Taking a loan is a great way to grow your business at a fast pace.
However, in order to be approved by a lender, you’re going to need to demonstrate that you’re a serious business owner who will be able to meet the terms of the loan.
Your potential lenders are likely going to request different financial documents so they can see how your business has performed in the past and how it can progress going forward. In this blog post, we’ll review the financial information commonly requested by lenders and how well-kept books can help you provide it to them.
Accounting reports
Accounting reports are used to get a strong understanding of the financial health of a business. But in order to generate any accounting report, you must first maintain books that have all your business’s transactions accurately recorded and organized.
A balance sheet, income statement, and cashflow statement are accounting reports commonly requested by lenders. Each one provides an in-depth look at different areas of your business’s finances. Together these reports provide a thorough overview of your business’s complete financial situation.
Accounts Payable & Accounts Receivable
Your accounts payable shows the money you owe in bills and expenses but haven’t yet paid. And your accounts receivable shows the revenue you’ve earned but haven’t yet received. Many lenders look closely at these two areas of your books since they’re crucial to understanding your business’s ability to collect revenue and maintain a healthy cashflow.
Past tax returns
Before a lender approves your application, they’re going to want to make sure you’ve been filing your taxes accurately and on-time. They may request your tax returns going back as far as three years. If you or your tax preparer have been filing your taxes correctly, it’s likely been done using the information stored in your well-kept books.
Business plan & budget
Some lenders may want to know what your goals are for your business and how you plan to achieve them. With the help of your books, you can review your transactional history and project future revenue and expenses. You can also create a budget that will keep you on track and guide you toward the goals you set for the business. Presenting your business plan and budget to a potential lender is a great way to show that you have a strategy for using their money to grow your business.
Anytime you apply for business financing, the lender is going to do their due diligence to make sure you’re a good investment. The best way to make your case is to maintain accurate books early in the life of your business. Getting in the habit of recording all your transactions as they occur and updating your books accordingly will not only prepare you for your loan application. It will also keep you in tune with the financial performance of your business.
You can also consider hiring a professional to handle your bookkeeping needs. They can ensure your records stay accurate and up-to-date and generate the reports you need to understand your finances.
