How to Organize a Loan Application

On the fun scale, applying for a loan falls somewhere between doing
your taxes and having minor surgery. Once you get organized, though,
the process takes less time than you think. If you need a loan to start
or expand a business, the following steps can help you power through
the paperwork.

Difficulty: Moderate

Instructions

1. Determine which type of loan you need to apply for: Working capital is used to meet immediate, short-term needs (payroll, rent, vendors) that you will repay during the company's next full operating cycle (generally one year). Growth capital pays for durable investments that create income (a printing press, a building, a fleet of trucks). These loans are generally paid over a period of not more than seven years. If you're seeking investment capital, the lender will expect you to show how you will increase profits sufficiently to repay the loan in the agreed-upon time frame.

2. Gather the documents you'll need for your loan application. Typically you'll be required to provide a pay stub, an IRS tax return or a W-2 form to prove your income. Pull together bank and 401(k) statements, and of course, any debt and liability documents, such as divorce papers or student-loan statements. You'll need these key documents and information when you apply for a loan:

3. Check your credit report before you fill out your application, and fix any discrepancies.

4. Go back two years and show a history of payments (credit card, student loan, utility, car) to lenders.

5. Make your loan application tidy and orderly. The condition, completeness and appearance of your loan will reflect on you and affect your chances of getting a loan. Information should be typed, spell-checked and carefully proofed. Add a cover letter for professionalism and style points.

Tips & Warnings

• See 232 Organize Important Documents.
• If you're self-employed, make sure to include both your federal and any corporate tax returns over the last two years. Include information on your firm's profit and loss.
• Include all means of income, not just your paycheck stub. Include all bonuses, any outside income (investments, royalties), and government benefits such as Veterans Benefits Administration and Social Security checks.
• Avoid sending out multiple applications simultaneously. Lenders will check the same credit agencies and will notice an uptick in lender inquiries. Fairly or unfairly, they may smell desperation and give you a thumbs-down.
• Keep it real. Don't fudge any information on your application. Banks and lenders don't like liars and they don't like vague generalities. Make sure all your information is accurate and as specific as possible. Verify each line of your application. If you're not sure about a given number, stay on the safe side and underestimate rather than overestimate.