Business loan eligibility and documents required

Securing a business loan can be a strategic move to accelerate growth, fund small or large projects, or optimise your cash flow.

However, it’s essential to understand the eligibility criteria and prepare the required documentation. This guide outlines what lenders typically look for and what documents you’ll need to have ready.

Eligibility Criteria

Lenders assess several factors to determine your business’s creditworthiness and ability to repay the loan. Key criteria include:

  • Business Age: Lenders prefer businesses that have been operating for a while, as this demonstrates stability and reduces risk. Younger companies or startups may find it more challenging to get a loan unless they seek lenders specialising in startup finance.
  • Credit Scoring: A good credit score is crucial as it indicates financial stability and reliability. Lenders will review both your personal and business credit scores. Building and maintaining a good credit score is essential when considering a business loan.
  • Revenue and Net Operating Income: Lenders want to see that your business has enough income to make loan repayments comfortably…. Net Operating Income (NOI) is a figure calculated based on total income minus operating expenses. Many lenders expect a total revenue that is at least 1.25 times your operating expenses.
  • Business Sector: Some industries are considered more profitable and less risky than others. Lenders may be more inclined to approve loans for businesses in sectors with a higher likelihood of success.
  • Company Assets and Asset-Based Finance: If your business has valuable assets like property, vehicles, or equipment, you can use them as collateral to secure the loan…. Secured loans offer the lender security and may come with better terms than unsecured loans.
  • Personal Guarantee: Lenders may require a personal guarantee, particularly if the business has no tangible assets or property. This is an agreement in which a business owner or director accepts personal liability for repaying the loan if the company is unable to do so.
  • Demonstrate Financial Stability: Consistent revenue and profit growth show lenders that your business can manage repayments. Maintaining stable cash flow, avoiding large fluctuations in income, and preparing up-to-date financial statements are essential.

Essential Documents for a Business Loan Application

Preparing the necessary documents in advance will streamline the application process. Keep it concise and clear, as both lenders and equity investors will value this:

Business Information:

  • Company formation documents confirming registration and identification.
  • Founder & owners, covering all the key investors of the business with share ownership.
  • Life insurance for you and other directors and business partners.
  • Clear Cap Table with all equity stakes and owners.
 

Business Plan:

  • Executive Summary: A concise one-pager of your business and the financial ask.
  • Business Pitch: Sharp deck that outlines your business, including its mission, goals, problems it’s addressing, market analysis, and financial projections.
  • Roadmap or project plan demonstrates your ability to execute and use the funds to meet milestones and generate value.
  • Product demos or evidence of your products and services, along with their development stages.
  • Team Management structure covering all top management and leads, with their profiles and backgrounds.
  • E-commerce and Marketing platform data and analytics
 

Financial Documents:

A minimum of 1 year is required, but 2-3 years is often preferred by lenders, especially.

  • Income Statement: Shows the business’s revenue, expenses, and net profit over a specific period.
  • Balance Sheet: A snapshot of your business’s financial health, including assets, liabilities, and equity.
  • Cash Flow Statement: Reveals the business’s inflows and outflows of cash.
  • Tax Returns: Corporate and personal tax returns provide valuable insights into your financial history.
  • Profit and Loss Projections: Forecasts of your future income and expenses.

 

Legal Documents:

  • Articles of Incorporation or Partnership Agreement: These documents establish your business’s legal structure.
  • Operating Agreement: For limited liability companies (LLCs), this agreement outlines the rights and responsibilities of members.
  • Permits and Licenses: Any necessary permits or licenses required for your business operations.
  • Investor term sheets if you have raised equity capital before or convertible bonds.
 

Summary

Understanding these eligibility criteria and preparing the necessary documents will ensure Lenders see you as serious, credible and avoid delays. In addition, some lenders may request access to your online bank accounts and accounting system to validate your situation.

Facing Challenges?

Contact us to discuss how to streamline generating these documents. We have expertise in finance systems and reporting. Having efficient operations to create reports on demand is a great place to be, as it allows for planning and taking advantage of financing solutions as circumstances change.