More business loan documentation may be better

December 9, 2017.  When a borrower applies with a lender for a business loan, they are often asked to provide extra information and documentation.     Most applicants do not want to provide more than a one page application and are unhappy when they are requested to provide more. However, in many cases, providing more information will help the applicant and often strengthen their request and make it more likely they will get what they are applying for.

  • The scenario is familiar with a business loan request.   The borrower completes an application and is told they will hear back soon.   They are often contacted back and asked for more information such as:
    Business Tax Returns
    Financial Statements
    Personal Financial Statements
    Business Bank Statements.
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    Documentation:
    If the business is financially strong, it is to their benefit to provide this information.   If the business has this information on hand and it shows the business strong financially,  then the business owner should see it as a positive to provide it, rather than being an extra burden of having to collect financial information.   If the tax returns show a flat or increasing Gross and Net Income, it will help the request.
    If a personal financial statement is requested and the statement shows a substantive Net Worth, this will also help the request.  In some cases, the most recent business bank statements are requested as part of the review.  If the company’s cash flow is strong, then providing the business bank statements will also strengthen the request.Many applicants feel that they should not have to provide this information even if it is favorable and makes their company look stronger.  It is the Lender’s capital and they have the right to request this information and have good reasons to do so.   Lenders want to have a strong comfort level that the company they are lending to will have the financial strength to repay the capital they are providing.   This has been a long standing conflict between lenders and applicants.   Lenders request information and borrowers often don’t want to provide it.   Borrowers often immediately complain without considering that providing the information could greatly help them.Financial statements tell the lender much more than the 1 page application.   The Tax Returns show the company’s cash flow in the last 2 years.  The Personal Financial Statement shows the owner’s personal financial strength.  If the company is small, the owner’s personal financial condition is closely tied to the strength of the business and the owner’s ability to help the company if there are hard times.   The business bank statements show the company’s most recent cash flow which tells the lender what the company’s revenues are right now.As a result, if a business is performing satisfactorily, owners should gladly provide financial information if a lender requests it.