Financing with debt is a common practice in the small business world, but any loan provider will require a thorough portfolio in order to properly assess your risk. Whether you’re applying for a cash advance, equipment loan, credit line or one of the SBA-backed programs, here’s the information you will need to provide your lender.
Personal and Business Information
If you are a sole proprietor or an owner in a partnership, your personal liability may affect your approval. Lenders will want to know about your credit, business and criminal histories. You will also need to provide the name and contact information for all owners and board members, as well as your federal and state tax ID numbers.
A Solid Business Plan
This is every bit as important as your financial position. You will need to furnish a thorough description of your company with details about your mission statement, target market, management structure and any competitors. Loan providers want to know where you have been, where you are heading and what growth strategy you will follow. Your plan should also state the number of employees you have on payroll and include a summary of operational activities.
Depending on your loan and lender, you may need to provide several years of past financial statements. In any case, be sure to make a copy of your most recent income statement. This shows how profitable you have been and what your current expense profile looks like. The income statement is also known as a profit and loss report. It’s a key element, particularly for investors, because it includes information about revenues and expenses from your central operations. If you run a grocery store, for example, a lender will care more about how much money you bring in from produce sales than about the gain you earned from selling one of your delivery trucks.
Bring past balance sheets, but be aware that lenders use this information to gauge your current financial position. This is a snapshot of all your assets, liabilities and owner’s equity at a single point in time. Generate a copy as close to your loan appointment date as possible.
Statement of Cash Flows
Even if you use the accrual-based accounting method, a cash flow statement provides insight into your operating, investing and financing activities. Positive cash flow is a good sign, but it doesn’t always indicate profitability. You can have a negative cash flow and still earn a profit. Ultimately, banks want to know your rate of liquidity, if you’re able to cover your immediate expenses and if you’re capable of buffering your operation should your market take a turn.
Be prepared with your business tax returns from the last three years. Many loan officers will also want to see your personal returns. If you have yet to file for the current year, you must be able to prove that you have filed for an extension.
Budget and Forecast
Gather all internal reports, not just the four financial statements. You need to show how well your finance team is able to project income and loss. Are you making and spending as much as you planned? You should also include a sales forecast for the next several years.
Lenders will inevitably pull your credit history, but any good business owner will read a credit report far in advance. This ensures there are no surprises on either end.
Be sure to do your research before applying for any type of funding. Pre-qualify yourself and know your limits. If you’re just starting out, you may need a co-signer in order to secure a traditional loan. Fortunately, the Small Business Association has rolled out some great financing programs that are designed specifically for small business owners.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.