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Real Business Loans require thorough documentation
Real Business Loans require thorough documentation- and why
Given recent events, many small to mid-sized businesses have asked for us to guide them through the borrowing process. When we ask for a complete Underwriting package we are often met with resistance by the client- who has likely only applied for short term MCA debt in past.
“Why do you need Corporate and Personal Tax returns”, we are often asked, ‘this is a Business loan?’
There are a couple of common-sense reasons why this is the case. Whereas CPA’s and business owners want to write off the maximum amount of deductions on Corporate returns- to mitigate trickle down earnings to the business owner, Lenders want to make sure there are enough earnings to fit a new credit facility in the budget AND have the owners earnings be substantial enough to pay their personal expenses. This is Global Debt Service Coverage in its most basic form.
Another reason why Lenders will request personal returns is to see if a business owner has more than one business AND to see if those entities are comingled to offset profits with losses.
Example: if a Service Business is showing a significant profit, yet the same guarantor has another entity showing significant losses, it makes sense that the profitable entity can attempt to borrow to subsidize the entity losing money. Lenders try to avoid that type of scenario- which is understandable.
Lenders need to see a track record of earnings and expenses (profit and loss and balance sheet), business trends (prior returns), personal credit of the guarantors and business payment history, existing debt (debt schedule), as well as several other factors like business type. Having the necessary documentation to submit will expedite the process and enhance a businesses ability to borrow and expand.
One of our Consultants will be pleased to assist your firm to get the best cost of capital and work towards the best possible result. At Fundvisor here to help you know before you borrow.
Helpful Tips & Information
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