Collateral-Backed Loans – How to Complete a Loan Application

The loan application is one of the first and most important steps in the loan process. While every lender’s application and verification requirements are different, many lenders look for the same information in order to approve a loan.


Depending on the purpose of the loan, the lender may request additional documentation, such as a business plan. Lenders also consider borrowers’ capacity to repay, capital and credit history.


Collateral is something of monetary value that you put up in order to obtain a loan. This can be anything from a home or car to stocks and bonds. It decreases the risk on the lender’s part in case you are unable to pay back the debt. As a result, lenders can usually offer lower interest rates for collateral-backed loans.

However, there are some things to keep in mind before you apply for a collateral loan. First, you’ll want to make sure that the collateral is worth enough to cover the loan amount and any applicable fees. Additionally, you’ll want to ensure that you have a plan in place for how you will pay off the loan. Finally, you’ll want to compare offers from multiple lenders before making a final decision.

While it may be a bit harder to qualify for a collateral loan if you have a low credit score or high debt-to-income ratio, it’s still possible. You just might need to provide additional documentation or put up more valuable assets as collateral in order to get approved. For example, a lender might be more willing to approve you for a collateral loan if you put up a home or car as security, but they might not accept your great-aunt Sally’s china set. Lenders also prefer to see collateral that is liquid, meaning it’s easy to turn into cash.

Employment History

Typically, you need to provide an employment history for a loan application. This includes your job title, employer name, and the dates you worked in each position.

You also need to list the skills you gained in each role, along with any volunteer work you did. While it’s tempting to list every job you ever held, try to focus on the ones that best match the skills a potential employer is looking for in a new hire.

Lenders need your employment information to ensure you can repay your loan. They will likely call your employer to verify this information and to ask about additional income sources like overtime or a side gig. If you have a steady source of income, this will help to ease the lender’s concerns about your ability to repay the debt.

To make it easier to gather your employment history, keep a file or physical log of each professional development you’ve had in your career. This will come in handy when you’re writing up your resume or applying for a job. If you don’t have records of your employment, you can contact past employers or the Social Security Administration for details. You can also search your computer files for resumes, applications, or other documents related to previous positions you’ve held. If you’ve made a profile on one of the many professional networking sites online, this can be another helpful resource.

Financial Statements

One of the primary documents that lenders will ask for during the loan application process is financial statements. These documents are accounting records that provide information about a company’s activities and position in the market. Financial statements include a balance sheet, income statement and a statement of cash flows.

The balance sheet shows the “book value” of a company on a particular date by listing assets, liabilities and owners’ equity. The income statement reflects the revenue, expenses and profit (or loss) of a business over a specific period. The statement of cash flows outlines the cash inflows and outflows of a company over time.

Creditors, company management and regulatory authorities use financial statements to evaluate companies for loans, investments or compliance. Lenders are interested in a company’s financial performance, profitability and liquidity ratio.

An important component of a loan application is a personal financial statement form (PFS). This document details an individual’s assets and liabilities and reveals their net worth. It’s a standard part of applying for commercial non-recourse loans. A PFS should be updated on a regular basis to ensure the information is accurate and current. This is particularly important for those providing a personal guaranty. Many bookkeeping solutions offer consolidated financials that make it easy to generate a personal financial statement. These tools also allow for horizontal analysis, which is a comparison of the same data over time. This is valuable to show a steady rise in revenues or profitability, which would be an advantage in a loan application.

Tax Returns

A borrower’s most recent income tax return (ITR) is the gold standard for verifying an applicant’s source of income. Lenders use this data to make confident credit decisions, as it shows how much income a borrower brings in and how that income is used.

Lenders will also need copies of the last two years of W-2 wage statements and may want to see Schedule E paperwork for rental properties or significant interest income, as well as profit and loss statements for any self-employed borrowers. Lenders will also likely review an applicant’s debt-to-income ratio and will need to have their most recent bank statements, checking accounts, savings accounts, money market accounts and brokerage records.

Many individuals seek out RALs because they need the cash from their anticipated refund and don’t have enough saved or other sources of income to get them through until the tax season is over. RALs are offered by many different types of businesses, including tax preparation offices and at financial institutions.

Unfortunately, these loans often carry a high interest rate that can be triple-digit or more. These higher rates can be attractive to borrowers who have low or no credit, and who may have bad loan repayment histories. For lenders, these loans pose a risk of fraud, since borrowers can easily create fake IRS documents. To combat this risk, lenders need to verify that the transcribed data on loan applications is the same as the line items on verified tax returns in the IRS database.