How Small Businesses Can Prepare for Bank Financing

Published by BradyRenner CPAs | September 20, 2023

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Owning your own business requires juggling many roles and making several crucial financial decisions. And at some point during the life of your small business, you will want to secure bank financing. Perhaps you’re just starting out and need financing to establish your business, or you’re looking to expand your business by securing a larger location. Maybe you want to purchase equipment necessary to streamline your operations. No matter your reasons for seeking bank financing for your small business, preparation and solid financial planning are essential to obtaining it.

Being Prepared As a Business Owner

In order to be ready to obtain bank financing for your business when you need it, you should make sure that your business is maintaining responsible financial practices. Any bank considering whether or not to offer you financing will be checking your personal financials as well as your business ones. In order to obtain financing and at an attractive interest rate, you should make sure that you:

  • Get your credit score in order. Knowing your credit score is the first step in improving it, so request a copy of your personal credit score and go from there. If your business is just starting out, consider opening a small business credit card and paying the balance in full each month. 
  • Build a dependable business. A bank will be looking into your monthly expenses, how long you’ve successfully run your business, your cash flow, and also your customers’ satisfaction as they determine whether or not to extend your business credit. 
  • Determine how much you will need. Striking a balance between too much financing and too little will help protect your business against added interest or coming up short in funding. Work with your tax professional to determine the “just right” amount of financing.
  • Know what you can afford to borrow. Once you’ve identified the funding you need, you’ll want to make sure you can pay it back. You may need to revise your plans based on your ability to pay back financing or even explore other options for financing rather than finding yourself overburdened by this additional monthly expense.

Establishing solid financial business practices from the inception of your small business will help ensure your ability to obtain bank financing when your business needs it in order to continue growing and succeeding. 

What the Bank Will Need from You

You’ve done the work to make your business an attractive investment; now you’ll need to have the supporting documentation assembled to provide to the bank. You will need to check with your banking institution to know what additional paperwork they may require, but generally speaking, banks are looking for:

  • Your business plan if you are seeking financing to establish your business
  • Personal and business income tax returns for the past three years
  • Financial information including profit and loss statements, accounts receivable aging reports, balance sheets, and any other relevant documentation such as bank statements in order to confirm the revenue, expenses, assets, and liabilities you have recorded on your application
  • Cash flow projections to show the bank how the money will be used and how you will be able to pay back the loan

You can generate these reports using your accounting software, or your CPA can generate these reports easily for you, which is why having an accounting firm in your corner will help your business reach its financial goals. 

Final Steps in Securing Bank Financing

Using the information you have gathered, you will need to complete your loan application. After making sure that you’ve provided all necessary information and documentation, you should receive a response from your banking institution in a timely manner. If you apply for your financing online, you may be able to track the progress of your application. Alternatively, you can stay in contact with your loan application officer at the bank. 

When you receive approval for financing, you should review the terms and conditions of your loan carefully, preferably with your CPA, in order to confirm all the details including interest rate and other specifics before accepting it. 

BradyRenner Knows Small Business

At BradyRenner, you have access to their combined decades of experience. Their CPAs are solid financial partners who understand your business inside and out. When it comes time for you to explore bank financing, your CPA will make sure you are ready. From its beginning to its closing, BradyRenner knows how to run your small business successfully. Helping you prepare for bank financing is part of an entire suite of consulting services they offer to small business owners. 

Contact BradyRenner today for more information on how you can position your small business for bank financing. And make sure to come back and read the next article in this series, where guest writer Stu Welsh will be discussing the final financial chapter in the life of a small business: exit and succession planning.