Understanding the Bank Loan Application Process

Starting or growing a small business typically requires financial support, and often that means applying for a traditional bank loan. Some business owners will have to confront the challenge of what to do when the lender’s answer is “no.” 

A loan denial can be frustrating, confusing and hard to take in. However, being denied a loan doesn’t mean the end of the road. In fact, sometimes it can signal the beginning of a new way forward.

This blog series is intended to empower small business owners, helping them improve the chances of securing funding. Whether you’ve recently been denied by a lender or are preparing to apply for a loan for the first time, this toolkit will walk you through the elements lenders look for and what you can do to strengthen your business profile and secure that “yes.”

What Do Lenders Look For?

Before diving into what makes a strong application, it’s important to understand common things lenders look at in applicants. This includes:

• Credit history – If your personal or business credit scores are low, lenders may see that as a risk.
• Cash flow – Even if your business is profitable, earnings volatility can raise concerns about the ability to make regular loan payments.
• Lack of collateral – Many traditional loans require some form of security. If your business doesn’t have assets on hand, the lender may hesitate.
• Incomplete or disorganized documentation – Applying without the necessary financial statements or leaving out key details can slow down or derail the application process.

What Goes into a Loan Application

Applying for a business loan requires more than filling out a form. It requires presenting the full picture of your business, including how it operates and where it’s headed. Lenders typically ask for several documents and key details to assess your eligibility for a loan. This may include:

• A detailed business plan with financial projections that outlines your vision, strategies and how you expect to grow over the years.
• Your personal and business credit history to show lenders your financial responsibility.
• Your tax returns from the past 2 to 3 years for both personal and business to demonstrate consistency and income.
• A full set of business financials, including your Profit & Loss Statement, Balance Sheet and Cash Flow Statement.
• Personal and business bank statements for the past three months.
• W-2s or other proof of income.
• Collateral, such as property, equipment or any other assets to better back your loan.
• Your debt-to-equity ratio which gives lenders a sense of your financial leverage.

How Lenders Evaluate Your Application

Once your application is submitted, the lender’s review process begins. This stage is where communication and transparency are key.

Lenders are looking for:

• Creditworthiness, or how reliably you’ve paid off debt in the past.
• Viability of your business, based on your plan, industry and market opportunity.
• Capacity to repay the loan, using your income, cash flow and other obligations.
• Sufficient collateral to support the loan, should repayment become difficult.

Each bank or lender may weigh these factors differently, but all are aiming to reduce risk and ensure they’re investing in a business that can grow and succeed.

If you need assistance with your small business loan application or any additional resources, reach out to The Iowa Center to learn more.

What to Expect During the Review Process

After you’ve submitted everything, your lender will typically provide a general timeline for review. During this time, it’s normal to receive follow-up requests for clarification or additional documentation. These questions can be part of underwriting, compliance or to get a clearer picture of your business. Responding promptly and thoroughly can help keep your application moving forward.

Next Up: Assessing and Improving Your Financial Health