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Financing your business
Lenders are looking for business owners that are able to demonstrate a strong financial background and a solid business plan when they are looking for business financing. Almost every business will struggle with obtaining the financing they need and this only gets worse as the economy struggles. One problem business owners commonly run into when they apply for a loan is that they have not been able to properly manage the money they have already been given.
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To obtain financing for your business, you not only need to learn how to manage your money, you must provide lenders with a handful of documents like the following:
- Business Plan
- Taxes
- Credit report and score
- Financial documentation (profit/loss sheet, cash-flow, income statement)
Lenders want to review a business plan to figure out how the company plans on re-paying the money they borrowed. The business plan must state your short-term and long-term business goals. Discuss things like the amount of manpower it will take to keep your business running and how you plan to eliminate waste. Many businesses turn to lean manufacturing processes to help reduce waste and improve their output.
Another thing you need to bring to the lender is a copy of your taxes. Taxes give the bank an accurate reading of how much money the business makes. Business taxes are complex and there are numerous reasons to hire a tax advisor to handle them for you, one of them is so you can avoid an audit and have proper documentation of all your records. Another is to help you get all the tax deductions you qualify for. Several business owners improperly file their taxes and pay too much money in taxes. Lenders will take a look at your taxes to determine if you are paying properly and if you have any past problems with the IRS like tax avoidance.
Even if you have already started your business and you have a business credit score, your lender will still ask for a copy of your personal credit report and score. This is used to help the lender determine if you are a good candidate for the loan. Your credit report will provide information about potential risk factors like your percentage of available credit and if you have personally defaulted on the loan. Although your business may be a separate entity, you must personally demonstrate good credit worthiness to qualify for a loan.
Lenders will also ask for a copy of your business profit and loss sheet, cash-flow statements, and your income statement. They need to determine if you are a risk and if you are able to re-pay all your loans in a timely manner. Lenders will need to see how well your sales are doing in order to determine if you have a steady cash-flow to support the money you borrow. You should always have more going out than coming in when it comes to financing your business. The income statements will help the lender determine how close to going into the red your business is. If you are struggling to make your monthly payments, they may not offer you financing because your business is at risk of closing its doors.
If you are just setting up a new business, you need to make sure the location in which you place your business is litigious. Banks need to see records that this area is profitable in order for their investment in your business to be worthwhile. They also need to see records of how you plan to handle some of the stresses that come along with your business like legal implications and a poor market.
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