Industry Source Networks

Your Business Tax returns for the past two years.

This is needed primarily to verify other financial information that you are reporting to the financial institution. Simply get this from your accountant or personal file. Remember to send the financial institution a photocopy so you still have a copy for your records. If you are a start-up or have been in business less then two years then send your past year's tax and explain your situation in your written narrative. If you are in this situation you will want to also send a projected 12 month cashflow forecast so that the bank can feel confident that you have the resources to repay the loan.

Financial statements for the past two years

The Balance Sheet is used to determine the value of the assets that your company possesses. The financial institutions will look to the value of these assets for securing the loan. The financial institution may also ask you to personally guarantee the loan and to provide them with additional sources of repayment should the loan fail. The Balance sheet shows long term and short term indebtedness that may limit the amount of cashflow that you can dedicate to repaying the loan. If you use Quickbooks or another accounting software package you can go into the reports area and print out year by year reports. If you do not have any accounting software then you can use the spreadsheet attached to create a balance sheet. A few notes on the Balance Sheet:

1. You determine the amount of depreciation for your Fixed Assets by looking at how much depreciation has been included on your company tax returns for those assets over the last several years. If in doubt you can have your accountant build your Balance Sheet for you. Depreciation just recognizes that fixed assets have a useful life and that their value diminishes with use.
2. If you have a subscription service or other business model where your customer is obligated to pay you for future work but has not, then unearned revenue from this subscription is considered a liability on your Balance Sheet.
3. The difference between your Assets and your Liabilities is your Owner's Equity. So when you add the Owner's Equity then by definition your Assets and Liabilities should be equal.

The Income Statement gives the financial institution a basic understanding of the profitability of your business. Make sure that you add all significant expense categories into the expense area of the Income Statement. If you have Quickbooks or some other accounting software then you simply go to the reports area and print out the relevant report. If you don't then you can use the attached spreadsheet. Notes on filling out the spreadsheet for the Income Statement:

1. Check your credit card statements for business expense items
2. Past Federal and State tax returns may also give you some expense amounts
3. Some Banks will provide itemized statements that may help identify expense categories

The Statement of Cashflow is probably the most important of the financial statements as far as your loan is concerned. It shows how much cash your business puts out each year. This information is used by the financial institution to create something called a coverage ratio. The coverage ratio tells the potential lender how much cash you have available to make the monthly payment on their loan. If you use Quickbooks or some other accounting software just go to the reports tab and run the Statement of Cashflows for each of the previous two years. Run separate reports for each year. The spreadsheet below will help you create a statement of cashflow if you do not have an accounting package. Notes for filling out the spreadsheet for the Statement of Cashflow:

1. Your bank statements are your starting point for your opening cashflow.
2. You should only use how much cash you have actually collected from your accounts receivable on the Accounts Receivable line.
3. Make sure to insert any significant uses or generators of cash for your specific circumstance.

Startups don't typically have any historic financial statements to speak of. You will have to convince the lender that you will generate enough cash from your operations to stay solvent and make the monthly payment on the loans. You should consider creating a 12 month Income Statement broken down on a monthly basis. We have included one attached for your use. Notes on filling out the 12 Month Income Statement:

1. Make sure to document your assumptions as the lender will want to understand them and have a sense of the level of risk in your numbers.
2. Cash flow is key so it is important to show positive cash flow as soon as possible to pay startup costs.

Interim Financial statements current to within 60 days

The Lender will also require Financial Statements current to the last 60 days to ensure that nothing material has changed with the business. The Lender is more concerned with any near term changes that may have negatively impacted your ability to generate cash flow. If you have had a one time event, this may not get in the way of your approval, so long as you have a good explanation as to why it will not recur.

Past three years of Federal Tax Return for each owner of over 20% equity in the company

The Lender will more than likely require that each person who owns 20% or more of the Company personally guarantee the loan. The Lender is therefore highly interested in understanding the assets and income streams of all the principal owners as this will be one form of collateral for the loan. Your Federal Tax Returns is just one aspect of determining your assets for the purpose of the loan.

