Academy
What financials does a bank need for a business loan?
The core package
| Document | What the lender checks | Have it ready |
|---|---|---|
| Business tax returns, 3 years | Reported income; that the financials agree with them | PDF of each filed return |
| Year-end financial statements, 2 to 3 years | Trend, margins, how the year-end books tie to the returns | CPA-prepared or internal, labeled which |
| Year-to-date balance sheet and P&L | Current position, within 60 days | From a reconciled close |
| Aged accounts receivable and payable | Collectability, vendor stress, concentration | As of the same date as the balance sheet |
| Debt schedule | Every loan, lease and line: lender, balance, rate, payment, maturity, collateral | One page |
| Personal financial statement, each 20%+ owner | Guarantor strength | Lender's form |
| 12-month projection | Can you service the new debt | Monthly P&L and cash, with assumptions written down |
| Articles, operating agreement, licenses | Who can sign | Copies |
By loan type
- Line of credit. Add a borrowing base certificate (eligible AR and inventory times advance rates), usually monthly once the line is open. Lenders exclude AR over 90 days, related-party AR and retainage.
- Equipment loan. Add the quote or invoice and, for construction, the job or backlog that justifies it.
- Acquisition or SBA 7(a). Add the target's financials and returns, a sources and uses, the purchase agreement or LOI, a business plan, and the SBA forms (1919, 413). Expect a Quality of Earnings request on larger deals.
- Real estate. Add the rent roll, leases, operating statements for the property, and the appraisal.
What contractors add
A WIP schedule (see the guide) with over and under billings, a backlog report by job with gross profit, a retainage schedule, and the surety's most recent capacity letter. A lender will read the WIP before the P&L, because the P&L of a contractor without a WIP schedule is not believed.
The ratios they compute
| Ratio | Formula | Typical ask |
|---|---|---|
| Debt service coverage | EBITDA (or net income plus interest, depreciation, amortization) divided by annual debt payments | 1.20x to 1.35x or better |
| Leverage | Total liabilities divided by equity | Under 3x to 4x; lower for contractors |
| Current ratio | Current assets divided by current liabilities | 1.2x or better |
| Working capital | Current assets minus current liabilities | Positive, and for contractors, 5 to 10% of annual revenue |
How to make it a day instead of two weeks
- Close the books monthly, by the 10th business day, reconciled. Everything above is a print from a closed ledger.
- Keep a lender folder with the last three returns, year-end statements and a current debt schedule, updated when anything changes.
- Keep the personal financial statements updated annually.
- Build the projection once a year as a budget, then update it when the ask comes.
- Know your ratios before the lender does. If debt service coverage is 1.1x, fix the story before you send the package.
ProvenCFO's controller level keeps a lender package on file in each bank's format, and the CFO joins the meeting.
Questions people ask
Do the financials need to be CPA-reviewed or audited?
For most lines and loans under a few million dollars, internally prepared statements that tie to the tax returns are accepted. Sureties and larger loans often require a CPA review; audits are rare below $20 million in revenue.
How current do the financials need to be?
Within 60 days of the application for the year-to-date statements, and lenders will ask for an update if the process runs past quarter end.
Why do lenders ask for personal financial statements?
Because owners with 20% or more are usually personal guarantors on small business loans, including every SBA loan.
What is a borrowing base?
The collateral calculation behind an asset-based line of credit: eligible receivables times an advance rate (often 75 to 80%) plus eligible inventory times a lower rate. It is submitted monthly and caps what you can draw.
Written by the people at ProvenCFO who do the work: fractional CFOs, controllers and bookkeepers for American owner-led companies.
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