How to organize your finances in preparation for a small business loan

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By Brooke Chaplan

There are many reasons why you might be looking to get a small business loan. Most businesses will need them at some point in their lifespan. Whether you’re getting ready to expand your business or you’re looking to start a new one, a small business loan can be a great asset to you. However, understanding what is necessary to get a small business loan is imperative so that you can organize your finances. The more organized your documents are to start with, the quicker you’re going to get your loan application approved. Get your finances in order by following these steps below, and you will be much more likely to get approved for a small business loan.

Create a loan proposal

First, you will need to create a loan proposal. When you go to apply for a small business loan, the lender is going to want to know what you intend to do with the money. By creating a loan proposal, you can help them to understand your intent. Your loan proposal should include how much you want to borrow, how you’ll use the money, how your business will repay the loan funds, and other exit strategies if your business is unable to repay the loan in the outlined fashion. This loan proposal will be a central element of your application, so take the time to refine it.

Have an updated balance sheet

Make sure that you have an updated balance sheet. One of the first things that any small business lender is going to evaluate is your assets, liabilities, and equity. For this reason, you’ll want to have an up-to-date balance sheet that will show all of this information in an easily readable format. If you’ve never created a balance sheet before, there are many cloud accounting software programs that can help you. In addition, you can enlist the help of a small business accountant. This will allow you to be able to show an organized account of your finances.

Income statements for last two years

How much of your income and finances do lenders need to know? Usually, you will need income statements for at least the last two years. Income statements are a necessity for any business loan. The lender will want to ensure that you’re making enough income to cover the loan payments that you’ll be expected to cover for the loan. Most times, a small business lender will request copies of your bank statement to verify the presence of the income and expenses going in and out of your business.

Get your personal finances in order

Take the time to get your personal finances in order, not just your business finances. Most small business loans require that you personally guarantee them. This means that the lender will evaluate your personal credit history to determine whether or not you have enough assets to back up the loan. For this reason, you’ll want to prepare financial statements similar to the ones above for your personal finances. This will help you seem more reliable and trustworthy to the lender.

When it comes to applying for a small business loan, you likely are a little nervous. One of the best ways to put your mind at ease is to simply organize your finances to have everything you need to be prepared for the lender. This way, you’re not running around like crazy trying to find the documents they need. Rather, you can simply submit them from your existing folder of prepared financial documents.

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Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information, contact Brooke via Facebook at facebook.com/brooke.chaplan or Twitter @BrookeChaplan.

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