Personal Financial Statement

The Lender will want to know what personal assets such as - stocks, bonds, real estate, bank accounts, private business interests - are available for collateral to support the business. If you are applying for a loan for a startup the lender also wants to see that you have put a substantial amount of your personal net worth at risk in the business.

Organizational Papers for Business

The lenders need to know that the entity that they will be funding has been properly set-up otherwise they cannot legally fund. You will need a copy of the Articles of Incorporation and a copy of the business license or other documentation that your state provides to you.

Resume

The Lender will want to see a resume or a paragraph about the professional experience of each of the principal owners and managers for your company. The Lender is basically trying to assess the ability of the executive team to execute on the business. They are also trying to assess that there are no legal or other issues in the Executive team backgrounds that indicate involvement in fraud or other activities that could adversely impact their ability to collect payments.

If you have an existing business then you should prepare the following information:

1. Schedule of existing Debt - Get from Package

The Schedule of existing debt gives the Lender a sense of other debt that is consuming your cashflow. This enables them to have a more realistic sense of how much additional debt that you can afford.

2. Aging of Account Receivables - Get from Package

The AR Aging gives the lender a sense of how long it takes for you to collect from your customers. The longer that it takes to collect then the more likely it is that you may not collect and therefore the riskier your likelihood of making timely payment. Simply list each customer that owes you money and list the amount in the appropriate column for how long they have owed you. If you use Quickbooks or other accounting software then simply go to the reports area and print out your Aged Account Receivables report.

3. Aging of Account Payables - Get from Package

The AP Aging gives the lender of sense of money that you owe to your suppliers and other third parties. This is a potential use of cashflow that does not show up on your statement of cashflow. Again the lender is trying to determine how much money is available for their payments. If you have an accounting software like Quicken then go into the reports area and print off the report. If you do not, then use the attached spreadsheet to enter each third party you owe money to and enter the amount in the column associated with how long you have owed that money.

If you have any existing debt that is guaranteed by a governmental agency such as the SBA then please note that in parenthesis in the Creditor line of your Schedule of Existing Debt. Your track record with an existing loan could help you more easily qualify for a similar loan.

Real Estate Loan

If you are seeking a real estate loan then the Lender will want to know exactly what you are building, how you are building it and who is building it for you. This information is necessary because the Lender is going to have an interest in the property until you payoff your loan. The lenders may do their own cost analysis to check the reasonableness of your plan before issuing the loan. They want to make sure that the project goes as planed so that there is no risk to their collateral.

Real Estate as Collateral

If you are using real estate as collateral for your loan then the lender will first want to determine its current market value. If you have a current appraisal then they will likely use it or if they feel the value may have changed substantially since the last appraisal then they may order a new appraisal. The lender will also want to make sure they are aware of everyone else who may have an interest in the property. They will use the Legal Description and Tax Assessment ID to get a title report for the property. This ensures that there are no surprises and that the property meets their requirements for being collateral on a loan.

Young Businesses

If your business is less than three years old then the bank may require that you provide them with a narrative about where you plan to take the business. Young businesses sometimes make major changes in their business models or in how they execute their business. The lender wants to understand how you currently execute your business and if you have any plans to change how you execute your business. The goal is to make the lender comfortable with the business and your ability to continue to execute your plan. If you have an up to date business plan then you may want to submit it to the lender.

Equipment Loan

If you are using the proceeds of the loan to acquire, lease or repair equipment then you need to provide sufficient detail so that the bank understands the equipment. This is important because different types of equipment are eligible for different types of loans which have different interest rates and other terms. For instance, long lived heavy equipment like a crane may qualify for capital equipment loan which may have a lower interest rate and longer payment term than a loan to purchase wrenches which would come out of a working capital loan.