Information about the owners
Your bank may also require the following information about each business owner, guarantor and controlling manager:
- Name and title of the person opening the account
- Name and address of the entity for the account
- Name, date of birth, Social Security number (for U.S. citizens), passport number and country of issuance (for foreign citizens), residential address, country of citizenship, country of residence and percentage of ownership for each beneficial owner and controlling individual (this information is required even if no equity owner has 25% or greater ownership)
- Certification that the information provided on the beneficial owner and/or the controlling manager is accurate
- Personal household income
- Personal financial statement
- Two years of personal tax returns
- Residence status (rent or own) and monthly housing payment
Work With an Advisor
Understanding what lenders look for can help you enhance your application and increase your approval odds. Ward suggests working with your accountant or business advisor to prepare these documents, as an advisor can help you look at the package as a lender would. "Something like a dip in revenue isn't necessarily a deal-breaker, but the lender will want to understand your business's story," Ward says.
How long will it take for your application to be processed?
Each borrower's situation is different, so time frames for approval and funding may vary. A typical commercial mortgage might take up to 60 days, while a line of credit might take three to four weeks. Credit card approvals may take a week or less. If the lender requests additional documentation, the process might take longer.
Six "Cs" of Creditworthiness
Lenders look at these six "Cs" to help determine the creditworthiness of a business that's applying for financing.
Lenders will evaluate your business's financial capacity to support the loan obligation as well as operating expenses. Typically a business needs to have $1.25 of income to support every $1 of debt service. The extra $0.25 provides a cushion for your business to absorb unexpected expenses or a downturn.
Your business may own capital assets such as cash and equipment that could be used to support your credit application. You and others may have invested funds in the business too, which is also an important consideration for a lender. The amount of capital assets and equity you have on hand will say a lot about your prospects for receiving financing.
Accounts receivable, inventory, cash, equipment and commercial real estate are all forms of collateral — assets lenders may accept to secure loans. When estimating the value of your collateral, a lender will look for liens — existing debt owed — on that collateral. The existence of a lien may disqualify the collateral as a supporting asset for the loan.
The state of the economy, industry trends and pending legislation relative to your business are all conditions that are considered by lenders and are factors in the evaluation of your loan application.
Work experience, experience in your industry and personal credit history are all character traits that lenders will consider. Your personal integrity and good standing — and the integrity and standing of those closely tied to the success of the business — are of the utmost importance.
Your willingness to communicate candidly with your banker and your other advisors about the opportunities and challenges your business faces is key to a productive financial partnership.
How Your Business Structure Can Affect Your Taxes
The "Inc.," "LLC" or "Partners" at the end of your business name isn't just decoration you add to look official. Each one signifies a different way to set up your business — also known as business formation — and each affects how your business income will be taxed. For instance, owners of sole proprietorships, partnerships, limited liability partnerships, limited liability companies taxed as partnerships, or S corporations may be able to deduct up to 20% of their qualified business income under Section 199A in calculating their individual tax obligation under the Tax Cuts and Jobs Act, in a deduction that started in 2018 and lasts through 2025 unless it is extended or noted otherwise.
When you decide to establish or formalize your business as a corporation, limited liability company, or partnership, you should take the time to understand the ramifications. Additional considerations apply to nonprofit entities. Structure, like a good foundation, bears the weight of whatever you build and establishes how you'll deal with your partners, customers and clients on tax issues, as well as with the IRS and state taxing agencies.
Set it up right the first time around
A trait many successful businesspeople share is that they acknowledge the need to do it right and do it right the first time. To get started on the right foot with determining your ideal business structure, two IRS publications are particularly helpful resources: Publication 334, Tax Guide for Small Businesses, and Publication 583, Starting a Business and Keeping Records, which also includes a link to the tax forms for each business structure.
You may find professional advice to be valuable at this point. It's important to discuss the options with a tax advisor before making a determination about the best structure. For simplicity, the owners of each business structure described below are treated as individuals. However, the owners of a business may be other entities, which may have different legal and/or tax implications. Consult your legal and/or tax advisor.
Six business structure options to choose from, each with different income tax implications