Last month we presented the concept of loans and the different methods of getting loans. Hope all of you must be having a general idea about the basic process of loans. This month we are taking you one step forward. In this newsletter, you will find some practical tips for preparing loan documents and hope this time you too will be finding the article attractive and interesting.

Getting a business loan is really as going through a hard road. For a small business owner, the preparation of the loan application is a complicated and time-consuming task, especially for new businesses and first-time applicants that has no experience in the process. Fortunately, there are many resources available to reduce this barrier to small business financing. These resources from federal, state and local governments and the private sector provide training, orientation, support, and access to capital to start-up firms and existing businesses.

Private Sector
The best place for preparing loan documentation should be the prospective lender. The lender can provide a list of all documents required for a particular loan application and provide the business with an overview of where to seek assistance for certain documents. Many lenders have special small business loan kits that provide detailed information about the loan application and approval process.

In addition to provide money, banks and non-bank lenders provide the administration and servicing of loans.  In fact, some lenders also provide packaging services (for a fee) to their customers. Packagers prepare the loan application for the bank, not only relieving the business owner, but also speeding up the application process and possibly enhancing the chances for loan approval. Accountants can help small business owners answer basic questions such as:

1) What legal form should the business take?
2) How will the business be financed?
3) What tax forms need to be filed?
4) What government regulations affect the business?
5) How will records be kept?
6) What price should be charged for the product or service?
7) What are the tax implications of business decisions?
8) Which products generate the most profits?

These questions must be answered in order to help an accountant to prepare any financial analysis and projections required for a loan application. In addition to this, they can enhance the credibility of financial statements by making sure that they are prepared accurately and in accordance with the requirements of potential lenders.

Non-Profit Organizations
Two valuable nonprofit organizations that can provide direct assistance in preparing loan documentation are the Service Corps of Retired Executives (SCORE) and Minority Business Development Organizations (MBDO). SCORE is a volunteer organization that provides expert problem-solving assistance to small business. MBDOs help minority businesses achieve effective, equitable participation in the American economy by providing management and technical assistance, financial packaging services. 

Small Business Development Centers (SBDC)
Small Business Development Centers (SBDC) coordinate government, university, and private-sector resources for training and counseling small business owners. SBDCs prepare complete financing packages for small businesses including: the business plan, financial statements, marketing plans, and training.

A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower. Information provided on a credit application must be presented accurately and completely.

Checklist of Procedures and Documents
After the business plan, financial statements and loan application have been completed, a business is ready to apply for the loan. All documents should be organized and presented in a neat, orderly, and professional-looking manner. Before presenting the loan application to the lender, businesses should carefully review their package of documents to ensure nothing has been overlooked.

Documents Required for the Lender
1) Loan application
2) Personal financial statements
3) Credit reports on the business
4) Income tax returns for three years for both the business and the principals
5) Financial statements for the business
6) History of business
7) Ratio analysis with industry comparisons .
8) Other special document requirements such as schedule for debt financing, affiliates etc are needed.