents, the CPAs have no responsibility in this respect.
Lenders do not always ask for audited financial statements if you provide them with collateral security for your commercial loan. That is because assets come useful in case an entrepreneur fails to repay the business loan. You should read more about personal loans for businesses, on websites like http://libertylending.com
2. Collateral security
Online lending firms offer commercial loans to small and medium businesses. There is one exception to the rule. The federal small business administration (SBA) has certain programs that assure some parts of a startup finding costs for new companies. This way, banks can provide loans with the government, thus minimizing the bank’s risk to some extent.
Then, an entrepreneur looking for a commercial loan must have some solid business assets that he can pledge to back up the said loan. The lenders will have a detailed look at these assets to ensure they minimize the risks associated with the loan in case of a default.
When a business owner pledges account receivable to back up a business loan, the lender will examine the maximum receivable accounts to ensure that those firms are solvent. The lender will, however, accept a part, 50 percent or 75 percent of receivables to support or back a commercial loan. Again, when a business owner gets an inventory loan, the lender will accept a part of the inventory. Then, the lending firm will verify and check to ensure that the inventory is not old or outdated.
The need for collateral security implies small businesses entrepreneurs should attach some of their personal assets such as home equity to ensure the loan is approved.
3. Business financial and account payable details
When a business owner applies for a commercial loan from a lender, the borrower needs to furnish all details pertaining to financial and accounts payable. Let us discuss them at a time. There is no shortcut or escaping this step when businesses need funding for their operations. The financial details are past and current loans of the company, how much still due, details of bank accounts, investment accounts, and credit card details. Besides, the lenders will ask for ID numbers, contact information, and full and complete address.
As far as accounts payables are concerned, the lenders would need the same details like that for accounts receivables. It includes account-by-account details, aging, payment history, and sales. The lender will want credit references, enterprises that sell to the business that proves your payment performance.
4. Personal financial information
Again, entrepreneurs taking out business loans need to provide their personal financial details to their lender. These include net worth, social security numbers, asset and liability information, home, cars, credit cards, investment accounts, mortgages, and car loans.
If the business has numerous owners or partnerships, the lender will ask for the financial statements of all the partners or owners with significant shares in the company. Therefore, these details are necessary foreasy approval of the business, no matter whether it is a small or medium-sized firm. It means businesses require signinga personal guarantee as part of the commercial loan process.
These things are basic requirements for a business loan approval. The lender always helps companies so that the application process is easy and hassle-free.