Improve Your Chances of Getting an SBA Loan with Bulletproof Financial Statements

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3 Key Financial Statements You Need to Support your SBA Loan Application

Financial statements are an essential barometer of business success, both past and future. As such they are a key requirement for any loan application. Many times, these can be submitted as part of your business plan, but it’s a good idea to prepare and have them ready in case you are required to submit them individually.

The key financial statements to prepare as part of your SBA loan application include: balance sheet, profit and loss statement (also known as your income statement), and cash flow forecast.

Together these documents provide a comprehensive view of your financial situation. Many of these can be created and generated automatically within your accounting software or with the help of an accountant. Whichever method you use, below is an overview of each statement, why they matter, and tips on preparation.

Balance Sheet

The balance sheet is often the first financial document that any lender will look at since it gives a snapshot view of the fiscal health of your business. The balance sheet shows what you own (fixed and current assets) versus what you owe, plus any shareholder investment. If your assets outweigh your liabilities then this indicates a strong fiscal position, and vice versa.

As such, a balance sheet is a useful indicator of your company’s worth, stability and liquidity (something any lender will look for). It’s also a useful tool for helping you identify trends and develop strategies to capitalize on your strengths or mitigate any weaknesses.

As a rule of thumb your balance sheet should be compiled monthly or quarterly. For established businesses, plan on providing balance sheets for the past three years and a projected balance sheet for at least two years.

You can download a free balance sheet template from SCORE.

Profit and Loss Statement (and Projections)

The profit and loss (P&L) statement provides an overview of how your business is doing over time. It breaks down revenues and expenses and gains and losses over a specific period (usually monthly, quarterly, or annually).  Lenders will look for P&L statements for the past three years.

For a loan application (and a must if you’re a start-up), you should also prepare a P&L forecast outlining your sales and expense projections for two years. Again, SCORE provides a useful template for this projection.

Cash Flow Forecast

Your cash flow forecast (also known as a projected cash flow statement) is perhaps one of the most vital financial statements for ensuring your business stays solvent and for securing a business loan.

Your business may be profitable, but if there’s any discrepancy between the timing at which cash flows into your business and the rate at which it exits the business, then you could be looking at a cash flow problem. For a lender, this reflects poorly on your ability to repay a loan.

Projecting your cash flow is a vital exercise for understanding and managing the flow of cash in and out of your business, and gives you sufficient window to put measures in place to mitigate a cash drought.

For the purposes of a loan application, a cash flow forecast should be prepared for at least the next 12 months (both established and start-ups). Key data to include are assumptions about incoming cash (use your sales forecast to inform these numbers), expenses (fixed and variable), and any financing you may already have in place, such as a business line of credit. Refer to your P&L projection and annual trends to estimate when you expect cash to come and go, not just when sales are forecast to close. For example, you may close a deal in June, but the client may not pay you until August.

Use this 12-month cash flow template from SCORE to guide your forecast.

Another useful cash flow tool, although not typically required as part of your loan application, is the cash flow statement. Instead of looking forward, the statement looks back at when cash entered the business and when it exited. Updated monthly, this is a useful tool for understanding how much cash your business is generating and when. It can also inform your cash flow forecast since it provides an accurate picture of when you’re getting paid in relation to when that cash exits the business.

The Bottom Line

While each financial report or statement has value, preparing and maintaining them holistically will not only support your loan application but help you make smart business and investment strategies.

Tip: In addition to these statements, you’ll also need to provide copies of business and personal tax returns for the past three years (with your permission First Bank SBA can take care of pulling this data) and bank statements (going back 12 months).