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Before Applying For A Business Loan, Run These Three Financial Reports First!

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Posted on
Jun 14, 2022

Is your company or organisation running short on resources? Do you need some funds to keep essential parts of the business running? Or, maybe you want to expand and grow your business? The reason doesn’t matter that much, but you need a business loan. But before you apply for a business loan, you should check out your financial reports to better understand what you should expect, what you can get, and what you should ask for, among other things. Let’s begin with the three financial reports that you should check out before applying for a business loan.

Check Out These Three Financial Reports Before Applying For A Loan

1. Balance Sheet

Most a company is its accounting department, and the most important part of the accounting department is the balance sheet. The balance sheet is filled with a general overview of the company’s financial progress for each quarter of a year or the complete year. Basically, it has information about the amount of money and resources that are committed by the company, what it owes and what it owns. Let’s check out the balance sheet in detail. Let’s divide it into three further categories.

Equities:

It’s about all the stock and equities the company has invested in, retained earnings, and capital.

Assets:

It involves properties, machinery, invoices, inventories, cash, or any other resources that the company has under its possession.

Liabilities:

It’s all about tax the company is liable for, all the accounts payable, and any other financial liabilities

All the values and data that you enter over a period of time into your firm’s accounting system is what ends up appearing on your balance sheet. The balance sheet will have all the activities you entered since the initial balance you specified in your business account.

2. The Cash Flow Statements

The cash flow statements are important for two distinct reasons. Firstly, it shows a detailed overview of information such as a balance sheet, profit and loss, and many other areas of your financial information. Secondly, it shows all the cash that is flowing into the company or will eventually flow, which may not show up in the income statement, and that’s why the cash flow statements are so important.

It just illustrates how well the company did with the money and resources it had at its disposal and if there is any additional money left over which can be used to pay off any previous business loans that the company may have taken prior to the one you want to take. Here are all the following components of a general cash flow statement:

  • It will show a clear distinction between the net income of your company through the sale of goods and/or services and the amount of cash and other resources that were paid to the vendor and if there were any other operating or additional expenses.
  • It also shows all the money that was paid to the company’s employees for their salary and payroll.
  • The amount of money that the company earned due to its operations.
  • Your company’s other profits and losses apart from the main profits and loss.
Questions to Ask Yourself Before Applying for a Business Loan

3. Profit and Loss Report/Income Statements

The profits and loss reports, also known as income statements, are your company’s financial statement that summarizes all the expenditures, revenue, profit, expenses, and/or losses that your company had over a period of time, such as a financial year or over a quarter. Firms and banks that hand over business loans will look into the income statement before they proceed with the loan. This statement allows them to examine your profits and see if your company can make enough revenue and profit to pay back all the money the firm or the bank has provided to your company with interest.

This report contains all the revenue and sales statistics. It can be determined how well your company is doing each financial year and whether or not your company can meet the fundamental eligibility conditions required by business loan providers. This will see if the company can continue to generate enough revenue for the next couple of years. To determine this, they will not only depend on the profit and loss but also on the data such as operating activities and how the company handles expenses.

For the bank or the loan provider to accept the income statement, it must be verified and certified by a CA and have all the continuity, such as the Trade License and Establishment Certificate and ITR. All of it must also be submitted before the loan provider and the income statement.

Wrapping Up

By running through these three financial reports, you can easily determine whether your company’s chances of getting a business loan will hold up or not. If even it does, you can also figure out if the loan provider will agree to the exact amount that your company needs. As long as everything is up-to-date and your company is generating enough revenue, the chances of securing a business loan are relatively easy. It will also depend on how you managed to pay off the previous business loan, if your company had any. Coming to an end, we would like to ensure that all the information is up-to-date and reliable, that is to this day which may change in the future considering how fast information can change in the world of finance.

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