This post comes to us courtesy of Bert Seither, Director of Operations at Corporate Tax Network. We hope you find his advice useful.
Being able to borrow money at a reasonable interest rate is sometimes vital for the success of a business. However, obtaining business loans can sometimes be a challenge. Since you’re competing against other businesses for the bank’s money, it’s important you make sure all of your financial bases are covered BEFORE you approach a bank for a loan. Being prepared and knowing what the bank is going to be asking of you (before you apply for a loan) can greatly increase the chances of getting approved. Here are a few ways you can increase your chances of approval as well as get better rates and terms:
- Make sure your previous year’s tax return was done properly. The biggest reason for a good tax return is because the bank looks at it. If there are material misstatements (mistakes), they are not going to rely on the tax return and will ask for a CPA to then re-prepare, consequently hurting the business owner’s credibility. If you’re a new business and don’t have a previous year’s business return to show them you need to have interim financial statements as well as cash flow projections for a minimum of three years – this is an absolute must because lenders need to assess the level of risk.
- Banks are also looking for consistency in your business plan and methods. The way most banks see it is if you don’t have the patience to write out a business plan as to where your business is now, what your goals are and how you’re going to achieve those goals, you don’t have the patience to run a business therefore you’d be a high risk which could lead to not getting approved for lending or have higher interest rates. Banks and other lenders are looking to see that you’re grounded, realistic, and dedicated. They want to know how you are planning on spending their money and how you plan on paying them back.
- Another issue is the bank is calculating ratios based on the tax return. In order for them to have the right calculations, the return must be prepared correctly. An example of this is when somebody deducts the home office expense, the bank will add that back as income which helps when trying to get a loan. It’s important you choose which deductions to take and when to take them.
When looking for extra capital it’s important you have a qualified tax professional on your team so they can make sure all of your documents are in order before applying for loans.
Corporate Tax Network provides business owners a unique opportunity to educate business owners through a complimentary webinar regarding the tax implications of running a business.
You can register for this FREE webinar here: http://www.corporatetaxnetwork.com/directcapital
At the end of the webinar, you’ll be invited to speak to a tax professional about your personal and business situation, free of charge.
Bert Seither is Director of Operations at Corporate Tax Network, a full-service CPA and Accounting firm that specializes in helping small to medium sized businesses position their taxes, financial statements and business plans for business loans. Corporate Tax Network has accountants, CPA’s, and Enrolled Agents for all 50 states in the U.S.