Often, as a commercial lender, I have companies inquire as to how they can make their organization credit worthy. Many times lenders struggle getting financing approved due to the lack of some key required information. I would like to take this opportunity to go over some basic information that may help your company secure financing. Also note, much of the information I request is also very useful information for yourselves and the management of your company.
1. Updated Information
The most important step is keep up to date financial information. Most lending institutions require at least annual financial statements. This will include the minimum of an Income/Expense Report and a Balance Sheet. This reporting provides a snap shot of your business year to date and needs to be completed within 90 to 120 days of your company’s yearend. Completion of the same will also result in reporting to CRA (Canada Revenue Agencies) as required and is typically completed by your accounting firm.
2. Track Sales & Expenses
Also, keep a monthly record of sales and expenses. Often a member will come in for financing and they are already over 6 months into their fiscal year but have no record of what they have done year to date. This provides your company, and the lender, with a financial picture of your company. Are the sales trending positively, are expenses being managed? It also provides you with a valuable management tool. If your sales are off track or your expenses are higher than budgeted, then you can make adjustments before you end up with a cash flow problem. This also allows you to do more accurate budgeting. If, for example, you are looking to finance an additional piece of equipment you could accurately determine your net return. As a lender, this is very valuable information, as I can then determine if the historical and projected cash flow will cover the required loan payments.
3. Get the right expertise
Don’t be afraid to admit you don’t have an accounting background. Many small and large business owners know the operational side of the business very well, but little in terms of bookkeeping. I often hear that bookkeepers or accountants are too expensive. Unfortunately, I have far too many times seen business owners get behind in their monthly payroll remittances to CRA, or incorrectly report to CRA, or not report at all, which could result in embarrassing holds placed on accounts by CRA and cheques being returned. Qualified bookkeeper and/or accountant do cost money, but their knowledge can also save you taxes, penalties, and potentially major headaches.
4. Proper tools and training
If you manage your own books, there are many good accounting software programs out there. In addition to using good software, ensure that you and/or your staff bookkeeper take an accounting course beyond just the software course. An accounting class will help you to know and manage your books in a way that can be very valuable to the way you manage your company. The software and classes can simplify your reporting and assist your accountants with preparing your company returns.
5 CRA makes the rules
A further requirement when securing a loan; Are your company/personal taxes up to date? Have you been keeping your monthly payroll remittances current? Many businesses don’t realize this, but often CRA demands can supersede the lenders security interest in your assets. This makes us a little nervous.
Thank you for taking the time to read through this article. Please, if you have any questions do not hesitate to give me a call at 403-846-4225, or contact your current account manager.
Sr Commercial Lender