Often lost in the details of all the loan types, unsecured, secured, secured by real estate, secured by equipment, secured by the assets of a business, almost all lenders hope the borrower will repay via their capacity to repay, which means their cash flow.
This matches one of the two fundamentals rules that traditional sources such as banks, have long looked at, capacity to repay, followed by willingness to repay.
What is looked at in order to assess cash flow? In most cases, financials, which means the last 2 years tax return, sometimes accompanied by an interim Profit and Loss statement and interim balance sheet. However, the financials only give an accountant created, dated picture. The most current business checking account statements should be included in the review.
Keeping foremost in mind that cash flow will almost always be what allows repayment, business owners should review the most recent cash flow numbers before approaching a lender.
If the numbers are not attractive, the potential applicant should re-consider waiting to apply until the numbers in their checking account go up, or until their accountant reviews their interim Profit and Loss statement for possible corrections, if that luxury is available.
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