5 Year End Considerations for Small Businesses Looking for Loans in 2011
Small business who are contemplating seeking financing should start do some year end planning to
ensure that they are ready to seek financing in the new year. The market for financing remains tight but
a well planned strategy can be the difference between success and failure in this difficult market. 2011
will also bring political uncertainty as to whether small business lending allocations will be held back by
the grid lock in Congress. With this level of uncertainty, those businesses that are best prepared will be
able to take advantage when the window of opportunity opens. So what should a small business do?
1. Get your Three years of Financial Statements in order. All lenders will want to see at least
three years of financial statements before they will consider providing financing. So you should
work with your accountant or use Quickbooks to make sure that you have Income Statements
and Balance Sheets prepared for 2008, 2009 and 2010. Organize your company data in January
so that you are ready to have your 2010 year statements prepared. Lenders are looking to lend
to companies that are profitable so at least the last year of your financials have to show that
your company has been profitable.
2. Have mechanism for updating your financials on a Monthly basis. Most lenders are going to
want to know the most updated information about the financial condition of your company.
The banks are going to ask you for partial year Income Statement and Balance Sheets. You may
have to produce partial year financials more than once if the lending process drags on for a few
months. This can be a very painful and costly process if you have not organized your reporting
system to be able to generate these results on short notice.
3. Get your business and personal taxes for the last three years in order. Get your business
(1120) and personal (1040) IRS tax returns organized. If you are applying for a loan after April
15th make sure to get your business and personal taxes filed on time. This is not the year to seek
an extension unless you absolutely have to. Also try to make your salary consistent from year
to year. Don’t lower your salary to boost company profitability as that could hurt the ratios that
lenders use to determine debt load.
4. Be able to articulate your business model clearly and concisely. Many small business owners
are experts at servicing their customers and building great products. They do it well and create
jobs and wealth in their communities. They are not use to speaking the language of lenders.
Before you meet your lenders it may be helpful to write a one page document that describes
your product or service, how you make money and why your business is sustainable. This is not
something that most small business owners are use to doing but is an excellent preparation for
being able to concisely describe your business in a way that a lender will understand.
5. Be clear on exactly how you are going to use new funding. The end of the year is a great time
to reflect on how your business has operated in the last year and to think about what you need
to do to grow or sustain your business over the next year. Lenders will want to know exactly
how you are going to use the money and how that use is going ensure that you will be able to
pay back your loan. The more speculative the use of the funds the more nervous lenders will be
about making the loan. Getting money to expand your already existing business using proven
metrics is generally the easiest use of funding to get a lender excited enough to approve a loan
to you.
Have a great end of year and if there is anything that we can do to help don’t hesitate to contact us.