Fair Figues Unveils A Secret For Lenders To Look For When Financing Businesses

Miami, Florida, United States, November 9, 2023 – Understanding what’s on lenders’ checklists can make the business funding process much less intimidating. It’s knowing the rules of the game before you play.

When you stroll into a lender’s office (or, these days, their website), they want to see the details of your business profile. They’ll want to understand how you earn, what you spend, and what your tax returns reveal. Sounds intrusive, right? But it’s their way of determining if you’re a safe bet for that loan.

Business Tax Returns

Tax returns are a big deal for lenders. They like to see at least three years’ worth of them. It’s like a financial history lesson. They’re digging into your Debt-Service Coverage Ratio (DSCR) and your expenses (the things that keep your business running, like salaries, rent, and advertising).

Now, there’s a twist here: some expenses, like depreciation, might not count in the lender’s books, even if the IRS thinks they’re important. 

A clean record of filing your taxes on time and accurately is a good sign. Lenders want to know you’re a responsible business owner who takes finances seriously. After all, if you can’t manage your taxes, will you handle their loan properly? The biggest thing they’re looking for is evidence that your business is making enough money to repay the loan without breaking a sweat.

Assets and Liabilities

Beyond the income and expenses, lenders want to get cozy with your balance sheet. This ‘Schedule L’ in your tax returns shows off your loans, what you owe, what you own, and all that shareholder equity stuff.

And if you’re a big deal in your business, meaning you own more than 20%, they might want to peek into your finances to ensure you’re not hiding any skeletons in your financial closet.

Business Financial Statements

In addition to tax returns, they might ask for a year-to-date business financial statement. These statements are like a quick snapshot of how your business is doing right now. It’s essential because your yearly tax return might not reveal recent surprises, like a sudden expense or a new source of income.

Going All Out with Audited Financial Statements

For added peace of mind, some lenders might ask for an audited financial statement, given the stamp of approval by an independent auditor. The upside is that audit expenses, along with other tax and financial statement costs, are tax-deductible. So, having a reliable bookkeeper and accountant can be a real lifesaver.

Crunching the Numbers

Lenders are also all about numbers. They use specific ratios to understand how likely you are to repay a loan. The main ratio they look at is the Debt Service Coverage Ratio (DSCR). It tells them if the earnings can cover the debts. Interest Coverage Ratio (ICR) is another ratio in their toolkit, helping them decide if the business can handle interest payments on debts.

Other Ratios in the Mix

There are a few other ratios in play, like the Current Ratio (to see if you can handle financial surprises), Quick Ratio (for businesses with inventory), and Debt-to-Worth Ratio (measuring how much you owe compared to what you own).

In addition to business financials, lenders might request business credit reports, business credit scores, and even personal financial details, including credit scores and tax returns. 

It’s all about getting the complete picture.

Too complicated? FairFigure can help

While FairFigure is a fintech company and not a bank, it’s a credit-building powerhouse that can help you jumpstart your business or get the business funding you need for expansion at no cost. How?

Aaron Velasquez, CEO of FairFigure, built this platform to simplify funding access and streamline financial data management for small businesses. Aaron aims to create an equitable environment for entrepreneurs and startups facing constraints in capital and resources—no fancy finance degree is required.

FairFigure’s platform utilizes data analytics and technology to equip entrepreneurs with the essential tools and insights needed for effective management and improvement of their business credit profiles. 

With FairFigure, business owners can build a better credit score and access more business funding that fits perfectly within their needs.

 

Media Info:

Name: Dana Angelino

Organization: Fair Figure

Website: https://fairfigure.com/

Email: info@fairfigure.com

Address: 20200 W Dixie Highway, Miami, Florida, United States.