To apply for an equipment loan, each lender may have their own unique list of required documents. The items on this list may vary depending on the lender, the type of loan, and the equipment being purchased. For instance, online lenders generally require less documentation to speed up the application and approval process.
This is a list of documents that you might have to provide to prove that your business can repay the equipment loan.
Business plan
Having a business plan is crucial as it outlines your growth strategy and how you plan to achieve profitability. Lenders usually ask for it as they want to understand your business operations, the market conditions, and your financial projections over time. When creating your business plan, make sure to include these specific details.
- Key objectives
- Target market
- Description of products and services
- Marketing strategy
- Market research into competitors and target customers
- Mission statements
- Current financial picture
- Financial projections, including the break-even point
Financial statements
To assess your business’s financial status and determine your eligibility for a loan, lenders review various financial statements. These statements help them determine if your business can repay the loan and the maximum loan amount you can receive. Therefore, it’s essential to have these financial documents ready when you apply for a loan.
- Bank statements for a picture of cash flow
- Balance sheet to show assets and liabilities
- Profit and loss statement
- Revenue forecasts
- Personal and business income tax statements from the past three years
- Personal and business credit history
Purchase or franchise agreement
If you have acquired your business from someone else, you will require the business purchase agreement. It will contain details about the buyer and seller, as well as the equipment or assets that were part of the sale.
The message explains that there are responsibilities for both the buyer and seller towards the business after the sale, especially if the previous owner will continue to have ownership or employment. It also mentions that the franchise agreement granting the rights to operate under the brand must be provided for franchises.
Accounts receivable and accounts payable
When applying for a business loan, remember to include an income statement that shows your company’s revenue and expenses. Lenders require this along with other financial statements. Providing information on all accounts receivable and payable is important for the lender to grasp your current financial situation fully.
Appraisal
The lender may request an appraisal to determine the actual value of commercial equipment, depending on the equipment types or quantity being purchased. The valuation is more likely required for used equipment as it considers the current wear and tear.
Legal documents
To ensure that your business is operating legally, it is important that you demonstrate compliance with registration and licensing requirements to lenders. You may need to provide certain documents to show this.
- Business entity documents, such as articles of incorporation
- Business licenses
- Commercial lease, if applicable
- Contracts with third parties
- Employer Identification Number (EIN)
Bottom line
To obtain equipment loans, you need to provide documentation that highlights your business’s financial stability and capability of paying back the loan. Although the lender’s discretion determines the necessary paperwork, an appraisal of the equipment may be required depending on your lender. The documentation requirements are similar to other business loans.