3 Ways an Accountant Can Help You Secure a Small Business Loan

Many small businesses take on loans to purchase expensive equipment, obtain another business, or to get cash flow so they can expand. It can be a daunting process.

Even if you're prepared to show forecasts and solid research to support your loan application, that won’t always be enough to guarantee success. What do you do then?

At CSI Accounting & Payroll, we've helped many of our clients obtain loans over the past 50+ years. Do you know what your accountant can do for you? Here are three steps an accountant can take to help you secure a small business loan:

• Loan planning.
• Preparing and gathering financial data.
• Creating an ideal presentation.

1. Loan Planning

When you're seeking a loan, you need to know:

• What you want it for.
• How much money you're seeking.
• How you would like to finance it.

What You Want a Loan for

Failing businesses seeking money to stay afloat probably won't be approved for a loan, but businesses that are seeking money to grow will be approved a majority of the time. You may decide to avoid taking a loan altogether after giving it more thought or speaking with a financial partner.

How Much Money You Need

An accountant can advise you on whether or not they think you'll qualify for a loan based on your financial statements. They can also provide an estimate on the amount they think you're eligible for, but only your bank can say for sure. If your accountant doesn't think you're eligible, don't worry! They can work with you to improve your business's profitability and reflect that to the bank. 

How You'll Finance the Loan

As for financing options, you can largely choose between bank loans or SBA loans. There are rare occasions when there are other options, such as financing a business vehicle at a dealership or taking on accounts receivable loans (which we don't recommend!)

2. Preparing and Gathering Financial Data

You also need to make sure your books are ready before seeking a loan. The bank wants to see how your business is doing. If you're behind in your books or taxes, you have to get caught up before they'll lend to you. Luckily, CSI can help you with back work!

Once you're caught up, it's time to show the banks your financial data. Your accountant can help you gather these required pieces of information. It will be different for:

• Existing businesses.
• New businesses.

Existing Businesses

The bankers will want to look at the past. You will need to provide:

• The last three years' worth of business tax returns.
  
• The last three years' worth of December business financial statements.
  
• An interim financial statement. This is referring to the most recent prior month's statements. (When you use monthly accounting, you will always have current monthly statements!)
  
• A personal financial statement for the owner and all partners. This is just a balance sheet to show what kind of financial shape the owners are in. You have to sign a personal guarantee, which says that if the business fails, you will guarantee the loan out of your own pocket.

New Businesses

Startups are exceptions because they won't have any financials or tax returns yet. If you run a startup, the bankers will want to look at an estimate of the future. Often, these numbers will be based on the accountant's knowledge of industry comparisons. You will need pro forma (projections) of the following:

• Two to three projected years of business financial statements. These should show how fast you expect sales to go up, as well as costs and expenses going up. Be sure to include your estimated payroll needs and your business building's potential income and debt.
• A personal financial statement for the owner and all partners. This is just a balance sheet to show what kind of financial shape the owners are in. You have to sign a personal guarantee, which says that if the business fails, you will guarantee the loan out of your own pocket.

3. Creating an Ideal Presentation

Finally, an accountant can help you improve the chances of a bank approving a loan by educating you on how best to present the information they've put together. Don't just walk in with a pile of documents; explain them and articulate your needs and qualifications. For example, an accountant will help a startup explain how the financial statement projections were determined.

Your accountant can walk you through the lending process from the bank’s perspective. Lenders want to know who’s borrowing the money, if they can repay it, and whether the bank is protected. You will then know how to show the bank that you need the loan and are able to pay it back. With background on the loan application process, you will be well-prepared for that walk into the bank.

Be Ready for Your Next Loan Application

The stakes can be high if you don't get the funds you need to grow! If you're thinking of applying for a small business loan, you may want to consider working with an accountant - even if you just have a few questions. 

An accountant can help you every step of the way: planning for the loan, preparing and gathering your financial data, and even helping you create the loan presentation that'll knock it out of the park. At CSI Accounting & Payroll, we've been helping our clients with small business loan processes for more than 50 years.

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