Business loans play a crucial role in the success of any bakery. But the application process isn’t exactly the easiest part. One of the most critical aspects of loan applications is submitting the right documents.
The purpose of the document requirement is to give lenders an inside look at your bakery business. It also allows them to assess the potential for success of your business. For this reason, they may review different aspects of your business, including your financial and credit history as well as your plans.
Loan application form
The first step in the loan application process is to submit a loan application form. The forms vary depending on the lender and the loan you are applying for. However, they essentially ask for the same information. You will need to fill in the main characteristics of the company, including:
- Personal history of owner and partners (i.e. addresses, education, criminal record, etc.)
- Company legal name
- Business name or Doing business by (DBA)
- Names of business owners
- Tax Identification Number
- Phone numbers
Besides your basic information, the form may also include questions regarding the loan application. Be prepared to answer questions such as:
- How much do you need?
- What is your reason for applying for this loan?
- Where will you use the loan proceeds if approved?
- Who are the people involved in management?
- Do you have other debts? If so, who are your creditors?
Be sure to complete all fields on the form to avoid delays in the loan application process.
Your business license is proof that you are legally allowed to operate your business in a particular city or region. It also acts as proof that you own the business. Right from the start, you should have an idea of what licenses your business needs. For example, since you run a bakery, the state will need to perform an inspection to ensure that you meet sanitary standards and that the food you produce will not harm your customers.
Not only will your license assure your customers, it will also assure lenders that you have met state standards and that your business meets federal and state regulations for safety, cleanliness, and honesty. Non-compliance not only results in penalties, but it can also affect your chances of loan approval.
Lenders, especially banks, want to be sure that if they extend credit to a business, that business will be able to repay them. By reviewing your financial statements, lenders will know the financial health of your business and whether you are fully capable of repaying the loan without sacrificing your cash flow health.
Depending on the lender, they may ask you to show a financial projection. It can be a separate copy or integrated into your business plan. It’s always good practice to have them ready, so you can submit them immediately if needed.
In addition to the financial projections, you will also need to submit the following documents:
- Balance sheets
- Income statement
- income statement
- Cash Flow
In addition to your financial statements, some lenders may require at least six months (three months for many alternative lenders) of bank statements as part of their documentation requirements. They want to make sure you have a separate bank account for your business and that you have enough cash for monthly repayments if you ever get approved for the loan.
The lender will also want to see if you have a checking account, so be sure to have that ready in addition to your bank statements.
Like your financial statements, your tax returns serve as the lender’s basis for the financial health of your business. Your tax returns verify your annual income, which is the determining factor in whether or not lenders will grant you the loan. Additionally, it can show your character as a borrower. If you have overdue or unpaid taxes, it will reflect badly on your character
When you apply for a loan, be prepared to submit at least three years of tax returns. They may also ask you to submit a copy of your personal tax returns, so you may also need to prepare at least three years.
business credit report
Your credit report summarizes all your credit transactions, including payments to suppliers and lenders. It will display your credit score, which is a number that measures your creditworthiness. Essentially, the higher your credit score, the more creditworthy you are and the more likely you are to receive credit from banks and other lenders. When applying for a business loan, the business owner is not required to provide details of their credit score or credit report, but it is important to understand that the financial entity you are applying to a fundraiser will pull this information and use it to determine what happens next. stages and qualifications.
Business plans are essentially a roadmap for your business. It describes your bakery’s goals, objectives, operations, industry position, market position, financial projections, and other important business information. Lenders, especially banks, will review the information to find out whether or not your business will produce a positive return.
Your business plan doesn’t have to be multiple pages. But it should be well written and detailed enough to convince lenders why your bakery is worth investing in.
At a minimum, your business plan should include the following sections:
- activity Descrition
- Marketing Strategies
- Competition analysis
- Product development and design
- Management plan
- Financial statements, including cash flow, profit and loss, and forecast
business owner resumes
The success of your business will largely depend on the decisions of the owners and/or managers. Naturally, lenders will want to look at the credentials of those steering the ship. To this end, you may wish to submit a detailed resume outlining your experience and that of your partners (if applicable). If you have attended culinary school, seminars, training, etc. You will also want to mention any specific training or apprenticeships in your resume.
Like applying for a job, you’ll want to impress lenders and show them that you’re fully capable of leading your business to success. If you have partners or investors, lenders will want to see the resumes of those who own more than 20% of the company’s stock.
Other legal documents
Depending on the type of loan and the lender you work with, you may need to submit additional legal documents for further verification. In general, lenders will require the following legal documents:
- Articles of incorporation
- Equipment rental agreements, if you rent bakery equipment
- Franchise contracts
- Commercial space leases
- Contracts with third-party companies
While you would like to focus on creating beautiful cakes and satisfying people’s sweet tooth, you have to remember that you are also a business owner. In this role, you are responsible for making the right financial decisions for your growing business.
Business loan applications can be a tedious process, but they are essential to the success of your business. The documents described above are the main documents you will need when applying for funding. You can start collecting them as soon as possible so that you are ready when it comes time to apply. Some lenders may also require you to submit additional documents, so be sure to ask what these are in advance. The sooner you can submit the required documents, the faster the loan application process will be.
About the Author
Matthew Gillman is a business finance expert with over a decade of commercial lending experience. He is the founder and CEO of SME Compassa specialty finance company providing training and financing options to business owners.