During my commercial banking days, I would often see entrepreneurs being rejected for a loan because they were unprepared for the underwriting process. Whether you wanted to secure a $100K line of credit or a $2M term loan, if you want it from a traditional bank, you’ll have to provide an extensive list of documents in order to go through their underwriting process. It’s tedious and time-consuming, but it’s worth it if you can qualify for one. Traditional commercial and SMB loans are definitely the cheapest capital in the market—APRs run between 4% and 8%, typically.

To help you be more successful in securing a loan, We’ve outlined the most common documents banks require. Treat this as your checklist and start preparing for them if you are thinking about getting a SMB loan from the bank.

 

Financial statements and reports

Banks will need to see financial statements and reports to understand the past and current financial position of your company. Most banks will require you to be cash flow positive or have minimum burn.

Audits

These are created by your CPA, usually annually. They contain your financial statements as prepared by your auditor. They typically come in the form of audited, reviewed, or compiled, depending on how in depth the CPA’s inspection of your books and records was.

Tax Returns

Your CPA will typically prepare these as well. They’re composed of a number of different forms that you regularly send to the IRS.

Interim Statements

These are statements produced from your internal accounting software. They usually cover periods of time between audits and tax returns, like monthlies or quarterlies.

Agings

These are statements that can usually be pulled from your accounting or ERP software. They indicate how many days from invoice your receivables or payables are, or how long inventory has sat on your balance sheet. Agins can also be used to examine your cash conversion cycle. There are three primary aging reports: the accounts payable aging, inventory aging, and accounts receivable aging.

Customer Concentrations

As with agings, this report will usually be pulled from your accounting or ERP software. It will outline sales by customer over a certain period of time (usually a year), allowing the lender to see how diversified your customer pool is, and what your customer churn looks like.

Forecast/Budget

These are usually prepared internally by your finance staff. They forecast your expected performance over some period of time based on past performance and anticipated performance trends.

Work-in-Progress (WIP) Report

A WIP Report for long-term projects outlines your current projects, progress billing milestones, expected return on the projects, and percentage of completion.

Cap Table

This is an internally-prepared document that outlines your equity ownership percentages. The bank will want this because they want to know who owns a majority of your company, and will likely want to perform background and/or credit checks on majority owners.

 

Verification requirements

These documents outline what your company does, how it’s structured, and the details of how it’s incorporated. The purpose of gathering these requirements is for banks to verify your business and protect themselves from fraud.

Articles of Incorporation (Corporations) / Organization (LLC)

These are filed with the Secretary of State in the state that you’re incorporated or organized in. They’re usually created and filed by your legal counsel. The documents are like a “corporate birth certificate” that act as a charter to establish your company’s existence.

By-Laws (Corporations) / Operating Agreements (LLCs)

These documents outline your corporate structure, primary business activity, ownership, board members, voting rights, etc. They’re usually also drafted by your legal counsel, but need not be filed.

Field Exam

This is an onsite exam at your business where examiners will come out to inspect your records, assets, and documents to ascertain the quality of your company’s collateral assets. These exams are usually performed by specialists, and at your expense prior to closing a loan.

Organization and entity charts

The banks may ask for charts that outline your corporate structure if trusts, SPVs, sister companies, or holding companies are involved. They may also want internal organizational charts that outline departments, hierarchy, and headcounts.

 

Building and land assessment

Banks are always focused on downside protection. If you own your office space, they will want to know how much it’s worth in the case of default. This section only applies to companies that have land or their office building.

Environmental Report

If you’re looking at using land or a building as collateral, the lender will usually have an environmental inspection performed. These can be phase I, phase II, or phase III depending on how in depth the inspection is. You will have to pay for this in conjunction with getting a loan, just like a home inspection for a personal mortgage.

Appraisals

These are usually put together by a certified appraiser, and outline the value of hard assets that you’re going to put up as collateral. If you have a lot of worthwhile fixed assets the appraisal may give the market value of the pool of assets, or if your asset is a building it may attest to the value of the building under up to three methods of valuation (replacement cost, sales comparisons, and income capitalization). For various reasons you may also get an appraisal of your company from a firm where the appraiser has their CPA-ABV, ASA, or other certifications. These reports will usually be out-of-pocket expenses for you.

 

Don’t be surprised if banks require additional information before extending your company a loan or a line of credit. If you run a technology business, you will probably be light on collateral, in which case lenders will need a thorough understanding of your current and projected cash flow, since that’s the bank’s main source of potential repayment. Getting ready for a bank loan isn’t easy, so give yourself time to get your financial and legal house in order.

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