How to Get Approved for a Business Loan: The 3 Most Important Financial Statements You Will Need
October 2, 2023
Financial statements are a critical part of the approval process, especially if you’re a business that is securing necessary funding. Bank underwriters use the information from these statements to assess your financial health and creditworthiness.
If you’re seeking loan approval, there are three important financial statements you need to have to complete the approval process. These include:
- Profit and Loss Statement (Income Statement)
- Balance Sheet
- Cash Flow Statement
In this article, New Valley Bank will outline income statements, what a balance sheet is, as well as cash flow statements. Read on to learn how these statements will help you on your way to loan approval.
1. Profit and Loss Statement (Income Statement)
A profit and loss statement summarizes your company’s income over a specific period of time (typically a year or fiscal quarter). It includes you:
- Revenues (Sales)
- Cost of Goods Sold (COGS)
- Gross Profit
- Operating Expenses
- Net Income (Profit or Loss)
Profit and loss statements are also sometimes called income statements. They play a key role in the loan approval process by providing key insight into your revenue trends and company profitability. Income statements also reflect your ability to generate future income to pay off your loan. If your company doesn’t have much profitability or likelihood of repaying it, it will be difficult to be approved.
2. Balance Sheet: What is a Balance Sheet?
Another non-negotiable component of the loan approval process includes your balance sheet. A balance sheet provides a snapshot of your company’s financial position during a given time. Key parts of your balance sheet must include the following:
Assets (Current and Noncurrent)
Current assets are short-term resources that you expect to be converted to cash within a year. Non-current assets are long-term investments like your property and operating equipment.
Liabilities (Current and Noncurrent)
Liabilities are the current financial obligations that you owe. Current liabilities are short-term debts payable within a year, while non-current liabilities are long-term debts payable beyond a year.
Shareholders’ Equity (Owner’s Equity)
Shareholders’ equity is also sometimes called owner’s equity. This represents the residual interest in your company’s assets after deducting liabilities.
Balance sheets are used to assess your financial stability and your ability to repay your debt. It also provides insight into your current financial risk. For example, if you have an uneven cash flow or a high debt-to-equity ratio, your loan may not be approved.
3. Cash Flow Statement: What is a Cash Flow Statement?
Last but not least is the cash flow statement. Your cash flow statement provides an overview of the change in your balance sheet and income statements and how they affect your financial health. Activities are divided into:
- Operating Cash Flow
- Investing Cash Flow
- Financing Cash Flow
- Banking underwriters use cash flow statements to assess your business’s ability to generate positive cash flow, cover your operational expenses, and repay any existing loans.
How to Get Approved for a Business Loan with New Valley Bank
To have the best chances of securing loan approval, it’s essential to have these three financial statements:
- Profit and Loss Statement (Income Statement)
- Balance Sheet
- Cash Flow Statement
New Valley Bank believes in its community, and the best way to sustain it is to invest in it. We are here to help you flourish with high-touch customer service, local decision-making, and partnerships built on trust. Whether you want to start a business or invest in real estate, our team is ready to help get you there. Contact us today.
