Asset Based Loan

Number of Employees – Does it matter for a business loan request?

When applying for a business loan request,  the owner, or applicant may be asked on an application or in person, how many employees does the business have?

Is the number of employees important when applying for a business loan, and if so, how important?

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How important the number of employees in a business is to a business loan request depends most heavily on the amount of the request, and if the company already has a large number of employees.

Whether a company has 200 or 250 employees is not nearly as significant compared to if a company has 2 employees verus 10 employees.    For any company that has less than roughly 35 employees, each employee less than 35 down to 1  is much more significant than the same number less below 250.

If a business is applying for a $250,000 business loan and they are reporting only 1 employee or even 4 or 5 employees, the number of employees compared to the loan amount request will be looked at as much more unbalanced than a company with 20 employees requesting $250,000.    The request will be seen as more appropriate and taken more seriously.

Then there are the questions, are part time employees considered employees?   It is certainly reasonable to count part time employees as employees in the number count.

Can 1099 employees be counted as employees?   This is controversial.   A 1099 employee is considered a contractor and strictly speaking is not an employee.    They are however, a worker for the company.   This may be considered a grey area.    If they are listed as an employee, it is not technically accurate, though arguably cannot be considered a clear misrepresentation if a business hires them, receives work from them, and pays them.

From a practical standpoint there is not a significant difference between a full time employee and a 1099 worker as they contribute work to the company in a similar fashion.  The only real difference is in their status.   If a company does not have many employees to begin with, if they include 1099 employees in their employee count, this may help them in a business loan request.

Should seasonal employees be included in the employee count being reported to a potential lender?   Some businesses have a significant number of seasonal employees and during offseason may have an artificially low number listed.    Since seasonal employees are true employees for much of the year, it may benefit a business in a funding request situation to include seasonal employees in their total.

Can temporary employees be counted in the employee count total?  Temporary employees are employees of the temporary staffing agency and cannot be considered employees.    If a business lists them as employees, it is not a serious misrepresentation, however, it is more appropriate not to include them in the employee total.

Where is the number of employee information listed and requested?   It is requested on loan applications for a business.   If it is not listed on the application, it may be asked by a representative.

The number of employees is often listed on business credit reports and the major business credit reporting agencies such as Dun and Bradstreet, Experian business credit report, Equifax, and Paynet.

Lenders review these reports as part of their review process.   If the figures at the business credit reporting agencies is not accurate, it should be updated.

For the reasons above, the number of employees figure is important for business loan requests.   A business owner should consider this when applying for a business loan and assess if the figure is reasonable for the amount of the loan request.   If the amount of the loan request seems high based on the number of employees, the owner should consider scaling down the requested amount.

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