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The vast majority of business people who own small businesses are always looking for the best way to make their business better and to help it grow. Having adequate working capital to expand is one of the best ways that companies can get to the "next level" in their industry and for most small companies this means getting a loan for expansion capital. In order for a lender to provide such funding, the loan officer will request complete and detailed business financial information from the owner.
The most pertinent financial information that you will need to collect in preparation for applying for a small business loan are the basic financial reports that virtually all businesses of any size generate on a monthly or quarterly basis. These financial statements provide potential lenders with a profile of the financial situation of the business. They are also invaluable in providing the business owner with the management knowledge they need to strategically improve their ongoing business plan.
The business financial information that creditors want to look at will essentially consist of basic financial reports and financial statements. These reports are always compiled according to the common standards and practices of accounting, which is a "language" in and of itself and is globally accepted. Because of the standardization of accounting practices, anyone who is at all familiar with accounting will be able to easily review such financial information and see where a business stands, from a financial perspective.
The main reports that are generally part of a company's financial information are the following: the balance sheet, the cash flows statement, the profit and loss report, and the overall financial statements, which include highlights and summarize each of the other reports. While the financial statement provides a review, the individual reports go into specific detail for the period of time that the report covers. Many times, when monthly reports are generated there are also quarterly and yearly reports generated that help to provide insights into the overall, financial trend of the business.
The purpose of the balance sheet is to provide the details of all of the current assets of the business, all of the liabilities that the business is obligated to pay, and the resulting business equity. In order for this financial information to be most useful, it should separate the current assets and current liabilities from the listing of the long-term assets and the long-term liabilities.
The profit and loss part of financial information is the report that most commonly covers longer periods of time, usually per business quarter or year. These profit and loss statements often include comparison charts for the previous time period going back long enough to help to identify the important trends. Without this comparison, it might be easy to assume a business is doing well simply because it is profitable, yet overlook the fact that it is less profitable than the previous year. These trends will be very important to the lenders as it gives them insights about the success of working capital management overall.
There are two methods that can be used to prepare a statement of cash flows: the direct method and the indirect method. When preparing business financial information to be used in conjunction with a loan application, it is generally agreed that the more detailed the information the better. The detail, even when the financial situation is not perfect, can help communicate to the lender that the business has nothing to hide.
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