When a small business owner is scanning his or surroundings for lending institutions, he will come across two types of lenders – alternative and traditional lenders. If you get a dime, every time someone tells you the difference between the alternative and traditional lender; you wouldn’t need to apply for a small business loan to get rid of financial problems. For new readers, traditional lenders comprise of banks and credit unions, and private lenders come under the umbrella of alternative lenders.
Both of these types of lenders have a different approval and selection ceremony; the traditional lenders will make you wait for more than a couple of minutes, on the other hand; you will get the funds in two to three businesses. Despite minor differences, all lenders demand somewhat same sort of documents. Why wait for the lender’s official request? Speed up the process and gather all the required documents. So that you can save time in compiling all those documents the last hour and utilize the time in planning and finally when you have access to the funds you can achieve your financial goals.
You be the judge, would you preferably stock up your inventory and worry about having enough working capital to manage daily operation costs or adjust your spectacles to read all the financial statements. Financial statements are an integral part of your small business loan application, and these statements are not the priority of any business owner until unless they have to apply for a small business loan to cover payroll, repair equipment, and expand their business. If you want a glimpse at the financial journey and financial well-being of your small business, get a hold of your financial statement. In a more simplistic way, if you want to see the development of your baby – your business – these statements are the answer!
What do these statements include?
Small Business Administration in the United States of America emphasizes that small business owners pay attention to their financial statements for they hold significant importance in the approval and rejection of the business loan. To improve your chances of approval, you must know the different types of statements that come under the section of financial statement.
- Bank Statements
All the transactions made by the user or the small business owner are beautifully organized in the bank statement. Typically, the bank sends you these statements on a monthly basis. Don’t let bank statements pile up on your mail table. Reviewing the bank statements will allow you to keep track of your expenses. Other than this, keep an eye for wrong details and numbers. Sometimes banks make mistakes, make sure your business and small business loan application don’t suffer from it. If by mistake, the eight is zero on your bank statement, alter your bank as soon as possible.
The main reason behind the lender looking at your bank statement is they want to know how you treat your money. They are looking for the responsible borrower, who will not default on the payments. Usually, lenders ask for 3 to 4 months’ bank statement. The number of months might change depending on the type of small business loans. Make sure you are coming off as a meticulous business owner, and if not, you must focus on the other financial statement.
- The income statement
Often times, the income statement is also called as Profit and Loss statement. If you want to see how your company performed in the last quarter, grab the income statement. This financial statement consists of total revenues, gains, expenses and loses. In a nutshell, you can get the net income, if you subtract the sum of total revenue and gains from the sum of total expenses and losses. So, before you take out your calculator, let’s look at these terms.
- Total Revenue
The sum of the revenue generated from the primary resources of the small business and the revenue generated from the secondary resources of the potential small business is called ‘Total Revenue.’
All the income that is generated from the secondary and tertiary activities comes under gain. For example, if you are running a hair salon and you sold your one broken chair, the money that comes from there will be written under this column.
All the operating expenses would come under this section. So, monitor your building’s rent, employees’ salary, and other related expenses.
Your income statement holds significant importance because it gives you the exact cost applied to generate the X amount of revenue. It gives you an exact number of all the profit and losses. Just like other elements of the financial statement, the income statement is important for the lenders. But if the numbers are not in your favor, don’t take it to your heart and try and improve it for the future.
- The balance sheet
Want to know the details on what assets your business possesses and who or what your business is indebted to? Or how your business is doing on a particular day? Grab your balance sheet. The main components of a balance sheet are:
From cash, inventory, furniture, machine, building, bricks and plants every valuable item that is owned by your small business or company that came into existence by transaction, come under the asset. In addition to this, all the other expenses that are prepaid by your company are also called as assets. Moreover, all the valuables that have future value come in the same category.
If your company owes something to someone or another company, then that is a liability. In technical terms, it is “legal financial debt or obligation.” The right side of the balance sheet compromises of your company’s liabilities. Primarily, a liability is divided into a current and non-current liability.
The third main component of the balance sheet is the difference between the company’s assets and liabilities which is called Equity. Broadly, this is how the equity is defined. Depending on the financial situation, equity can be explained in a couple of other ways as well. In certain financial scenarios, equity also depicts the interest in the company’s personal asset.
The difference between assets and liabilities is to be positive; if equity comes out to be negative, then your business needs some financial help. Especially, the small business loan won’t be happy to lend you a working capital loan after seeing your balance sheet. Identify the reason behind these numbers and try to resolve them as soon as possible.
- The statement of cash flow
Want to get details about all the cash that is leaving and entering your small business? Grab the cash flow statement. The small business loan lenders want to have a look at your statement of cash flow because they want to assess your capability of clearing out pending debt and managing the operation costs. The statement of cash flow lifts your income and balance sheet. Basically, the cash flow statement or CFS comprises of the cash from the following domains:
- Operating Activities
- Investing Activities
- Financing Activities
Cash flow statement shows no track of the incoming credit, so its mechanics vary a bit from the income statement and balance sheet.
In a nutshell, this financial statement gives an idea regarding the profitability of the company. The lender can use the cash flow statement to assess the company’s strength and capability of paying the loan on time. As a small business owner, you can use CFS to plan the budget for the future.
We have given you a brief overview of what goes in the financial statement, still, if you have any confusion, you can contact Merchant Advisors and ask for a financial advisor. The primary goal of the financial advisor or the account manager is to translate your financial statement into simple English. So, call us on our toll-free number at (833) 827-4412. You can also follow us on Twitter (@Onlinecheck) and Facebook (@Onlinecheck) for tips and tricks. When you are clear about the financial statement, you can head over to our website and explore all the small business funding and financing options.