7 Critical Documents Required for a Working Capital Loan
July 12, 2022
One of the most popular business financing tools that we offer is a working capital loan (or working capital line of credit). This type of business loan can help your business cover certain operating expenses while you wait for revenue to be collected.
We typically work with companies that experience spikes in costs (e.g. buying bulk inventory for future production needs) or experience strong revenue growth during certain seasons of the year (e.g. retailers that depend on the holiday shopping season to fuel sales for the entire year).
Texas Gulf Bank will tailor our business financing options to fit your business need. When you’re ready to apply for a loan, we will ask for a certain set of documents. Let’s unpack the most important documents required for working capital loans as part of the application process.
What Documents Do We Require for a Working Capital Loan?
We encourage you to carefully review the following information so that you are prepared to provide us with specific information that we look for in a working capital loan application. Gathering up this information will help us put together a complete loan package, expedite the review process, and enable you to receive funding as quickly as possible if approved for a loan. It includes but is not limited to:
1. Year-End Business Financial Statement (Balance Sheet and Income Statement). We require financial statements covering the past three years of business operations. This will help us review your current assets, liabilities, and shareholder equity to ensure that your company is financially stable. We want to verify that you do not have excessive debt or insufficient assets to maintain operations during an irregular business cycle.
We ask for three years of business balance sheets so that we can compare your financial position from year to year. If there are any discrepancies or extreme changes from year to year, then our lenders will want to know more about what caused the change so that we can better understand your business activity.
We also require income statements from the past three years of business operations. This will allow us to review your total income and expenses on an annual basis.
2. Quarterly Interim Business Statements. If your business has an uneven business cycle, however, then we will likely ask for a monthly interim statement that captures your month-end financial position that may not be reflected in the quarterly financial statement. We want to verify that nothing significant has changed in the months since your last year-end financial statement.
3. Current Accounts Receivable (A/R) aging. Accounts receivable is the lifeblood of any business. We want to review whether you are having success in regularly converting accounts receivable into cash or if you have large amounts that need to be collected from your customers.
The A/R Aging Report will help us identify the length of time until you expect to collect on outstanding accounts (e.g. 0-30 days, 30-60 days, 60-120 days, and 120+ days). We also want to review the amounts that are outstanding for each period of time. This evaluation will enable us to understand your collection cycle.
4. Inventory Listing. An inventory listing will allow us to take a deeper dive into the assets you have on hand. We’ll want to unpack the following information about your inventory:
- The cost of your inventory.
- The current market value of your inventory.
- The inventory that is used to create products or services to generate sales.
5. Existing contracts or agreements. One way to strengthen your position is to present us with signed contracts that indicate your company has enforceable agreements to provide customers with goods or services at a future time.
For example, let’s say that you have a contract with a large customer who has pledged to purchase specific inventory from your company during a particular season of the year. This will help us understand the value of these goods and the expected revenue that will be generated through this agreement.
6. Tax Returns from the Guarantor(s). We require documents from all individual guarantors on the loan. This includes copies of their personal and business (if applicable) filed federal tax returns for the past three years. Tax returns will help us evaluate the credibility of each individual that supports the business.
7. Personal Financial Statement from the Guarantor(s). Additionally, we will require updated personal financial statements from each guarantor that captures the latest financial position for each individual on the loan.
Similar to monthly or quarterly interim statements from the business, this updated personal financial statement will help us evaluate each guarantor’s current financial position to ensure there are no concerning areas in the time since each person filed their tax return.
Are You The Right Fit to Apply for a Working Capital Loan?
The list of documents that we require for a working capital loan is extensive so that we protect you as the borrower and Texas Gulf Bank as the lender. Our goal is to ensure that your business has an adequate history of operating profitably and that there is sufficient collateral coverage and capital reserves on hand to support the business through each season.
Generally, we will lend a percentage of eligible accounts receivable and inventory to establish a borrowing base for the working capital loan. Many times, other collateral may be incorporated into the loan in order to secure the necessary funding amount to provide for the timing of your company’s accounts receivable and cash cycle.
Also, because we generally require the owners of the business to personally guarantee the loan, we would expect to see good credit indicators from the guarantors. We look for alignment between how the company operates and how the owners conduct their personal business affairs.
Ready to Apply for a Working Capital Loan?
Our goal is to make the loan application process as simple as possible for businesses that need access to financing in order to support their business operations. We focus on building relationships with each borrower so that we can readily meet your needs and continue to support operations throughout each seasonal peak and valley.
Thanks to our substantial lending capacity and deep understanding of the business market along the Texas Gulf Coast, we believe we have a solution that fits your business.
Let’s get started on the application process. Contact us today to further discuss the nature of your business and the documents required for a working capital loan. You can also complete the contact form below to reach our team directly.
All Loans Subject to Credit Approval