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What do Banks Look For When Financing Your Business?

Business plan

A rock solid plan goes a long way. Have a clear outline of exactly what you’re plans are for the bank financing. Banks and other lending sources want a detailed plan of how their money will be used to ensure your business continues to grow. Remember, in order to lend money, banks want proof of profitability.

Even with all of these financial documents in order, banks may still deny your business a loan for a variety of reasons such as changes in your industry or other economic realities. Fortunately, there are other funding options out there that can help small businesses in need.

Tax returns

Banks often look at the past 2 or 3 years of your business’s tax returns to ensure your financials are in order. Providing that you’ve filed and paid your taxes, issuing copies of your returns should be relatively easy.

Credit score

Credit score is always a factor when it comes to small business financing. Lenders will often look at both your personal credit and business credit, so businesses should always monitor their score. Federal law allows individuals to obtain at least one free credit report each year from either Experian, Equifax, or Trans Union.

Paying bills in a timely fashion will help maintain a good credit score. Bank loans are tough. If your credit score is under 700, landing bank financing will prove trying.

Income statement

Also known as a profit and loss statement or an earnings report, income statements help lenders determine whether your business is profitable enough to receive a bank loan. Businesses without profitability potential are a liability to potential lenders.

Balance sheet

Balance sheets list everything that your business owes and owns, including the value of all your assets and any debts that you have yet to pay off. If your business is struggling to manage these costs or you are drowning in outstanding debt, it is unlikely that you will receive bank financing for your small business.

Cash flow statement

Consistent and sufficient cash flow is important to small business lenders. It shows your business has the funds to pay back the loan in a timely manner. Businesses with a history of poor or inconsistent cash flow will have a very difficult time receiving a bank loan.

If you think you may not be a fit for a bank, consider Factoring. Factors look at future opportunities rather than past history, so approval is more likely. Apply today at 888-817-7310.