Credit report
What is it?
A credit report is a snapshot of your history of debt. All of your lending history and business information gets boiled down to one report. A bad credit score shows a high likelihood to default or be late on payments. A good credit score shows your business is positioned to cover its debts.
Business credit history and personal credit history are different depending on your entity type. For sole proprietors, there is no separation between personal and business reports. This means that your personal lending history (including things like student loans or personal auto loans) will be considered.
If you want to separate your business and personal to start building business credit, review our 11-step guide to get started today.
Why does it matter?
Unsurprisingly, a lender most wants to understand your potential ability to pay off debt before you take on more. That being said, having a bad credit score doesn’t mean you can’t obtain a loan. A lender may still offer you a loan, but at a higher interest rate to account for the higher risk.
Fundera has you covered with 7 tips to quickly improve your business credit score.
Where can I find it?
There are tons of credit reports available both free and paid. Every report has its pros and cons of what it offers. Thankfully, CNBC has a great breakdown of your options.
Bank statements
What are they?
Bank statements offer a snapshot of your business’s month-to-month activity. They will be used to evaluate your recent revenues and expense management. Lenders will use these documents to build out a picture of your monthly operations.
Why do they matter?
Not only do bank statements show lenders how you have managed your revenues and expenses, but they can be used to predict future cash flows. They will be looking for expenses like recurring loan payments, rent checks, and operational costs to understand your monthly outgoing cash. Deposits will be used to define monthly incoming cash.
Where can I find them?
Your bank should offer you e-statements through their online banking portals. If not, contact your bank directly to request paper statements.
Income statement
What is it?
Want to know what you spent on a certain expense in a month? How about your sales revenue number? All of this information lives on your income statement. Your income statement should break up your activity by revenues and expenses and offer insight into the different expenses you have. You can learn more about an income statement on our blog or download our free Excel template to start making your own.
Why does it matter?
While you don’t need to be profitable to get a loan, an income statement is key for lenders to evaluate the health of your business. Your revenues will be weighed against your expenses to see where you’re trending. Showing a profit will help but be prepared to explain how a loan can help you trend towards profitability if you aren’t there yet. They will also be comparing this report against your bank statements for accuracy and completion.
Where can I find it?
Any bookkeeping solution will offer you an income statement. If you are currently tracking everything manually, be prepared to generate your own (and consider using our free template to get started).
Balance sheet
What is it?
Put simply, a balance sheet is a snapshot of what you own and what you owe.
Your assets are anything you hold that has present or future cash value such as property you own, your receivables, and of course the money in your accounts. Liabilities will cover what you are owing. This will include credit cards, loans, and lines of credit. Finally, there are the sources of equity which will detail ownership and their dividends.
Balance sheets can become more complicated as a business grows. You can read more on understanding these reports in our dedicated blog post.
Why does it matter?
The lender will have the opportunity to review any outstanding liabilities you have left to pay off and whether you have the resources to do so. Having more assets than liabilities shows a business is equipped to pay off its debts. In addition to an income statement, this provides the lender with a full understanding of your business. The income statement will inform them on whether you’re making a profit while the balance sheet shows either where the profits are going or where the funding is going if you are not turning a profit.
Where can I find it?
Again, a bookkeeping solution will offer you a balance sheet. We offer a very simple template that you can fill out to generate your own.
However, if you’re ready to upgrade your monthly reporting and have bookkeeping taken off your hands, you can learn more about how Bench is here to help. An up-to-date balance sheet is just one of the reports you’ll have access to with a subscription.
Tax returns
What are they?
We all know the headache of doing taxes, but there’s a lot of value in your tax returns. These financials are as verified as financials can get. What’s reported here should be consistent across the income statement, balance sheet, and bank statements provided.
Why do they matter?
The tax return will be used by a lender to finalize the picture they have of your business as reported to the IRS. This will be the final step of verifying your financials and the reports provided.
Where can I find them?
If you have not been saving your tax returns, it’s best to start now. But don’t fret, there are still ways to obtain a copy. Start by asking your tax preparer if they have a copy of your tax return. If you cannot get a copy through there, in some cases you can request a transcript from the IRS. This will show most line items and some lenders will be able to use them.
Cash flow forecast
What is it?
A financial forecast is a road map of where you see your business in the future based on what you’ve accomplished in the past. It should present predictions of your revenues and expenses based on your past numbers. But here’s the catch, you need to also present how the loan will impact these future plans. Be prepared to bring two forecasts, one where you would receive the loan and one you wouldn’t.
Why does it matter?
This is your opportunity to show how the loan will impact your future. Maybe the loan will be for a new piece of equipment that cuts down costs of production or a new vehicle that cuts down delivery costs. Take this chance to show lenders what this loan can mean for you from a dollars and cents perspective.
Where can I find it?
Building out a forecast can be intimidating, but don’t worry. As these are projections, you will be afforded some freedom with your claims. Our free cash flow template is a great starting point. When filling it out, read our blog post for further information on what should be included. Be sure to include some historical information in your cash flow statement to validate your projections.
Where to start looking for a loan
Now that you have your reports, you’re ready to start applying. Loan aggregators like Biz2Credit and Fundera are an amazing starting point. They will take your information and shop it around to lenders to bring you the best loan options available to you. If you’re looking for a more personal touch and to have an in-depth conversation around loan options, start with a local credit union. There, you will have the opportunity to have a more one-on-one conversation about your borrowing options.
Additional resources
Equip yourself with free tools for your business
- Cash Flow Forecast Template
- Estimated Quarterly Tax Calculator
- Small Business Accounting 101: A Guide for New Entrepreneurs
- U.S. Small Business Tax Checklist
Learn more about small business funding options and debt management
- Are Merchant Cash Advances Worth It? (6 minute read time)
- How to Pay off Your Business Debt, Fast (9 minute read time)
- The Very Best Small Business Loans (10 minute read time)
- What to Prepare If You’re Selling Your Business (5 minute read time)
