5 Must-Have Documents to Apply for A Small Business Loan

Filing for a loan application is the first step for organisations to apply for a small business loan. It is a mandatory step since it documents the authenticity of the business applying for a loan. It also shows their creditworthiness and their ability to repay within the mutually decided timeline. This further aids the lender to assess whether the business is eligible for a loan and the amount it will be eligible for, keeping risks at bay.

The verification process requires the business to submit certain documents while filling up the loan application. They need to have a thorough knowledge of the essential documents that they need to submit for the procedure to be quick, transparent and glitch-free.

Here is a list of some essential documents that businesses have to submit while applying for a small business loan.

  1. The KYC of Proprietor, Partner, Director as applicable

The Know Your Customer documents identify the organisation as a Proprietor, Director or Partner and confirm the legal status of the business. These documents include PAN card copy, memorandum, tax pins, office and residential ownership proof, track of loan repayment, copy of Shop and Establishment Certificate, certificate of incorporation, financials for last two years (Audited accounts including Audit report). This warns the lender against reported cases of unlawful activities like fraud, money laundering, drug dealing, terrorism, etc. by checking the existing databases.

  1. Collateral

Documents to support the business collaterals like cash reserves, bonds and stocks, home equity, receivables, and inventory are important for the lender to be aware of the available backup repayment source of the business. Every listed collateral has to be described with its price and existing market value. Lenders offering business loans may also ask for documentation of value to avoid risks.

  1. 2 Years ITR and computation of income

Evaluating the financial history and projections of the small business is an important step for the lender to assess and be assured of the business’s ability to pay off the loan.The ITR verification process requires three documents – balance sheet, projected income statement and cash-flow statement. These documents are necessary for the lender to examine whether the small business has the capability to generate profits that are sufficient for the business to be able to repay the loan. Most lenders often require small businesses to submit both personal and business income tax returns to assess the processing of small business loans.

  1. Documents to support tax payments

Documents to prove the payment of GST evaluates the solvency of the organization that has applied for a business loan. Other documents that serve as a valid identity proof for their business are bills for water and electricity, excise registration receipt, among others.

  1. Last 12 months of bank statements of the business

Having a close look at the business financials aids lenders in evaluating the degree of probability of the small business to repay the loan. Bank statements offer the lenders a fair insight into the business’s ability to afford repaying the business loan. It also helps them calculate the business’s average bank balance and their ability to plan their business within that. It gives them an idea about how the business manages their cash inflows. Resultantly, lenders ask for the bank statements of all the accounts of the company for at least the past one year.