Business loans play a crucial role in the success of any bakery. But the process of applying for one is not the easiest part. One of the most critical aspects of applying for a loan is submitting the correct documents.
The whole point of the document requirement is to give lenders an inside look at what your bakery business looks like. It also allows them to gauge your business’s potential for success. For this reason, they may look at various aspects of your business, including your financial and credit history along with your plans.
Loan application form
The first step in the loan application process is to submit a loan application form. The forms will vary depending on the lender and the loan you are applying for. However, they essentially want the same information. You will need to fill in the basic business specifics including:
- Personal history of owner and partners (ie addresses, education, criminal record, etc.)
- Official company name
- Business Name or Doing Business By (DBA)
- The names of the business owners
- Tax registry number #
- Phone numbers
In addition to your basic information, the form may also include some questions about applying for credit. 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 governance?
- Do you have other debts? If so, who are your creditors?
Be sure to fill out every field on the form to avoid delays in the loan application process.
Your business license is proof that you have the legal right to operate your business in a particular city or county. It also acts as proof that you own the company. In the beginning, you need to have an idea of what licenses your business needs. For example, since you run a bakery, the state will need to carry out an inspection to ensure that you meet health standards and that the food you produce will not harm your customers.
Your license will not only assure your customers, but it will also assure lenders that you have passed state standards and that your business meets federal and state regulations regarding safety, cleanliness and honesty. Failure to comply not only results in penalties, but can also affect your chances of loan approval.
Lenders, especially banks, want to be sure that if they extend credit to a business, the 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 the health of your cash flow.
Depending on the lender, they may require you to show a financial forecast. It can be a separate copy or included in your business plan. It’s always good practice to have them ready so you can send them right away if needed.
In addition to financial projections, you will also need to submit the following documents:
- Balance sheets
- Profit and Loss Statement
- Income and expenditure statement
- Cash flow statement
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 that you have a separate bank account for your business and that your cash flow is sufficient for the monthly repayments if you are ever approved for the loan.
The lender will also want to see if you have a checking account, so be sure to have it ready on your bank statements.
Income tax returns
Like your financial statements, your tax returns act as the lender’s basis for the financial health of your business. Your tax returns confirm your annual income, which is a key factor in whether or not lenders will grant you a loan. It can also show your character as a borrower. If you have delinquent or unpaid taxes, it will reflect badly on your character
When applying for a loan, be prepared to submit tax returns for at least three years. They may also require you to submit a copy of your personal tax returns, so you may need to prepare at least three years of them.
Business credit report
Your credit report summarizes all your credit transactions, including payments to suppliers and creditors. It will show 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 get a loan from banks and other lenders. When applying for a business loan, a business owner is not required to provide details of their business credit score or report, but it is important to understand that the financial entity you are seeking funding from will pull this information and use it to determine next steps and qualifications.
Business plans are basically a road map for your company. It outlines your bakery’s goals, objectives, operations, industry status, market, financial projections and other important business information. Lenders, especially banks, will look at the information to see if your business will generate positive returns or not.
Your business plan doesn’t have to be several pages long. 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:
- Executive summary
- Business Description
- Marketing strategies
- Competitor analysis
- Product development and design
- Management plan
- Financial statements including cash flow, profit and loss and forecasts
Resumes of business owners
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 running the ship. To this end, you may be asked to send a detailed CV outlining your experience and that of your partners (if any). If you attended culinary school, seminars, trainings, etc. You’ll also want to mention any specific training or apprenticeships on your CV.
Just like applying for a job, you’ll want to impress lenders and show them that you’re fully capable of leading your company 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 additional verification. Generally, lenders will require the following legal documents:
- Founding Act
- Equipment Lease Agreements if you lease bakery equipment
- Franchise contracts
- Leasing of commercial space
- Contracts with third parties
The bottom row
As much as you want to focus on creating beautiful cakes and satisfying people’s sweet tooth, you have to remember that you are also a business owner. As such, you are responsible for making the right financial decisions for your growing business.
Applying for a business loan can be a tedious process, but it is vital to the success of your company. The documents described above are the main documents you will need when applying for funding. You can start collecting them as early as possible so you’re ready when it’s time to apply. Some lenders may also require additional documents, so be sure to ask what they are beforehand. The faster you can submit the necessary documents, the faster the loan application process will be.
About the author
Matthew Gilman is a business finance expert with over a decade of commercial lending experience. He is the founder and CEO of SMB compassa specialty finance company providing education and financing opportunities for business owners.