How to Avoid Pitfalls When Applying for a Small Business Loan
It’s rare that any company is able to start up and expand without an infusion of other peoples’ money. Investment is essential to growth in the modern economy. Bank loans are one of the most common ways for small businesses to access such capital. Securing a bank loan, though, requires careful planning. Your small business accounting plays a huge role in that planning, and it can make the difference between loan approval and denial.
What Lenders Like to Invest In
Banks and other lenders carefully analyze the prospects and organization of anyone who comes asking for a loan. They expect to get their money back, with interest. That means that they’re looking for the companies that are most likely to be able to use the loan money wisely and earn it all back.
To be able to do that, the company needs to have a solid business plan and bookkeeping that stands up to scrutiny. You’ll need to prove to the lender that your plans can succeed in providing a good ROI. And you’ll need to do so with real numbers. Pie-in-the-sky schemes usually stay in the clouds—they don’t get funded if they’re unreasonably optimistic. Lenders will see right through them, and they can even cause serious legal problems.
“By not disclosing a problem immediately, it will be a lot worse when the lender finds out later on. First of all, you’ll lose all credibility in their eyes, which will badly damage your business relationship with them. Many lenders also automatically reject a loan application for lack of disclosure. This means you’ve wasted all the time spent applying. Depending on how much you failed to disclose, you could even be committing fraud with your application.
On the other hand, when you disclose all the necessary information immediately, it shows the lender that you have nothing to hide. If you have some financial trouble, the lender will work with you to get around the issue and still help you find financing.” – Ami Kassar
The Value of Accurate Small Business Accounting
This is where good bookkeeping comes in handy. By keeping careful track of all your income and expenses, you can prove past performance. Using that past performance, you can prepare scenario analyses that project the effects that new capital would have on your current cash flow and balance sheets.
Those financial projections should always be based on real data, which you can only get through accurate recordkeeping.
Small business accounting can be a stressful and time-consuming task, especially if it’s not done with careful attention. On the other hand, it can be one of the most rewarding activities your company carries out. It proves its value at times like these, when you can use it to prove to a lender that you deserve a substantial infusion of funds at a favorable interest rate.
Syncledgers gives you the best of both worlds. Our bookkeeping service allows you to de-stress your small business accounting strategy. We even generate all the financial reports and analyses you need to see where your money is coming from and where it’s going. Contact us today to get started!