Businesses seeking supplemental start-up capital, working capital, or expansion capital may apply for a business loan from their local bank, credit union, and/or through the Small Business Administration. Most loans that are extended to small businesses seeking such capital through the Small Business Association are granted by approved “micro lenders” are commonly known as “micro loans”, maximizing at $35,000 and averaging $13,000.
To apply for a small easy working capital business loan, a business must present many items to the lender for due diligence review before approval. These qualifying documents (referred to as a small business loan proposal) are necessary for a lender to make an informed decision in regard to the applying business in the context of current market forces and future market share projections.
A small business loan proposal usually includes but is not limited to:
- Business profile-a succinct but complete history of the business, including product or service sold, operations plan, and marketing strategy
- Management experience-current owner(s) and management team resumes
- Personal financial statements-financial statements of the last 90 days from each principal owner with 20 percent or more ownership and most recent federal income tax return(s)
- Repayment plan-a schedule explaining how the loan will be repaid, including repayment period, budget, and cash flow
- Pro forma balance sheet-a statement that details equity, assets, and debts owning
- Projected annual cash flow-a statement of expected earnings, profits, and expenses presented in a profit and loss format along with explanation for each
- Loan collateral-an itemization of all business assets
- Supplemental documents-these include lease, property title or mortgage statement, license(s), certification(s), franchise or partnership agreement, et cetera
Companies seeking a small business loan must also determine the amount they will need for supplemental capital, working capital, and/or expansion capital. Loan applicants will typically be required by the lender to place valued collateral before securing the loan; this could be as little as 10 percent or up to 20 to 25 percent.
Small businesses seeking loans may also use outstanding account receivables as collateral or as a type of secured credit line from a lending institution.