By Matthew Gillman, Business Financing Expert & SMB Compass Founder
As a medical professional running your own practice, no one really prepares you for what lies ahead, especially for business loan applications. From application to approval, there’s so much you need to learn.
Applying for a loan can be one of the most daunting processes you’ll have to go through as a business owner. Even if you’re in the medical field, which relatively earns more than some types of businesses, lenders will still require you to submit a plethora of documents to prove your creditworthiness and financial stability.
But one thing to remember is that no matter what type of business financing option you’ll apply for, ample preparation can mean the difference between loan approval and rejection. While lenders may have different rules, most of them will require the same documents from the lenders.
Here are the items you need to prepare when applying for a business loan.
Completed loan application form
When applying for a loan, the lenders will give you a loan application form where you’ll provide basic information like your name, business name, EIN, and other essential information. You may also need to answer a few questions like:
· How much do you need?
· Where will you use the loan proceeds?
· Do you have an existing credit? Who are your creditors?
· Do you have a business partner(s)? (Anyone who owns more than 20% of the company should be declared on the loan application form)
Be sure to fill in the necessary details about your business and answer them honestly. Many business loans have been rejected because they missed a field in their business loan application forms. As much as possible, review the form before submitting it to your loan manager. Keep your lines open in case they need more information from you.
Business license and registration
A business license serves as proof that a company is legally allowed to operate within a particular industry and jurisdiction. Businesses within the medical field must obtain their business licenses because it will protect their facility against lawsuits and give clients and other stakeholders the assurance that your business is legitimate and the medical services you offer are trustworthy.
As much as possible, you should know what licenses your medical business needs even before you open your doors. Noncompliance can result in serious consequences, including penalties, client loss, or business closure.
Business and personal credit reports
Lenders are risk-averse. They have to make sure that if they do extend credit, the business will be able to pay them back in full. To do this, they usually look at both your personal and business credit report.
Your credit report outlines your payment history and may even show repayments you have missed in the past (if there are any). By looking at your personal and business credit score, lenders can gauge how likely you are to default on the loan repayments. While a poor credit score doesn’t automatically disqualify you from qualifying for the business loan, it may prompt lenders to increase the interest rate on the loan. In some cases, the lenders may require you to pledge some form of collateral to secure the financing.
You can obtain a copy of your credit report from one of the major credit bureaus – Equifax, Dun and Bradstreet, Experian, and TransUnion.
Business financial statements
Your business’ financial statements allow the lenders to determine whether you’ll be able to afford the loan repayments. They will usually look at different statements, including your profit and loss statement (P&L) and balance sheets to determine how much your business makes. Your P&L statement will give the lenders a look at your financial performance overtime, while your balance sheets will outline your business’ assets and liabilities at one point in time.
Aside from your P&L and balance sheets, the lenders may also require the following:
· Income statements
· Cash flow statements
· Statement of shareholder’s equity
Business and personal tax returns
Like your financial statements, your business tax returns can reveal your business’ financial health. It shows your financial income, which lenders will use to decide how much they would be willing to lend to you.
Secondly, your tax returns may also serve as the lender’s basis for determining your level of risk as a borrower. The reflected income in your tax return can also be used to determine your debt-to-income ratio. The higher the percentage, the more risk you pose to the lenders.
Depending on the lender, they may require you to submit at least two years’ worth of tax returns. They may also ask for your personal tax returns on top of your business tax returns, so be sure to have that ready as well.
Business plans allow the lenders to determine how you plan to run your business. It outlines your goals, vision, strategies, and even your financial projections. Lenders will study your business plan and determine whether it will yield a positive result or not.
When crafting a business plan for financing, include the most important parts like the executive summary, mission, and vision, marketing strategies, competitor analysis, etc. Don’t forget to highlight your financial projections. Lenders will specifically look at this section to determine the profitability of your business.
It’s also important to make sure that your business plan is easy to read and understand. It doesn’t necessarily have to be long, but it has to be well-written.
Financing institutions have different rules when it comes to loan applications. Some may require more documents before they decide to approve (or reject) your application. The most common supplemental documents they may ask for include:
· Collateral documents (if the loan requires you to pledge collateral)
· Manager’s resumes
· Lease contracts (including commercial space and equipment leases)
· Articles of incorporation
To be sure, ask the lender what additional documents they usually ask for. This way, you can prepare them beforehand and submit them immediately if the lender asks for them.
Considering the fact that a handful of businesses get rejected for financing, it’s natural for many business owners to feel intimidated when applying for business loans. However, knowing what documents you’ll need to submit and preparing them beforehand can make the entire process more bearable.
It’s worth noting that lenders may require different documents in their loan application process. The best way to know what papers you’ll need to submit is to ask the lender directly. Once you have the list, you can start collecting them one by one and submit them to the lender as soon as possible.
About the Author
Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.
Healthcare Business Today is a leading online publication that covers the business of healthcare. Our stories are written from those who are entrenched in this field and helping to shape the future of this industry. Healthcare Business Today offers readers access to fresh developments in health, medicine, science, and technology as well as the latest in patient news, with an emphasis on how these developments affect our lives.