Applying for a small business loan is an exciting time as you prepare to take on a new opportunity. To make the process as smooth as possible, your lender will give you a checklist and provide guidance while you work through your loan application.
The number one action you can take to keep the process streamlined is to make sure your loan package is complete before you submit it. Submitting an incomplete loan package can delay the review and approval process for your loan, potentially creating extra stress for you and your business.
Here’s how to submit a complete loan package and ensure your loan application stays on track.
Why is a complete loan package so important?
A major aspect of the application process hinges on your complete loan package, and that’s the underwriting process. This process includes gathering information that the lender themselves needs and any additional items that third parties like the SBA may require.
If they don’t have all the information they need from your loan package, your lender will need to reach out to you for the missing pieces. You’ll then have to find or create those documents if you don’t have them readily available. As you can imagine, this adds time and delays to the application process.
What goes into a complete loan package?
While every loan package is a bit different, your loan officer will give you a loan application checklist with what you’ll need to include for a complete loan package. That said, there are certain things that are common across all small business loan applications, including:
- A business plan and financial projections
- Accurate and up-to-date financials for your business operations
- Tax returns, completed in full for federal filings; if your state requires you to file tax returns, then these should also be included
- Accurate and up-to-date business and personal bank statements
- Items like insurance and permits that may be required by your municipality or state for your business
Your loan package won’t be complete without these items and other documents required by your lender. Review your application checklist carefully and start gathering what you need as soon as possible.
Potential challenges and how to avoid them
Just as every loan package will look a little different, the challenges that you may run into vary a bit as well. Still, there are certain hurdles that lenders see quite often, and any of them can lead to delays.
Here are the top reasons that the loan process can get delayed and what you can do to avoid them as you assemble your complete loan package:
1. Incomplete tax returns and financials
Your lender will need your full federal tax return, including all statements and schedules. It won’t be enough to submit just a page or two or a summary of your return. It’s also helpful to include your full state filing as well, even if they’re not required. If your most recent tax filings aren’t done yet, it’s better if you complete them before applying for a small business loan. Of course, in the meantime, you can always reach out to a lender in advance to find out what else you’ll need to get ready before applying.
2. Unorganized tax returns, financials or application documents
For your loan package to be reviewed and processed efficiently, it’s important to have all of your loan package documents (tax returns, business financials, and application) organized. Each document should be its own file, and you should submit it in the format required by the lender.
3. Mismatched dates on interim financial statements
Your interim financial statements include your profit-and-loss statement, balance sheet, accounts receivable (AR) and accounts payable (AP), and debt schedules. All these documents need to have the same date or date range, depending on the document, so that your lender can evaluate your financial state for a given time period.
Every piece of your loan application package makes an impression on the lender reviewing it. If the dates of your interim financials don’t line up, they might see it as financial mismanagement or infer that your business is disorganized. Either way, they won’t be able to move forward with their review if they don’t have documents that cover the same time period. Taking the time to review your interim financials to confirm you’re submitting documents that cover the same dates will save you more time in the long term.
4. Other loans not included on the debt schedule
An important part of the application process is determining whether you’re able to pay your existing debt along with your potential new loan. If your lender doesn’t have accurate information on your existing debt, they won’t be able to assess your ability to repay. Responsible lenders will do their due diligence through various database searches which will show them the other debt that’s been taken out in your name. If you’re intentionally leaving out your other debt, the lender will still find it and it can cause your loan to be denied.
For that reason, all of the loans held by your business that have a required monthly payment need to be included on your debt schedule. Don’t leave anything out: If you may be taking on too much debt, your loan officer may have suggestions for other loans or adjustments to the prospective loan amount that could be a better fit.
5. Sending inaccurate or incomplete financial statements
Lenders rely on your financial statements to assess your business’s cash flow, financial condition, and ability to repay the loan. This is why incomplete or inaccurate financial statements won’t be accepted as part of your loan package. Your loan package will be incomplete without accurate and complete statements, and your application won’t be processed until they’re received.
6. Files that are too big
If your lender is having trouble opening the files you send to them, it could be because the scanned files are too big. This is usually caused by your scanner’s resolution settings being too high or if you’re trying to submit photos rather than PDF documents. The best way to avoid this is to reduce your file size by reducing the resolution or using a program to compress the file.
7. Not including passwords to password-protected documents
This is an easy one to fix: When files are password-protected, be sure to provide the password to your lender. That allows for easy access without delays.
If you run into hurdles while completing your loan package, reach out to Pursuit
The best way to keep your loan application moving forward is ensuring it’s complete, accurate and easy for your loan officer to review. It’s important to know that every time documents are delayed or need to be resubmitted, it sets the process back. If you run into problems during the process or have questions, reach out to us.
