Typically, a need for business financing is triggered by some event or string of events. So the timing of when its actually required is not always readily determinable.
Then there’s the classic line you hear from frustrated business owners or managers that the only time they can get a business loan is when they don’t need it.
Combine these first two points with my own observation that 80% of all of business financing requests are unplanned events, and you have a lot of business owners and managers scratching their heads regarding how and when to secure capital.
So here’s a couple of things to keep in mind to increase your odds.
First, because financial statements tend to play a very important role in most types of business financing applications, you need to factor in when and how they are prepared.
In terms of when, financial statements need to filed within 6 months of your year end. If you don’t file until the six month mark, then the results are already 6 months old. And, depending on the lender and how much money you’re after, most lenders will require the last recently completed financial period to be less than 6 months ago. So if your year end is in December and you’re applying for financing in July, many times the lender will require you to get an accountant prepared interim statement for the first 6 months of the current year, or put off further consideration of your financing request until the financial statements are completed for the next year end.
All that being said, one of the takeaways here is to plan as best as you can to apply for business financing in the first 6 months of the year and make sure your accountant is on pace to get them completed well before the 6 month mark. Oh and by the way, the lender will also like an interim financial statement for whatever period is not covered off from the last completed statements to the time of application, but in most cases the interim can be prepared by the business.
In terms of how the statements are prepared, financial statements are done under an accountant statement indicating how much work was preformed to verify the accuracy of the records provided by the business to the accountant. The lowest level of review is a notice to reader, then review engagement, and finally an audit.
If you’re looking for $200,000 or less in business financing, then you may get away with a notice of assessment. Better odds with a review engagement. If you’re looking for financing over $1,000,000, then an audit will eventually come into play.
The higher levels of review cost more money, but without the verification it can be tough to secure business financing, especially lower cost financing.
Bottom line, your completed financial statements are a definite asset that is important to your financing efforts and they have a freshness date that comes into play to some extent.
So when planning out your business over the next year, make sure you take the above into consideration.
To further emphasize this point, say you have a seasonal business that has a year end of December and a peak season of August. If you’re having an off year, which can happen with any business, you may need financing in December or January to carry you though to the next peak. Good luck trying to secure financing with 12 to 13 month old financial statements and an interim statement that may be bleeding red.
Especially for seasonal businesses, you have to apply for business financing after a good year so you can leverage that result. Therefore, if you want some cushion in your available capital going into a season you’re not sure of, you’d better apply for financing before hand.