For small business owners, bank loans remain one of the most accessible funding sources. However, securing a bank loan is no small feat. You’ll need to navigate a complex process and meet rigorous requirements. Are you ready to approach a bank for a business loan? Here’s a list of ten things you should expect banks to ask for:
- Collateral
Banks rely on customer deposits to fund loans, making lending inherently risky. To mitigate this risk, they often require collateral. This could include business assets such as equipment, inventory, or real estate. If your business lacks sufficient assets, you may need to pledge personal assets, like home equity or vehicles. As digital assets grow in popularity, some banks may even consider cryptocurrency holdings as collateral—though policies vary widely. - Business Plan
A detailed business plan remains essential. Today, banks increasingly expect business plans to include insights into how your business adapts to technology, environmental sustainability practices, and market trends. In addition to a company summary, product details, marketing strategy, and financial projections, ensure your business plan reflects your preparedness for digital transformation and economic shifts. - Business Financial Details
Banks will want to see a full picture of your business’s financial health. This includes current and past debts, all bank and investment accounts, tax ID numbers, and contact details. Modern banks may also request digital accounting records or integration with software like QuickBooks or Xero to streamline their review. - In-Depth Details of Accounts Receivable
Be prepared to provide detailed information about your accounts receivable. This includes customer account information, sales data, and payment history. Lenders may also assess the creditworthiness of your largest customers to evaluate your risk exposure. - In-Depth Details of Accounts Payable
Similarly, you’ll need to provide details about your accounts payable. This includes credit references and information about suppliers who extend credit to your business. Strong supplier relationships and timely payments can bolster your application. - Complete Financial Records
Banks typically require audited financial records, including balance sheets, profit-and-loss statements, and cash flow statements. For small businesses, having at least three years of data is ideal, though exceptions can be made for newer ventures. With rising concerns about fraud and inaccuracies, expect banks to emphasize CPA-reviewed records and digital audit trails. - Personal Financial Details
Lenders often request personal financial statements from business owners, especially for small or medium-sized enterprises. These details should include your net worth, assets, liabilities, loans, mortgages, and credit card accounts. If your business has multiple owners, each significant shareholder will need to provide their financial information. - Insurance Policies
To reduce risk, some banks may require business founders to secure key person insurance or term life insurance. The bank might need to be listed as the primary beneficiary to ensure that outstanding debts are covered in the event of an untimely death. In 2025, some lenders are also exploring the inclusion of business interruption insurance as a safeguard. - Corporate Tax Returns
Tax compliance is non-negotiable. Banks will request copies of your business’s past tax returns, typically covering the last three years. For sole proprietors or partnerships, expect to submit personal tax returns as well. Ensure your filings are accurate and up to date—banks scrutinize this information closely. - Agreement on Financial Ratios and Covenants
When granting loans, banks often impose covenants—agreements that your business will maintain certain financial metrics. This may include ratios such as debt-to-equity, current ratio, or quick ratio. Falling below these thresholds puts you in default. As of 2025, banks may also assess environmental, social, and governance (ESG) metrics or carbon emissions as part of the loan covenant, reflecting growing sustainability demands.
Final Thoughts
Navigating the process of applying for a business loan can feel overwhelming, but preparation is key. By understanding these requirements and staying ahead of trends like digital integration and sustainability practices, you’ll improve your chances of approval. Remember, each lender is unique, so always check specific requirements before submitting your application.