You already know all banks are different and have various business policies, but many of them focus on the same areas when it comes to the loan review process. Here you shall learn what documentation and narratives you might need to prepare. Tips to ensure you negotiate the best loan package are included.

Whether you are applying for:

• A line of home equity credit

• Some other type of commercial or consumer loan

• Real estate financing

• A line of credit for business working capital

• An equipment loan

• A commercial short-term loan

You may apply some basic lending principles. 

Keys of Loan Applications

The most crucial characteristics that most lenders will concentrate on include:

• Credit history 

• Cash flow history 

• Projections for the business

• Collateral available to secure the loan

• Myriad pieces of loan documentation(e.g. Personal and business financial statements, a business plan, income tax returns)

• Character

Most of these criteria are objective data, but the subjective assessment, such as good character can be very helpful for a lander to decide in your favor. Individual factors are often considered.

Tools to Use

When considering business loc a typical kind of document you will need to complete your loan application is a Business loan application form. Samples can be found online. It is very useful for business owners to be able to generate their pay stubs digitally or online because it got more complicated over the last few years. There are many other practical forms and tips online, such as internal bank loan reviews and other tools. Make sure your pay stubs, tax documentation, and income letters are in order.

Credit History

Lenders will want to review: 

1. The credit history of your business (if the business is not a startup), 

2. Your personal credit history (for a small business loan a personal guarantee may be needed)

It’s recommended to obtain a credit report on your business and yourself before applying for credit. If you discover any problems, you will be able to correct them before any damage to your loan application has happened. Try to find out which credit reporting company your lender uses and then request a report from that company.

Reviewing Your Consumer Credit History

It’s necessary for the credit agencies to remove any information from the report that can’t be verified or is inaccurate. Before you submit a letter it's a good idea to contact the creditor directly. If an error was made, you can often clear it up more quickly if you take the initiative.

If the dispute can’t be resolved and your credit report is not accepted, you have the right to file an explanation or statement regarding the situation. Try considering any creditors with whom you have had a good credit history. For a fee, most credit bureaus will add additional creditor info.

Reviewing Your Commercial Credit History

Before you apply for commercial credit, you may want to review a credit report on your own business, but only if your business exists for a while. Many lenders will expect 4-5 trade experiences in the business report before considering if you are creditworthy. Try establishing some credit history if you have been operating with your personal assets only, without any credit.

Providing Collateral to Secure a Loan

Providing collateral is necessary when it comes to obtaining a secured loan. To a bank, collateral is simply a property that secures a loan or, so that the lender may seize it if you fail to make payments on the loan for some reason.

Understanding Your Collateral Options

When lenders demand collateral, they are seeking to minimize the risks. In order to ensure that this collateral provides appropriate security, the lender will want to match the loan being made with a type of collateral. 

Short-term assets such as inventory, or receivables will not be accepted as security for a long-term loan, but they are considered appropriate for a short-term loan.

Protecting Your Collateral

A creditor will want to have a priority claim against the collateral that is being offered, so he/she might search the public records to make sure that prior claims haven’t been filed against the collateral.

If the collateral is real estate, the search is often done by a title insurance company, which prepares a "title report". If the loan is secured by personal property, the creditor often runs a "U.C.C. search" of the public records. 

In a new business, the equity value in real estate is a mostly used source of collateral. 

Now that you know all the tips and tricks on how to verify your income, you can successfully apply for a loan. Make sure you have all of your important documents (such as pay stubs, tax return documents, income letters, etc.) organized. Be confident and persistent, and success is guaranteed.