Applying for a Business Loan? What Lenders Really Look for in Your Financials.

Getting a loan can be a huge step for growth, but before a lender even talks terms, they are deep-diving into your financial statements. They aren't just checking the bottom line—they're checking the integrity of your books.

As you read on, it’s important to remember that this isn't the lender's complete view. They will assess everything from your credit history to your business plan. However, every lender must heavily rely on your business's financials and historical tax returns to determine risk.

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The Lender's Perspective

Different lenders have different requirements. Some may be flexible, but others, especially as your loan size increases, may even require GAAP-compliant financial statements (Generally Accepted Accounting Principles). Making this transition requires professional expertise and planning

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Your Financial Checklist

Here’s a breakdown of the due diligence questions lenders are asking about your business:

Financial Presentation & Management:

• Basis of Accounting: Are your financials prepared on a Cash or Accrual basis? Consistency is key here.

• Professional Oversight: Who is preparing your financials? A qualified, professional bookkeeper, accountant or CPA signals stability and reliability to a lender. Proving qualification of your accounting specialist is key. Although a CPA isn’t a requirement, often times the credential can bring immediate trust and evidence of expertise of the team managing your business financials.

Accuracy and Completeness (The Red Flags):

Lenders look for "gaps" between the nature of your business and what's reported on your Balance Sheet and Income Statement. Unprofessional financial reports often contain simple, avoidable mistakes that kill confidence:

• Are there stale accounts receivable or prepaid accounts that should have been written off years ago?

• Do you have a depreciable asset (like equipment or a vehicle) that hasn't been properly depreciated? Or maybe you have an asset that should not have been capitalized, but rather expensed?

• Are all your routine payments (like rent or major utilities) being posted correctly and consistently every month?

The Requirement for Assurance (Reviews and Audits):

Depending on the size and complexity of your business and the loan amount, lenders may require a formal Review or Audit of your financials.

If you anticipate this requirement, seek out accounting firms that specialize in your industry. These firms can efficiently guide you through the process. The independent review provides the lender with necessary validation that your financials are accurate and in good order, smoothing the path to approval.

Don't let sloppy books derail your funding. Start preparing your financials now like a lender is watching.

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Want to know if your financials are lender ready? Let's get started.

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