There are certain things you can’t do if you’re not in good shape. You won’t be jumping out of planes, or off bridges, or climbing mountains. The riskier it gets, the less likely you’ll be allowed to do it.
In the same way, a business lender is not going to let you borrow money if your business is in poor financial shape – especially if there’s risk involved. They’ll want to see proof of your business’ financial health before they consider approving your loan.
By providing current financial documents – Profit and Loss, Balance and Cash Flow Statements – you’re giving the lender the information they need make a judgement call about your business’ financial health.
Profit & Loss Statement
- A summary of your business’ financial performance over a period of time (e.g. monthly, quarterly or annually)
- This document reflects your business’ past performance, and gives you the means to track your business performance
Balance Sheet
- Identifies what your business owns (assets), what your business owes (liabilities) and the net worth of your business (equity)
- This document provides a picture of your overall business health and is used to evaluate the liquidity of your business
- Provides an overview of your short term cashflow (debtors versus creditors)
Cash Flow Statement
- A list of all sources (income) and uses (spending) of cash in your business
- This includes cash flow from operational, investment and financing activities
- This document will give you a better idea about whether you’ll be able to cover major expenses like payroll and loan repayments at any particular time, and can help you to plan for seasonal changes.
Out-of-date financial documents will not work in your favour, and lenders are much less likely to approve a loan if they can’t see evidence of your business’ current financial position.
Try to provide P&L, Balance and Cash Flow statements that are as current as possible.