People who make a business plan usually overlook the step where they have to apply for a business loan. It may sound like a simple procedure but in reality it is not. The bank would ask you to produce a number of documents including a guarantee that your business will make profit in the coming months and that you will be able to return the loan back to the bank. In addition, most banks usually require a thorough business plan document, which must adhere to certain guidelines. You can find these guidelines online to compile a robust business plan including all the required sections.
First off, you need to understand that you will be applying for a commercial loan from a bank. Almost all banks have this policy of asking for some hard assets so that there are minimal risks associated with lending to startup businesses. These personal assets could be house equity or any other similar asset to secure a loan for starting up a business. When you apply for an inventory loan, the bank will usually accept only a certain percentage and not give you 100% of the asked amount.
You also need to provide all your financial details to the bank. These include things like bank accounts, investment accounts, credit accounts, tax ID, contact information including addresses, credit card information, previous bank statements, and past loan history. In addition, you need to give sales and payment history that come under accounts receivable and accounts payable.
Many banks also ask for complete and audited financial statements, which can be provided through a balance sheet. This sheet includes not just your business assets but also liabilities and capital. You must come up with profit and loss statements having enough history of up to three years. Audited statements mean that you have paid a CPA to check the accuracy of all your financial statements. CPAs are trained to provide this type of audit and if they don’t provide accurate information, they can be made to answer in the court of law. It is therefore a very important responsibility. In the same manner, financial statements can be reviewed by a professional at a cost.
Banks take into consideration insurance information to make sure that death, serious injury, terminal disease or similar disasters are covered. In addition, they need copies of past corporate tax returns to prevent having the same book created twice. And finally, you are required to agree on certain future ratios like debt to equity and current ratio. There are limits on all these ratios, which could be different for different banks. You need to gain more information regarding this so that you are not in default.
Once you are able to come up with all these documents, assets, and statements, you are all set to apply for a commercial bank loan for your business. Make sure you do your homework to save considerable amount of time as well as problems later on.