What Are The Different Financial Reports Required To Get Funding Approval From Small Business Loan Lenders?
Getting a loan approval can change the company’s future, especially cash flow issues. Therefore, you can apply for a loan if you need a cash injection for your business. But as you might know, getting the funding approval is a daunting and unpredictable job. The lenders only lend you money when they are 100 % sure that you can repay their money within the nominated time frame.
The unsecured small business loan lenders verify your financial reports to determine whether you are eligible for the loan or not. Therefore, you should consider your financial reports as the most crucial thing when it comes to getting funds. Proper evaluation of the financial statements helps you obtain loan approval with ease.
So, to keep in mind the significance of these reports, we have provided below a list of four reports. Not only this, but we will summarize them so that you can review them and stay a step ahead to get the funding you need.
Your business balance sheet enables you and the business loan lenders to get a glimpse of your businesses net worth. The sheet provides data depending on what your business owns and owes, how much capital has been invested. With its assistance, the lenders can determine whether you can pay back their money or not. Hence, the balance sheet is a crucial financial report that includes the following:
These are beneficial things that a business owns whether tangible or intangible. If you have assets like cash, investments, vehicles, account receivable, inventory, real estate, patents, equipment, and holdings, you can make the loan approval process easier.
Liabilities are nothing but the obligations your business owes. It includes taxes owed, payroll, account payable, rents, loans, and other financial liabilities.
It is a shareholder’s stake in the business. It contains your stake, retained earnings, and paid-in capital. So, you can see that the balance sheet offers a synopsis of your firm’s financial position. As a result of this, loan lenders examine your balance sheet thoroughly. However, remember that if your balance sheet displays more liabilities than assets, then the chances are you might not qualify for the loan.
1. Profit And Loss Statement
When seeking unsecured small loans for business, it is another vital financial report. Your profit and loss or income statement contain your expenses, earnings, data related to profit and loss over a specific period. This report comes from the invoices you issue or products and services you sell and offer. Income statements are a crucial tool for you and loan lenders. It is so because it assists you in deciding the sustainability of your business profits. Besides, the lenders utilize this statement to evaluate your profit margins and sales volume, and they use it as loan qualification criteria. Below is an example.
Some unsecured Business loan lenders require a minimum annual revenue amount from the business owners. The loan amount available is relative to the turnover each month. In this case, a P and L or income statement is evident. It is so because you will find your revenue and sales information. It helps you and your lender to determine whether you can qualify for the funding or not. In addition to this, many lenders often demand monthly profit data. They ask for it, so they can determine whether you can pay monthly repayments or not.
They might also verify your fixed and variable costs, different revenue streams, and high-spending categories. Therefore, you should cut down additional and unnecessary expenses and look for ways to generate more revenue. If you do these effectively, your income sheet might help you get loan approval.
2. Cash Flow Statement
Irrespective of the size of the business, many do not have sufficient cash flow. That is why they look for quick loans to manage their business expenses. However, the worst thing is that some unsecured business lenders require this financial statement when you seek urgent capital. The lenders want to analyze the condition of your cash flow and whether you have a positive inflow in your business or not. The main reason for this is to determine whether you can make repayments with no difficulty. Therefore, you can understand that cash flow statements are vital documents. You should bear in mind that the revenue on an income report might not reflect cash flow to the business. Below is an example:
Suppose your income statement indicates $300,000 of profit in November. Without the cash flow report, you might think that your business had $300,000 with which to make payments in November. However, the thing is, your income statement shows it as sales, but the cash will arrive in December or January.
Thus, it is a big deal for lenders. Therefore, your cash flow statement helps them determine how much cash you have to repay the loan on a monthly basis.
3. Shareholders’ Equity Statement
When a business has some money after selling its assets, this current value is called equity. This report is also crucial as negative equity hinders the approval of your loan.
To sum up, you can never overlook the importance of these three financial statements when seeking an unsecured business loan. However secured business loan options do not require these financial statements, so if you have equity in a property secured options are the way to go.