How to Secure Loans through Understanding your Financial Statement

How to Secure Loans through Understanding your Financial Statement
How to Secure Loans through Understanding your Financial Statement
September 6, 2016

Every document concerning cash flow (both inward bound money and money going outside) are crucial to a business. Financial statement is one document people do not take seriously but a glance at the inscription on such papers has a lot to tell your financial institution and may just be enough to convince them to grant or decline your request for loans. Businesses are advised to have good financial records that effectively capture all the facets of the business.

Your financials is your number one priority

The number one priority of every business is to grow their financial base. If the financial base is not growing after sometime and at a certain amount, then the business can be termed a failure. Financial challenges in profit and cash flow can make or mar a company. To effectively manage the cash flow, a business owner or financial manager should know the drivers of such of the business cash movement.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Company’s gross margin affects the type of loans they can take

A higher gross margin paves way for increased profit. This can also affect the financing product you can have access to. Many companies have used the ‘factoring’ which is also referred to as A/R financing. The high gross margin will let your business absorb the cost of financing which is usually higher than Canadian Chartered Bank financing.

Some firms only seek to finance their inventory

Inventory of a firm is a record of its asset (more like store keeping). Businesses that seek investment into their inventory may aim at some specific forms of financing which include inventory loans, bank revolving credit lines and non-asset based lines of credit.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Your business is summarized on your balance sheet

A well-documented balance sheet will contain the list of your inventory. When your financials look at your balance sheet, they would be able to tell you how fast your inventory changes to cash, your gross margin and predict the amount of profit you will get depending on the product you sell.

Business owners often analyze your balance sheet

Naturally, some business owners would refute the analysis of their financials but if they can take out time to calculate their inventory turnover and receivables, that is only when they can categorically say if the financials were wrong or right.

Read also: What You Never Knew about the Small Business Administration Loans

Business lines of credit can be used to feed working capital

From the balance sheet, it will be easy to tell exactly how much is expended on the day to day running of the business. Business line of credit would affect factors on the balance sheet such as payroll needs, investment in the future and general balance sheet payables. When you have an understanding of your financial records, you will be able to tell the financial needs of your business at every point in time, the turnover of your asset and the amount of debt that can be effectively managed by your business.

Consult financial expert before taking any loan

As a business owner, it is wrong to just take up loans without analyzing your business to know how efficiently it can utilize and churn out the loan. To be sure of which loan product that would benefit your business, it is necessary to always consult an experienced financing advisor. They will scrutinize your balance sheet and can give you credible advice on what loans to take up and even the amount that should be taken so that the business will be able to get the maximum benefit from the loan.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • A good financial statement can guarantee you a loan.
  • Let financial advisors scrutinize your business to know the best loan for you.
  • Balance sheet can be used to deduce the daily profit of your business.
  • It is unwise to take up loans without proper business analysis.
  • Taking loans for the wrong reasons can keep you in perpetual debt.
  • A particular section of a business can be targeted for investment.
  • There are times when taking a loan is the only option left to keep the business running.
  • Cash flow drivers should be identified and given more priority.
  • Every business should have good financial record.
  • Target the financial institution that solves your problem the best way.

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