Key Takeaways
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What are Financial Statements?
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Financial statements (financials) are essential records detailing a company's financial performance, including historical profit and loss and assets and liabilities. Lenders rely on them to gauge a business's ability to repay loans, while borrowers utilise them to demonstrate their financial health, increasing the likelihood of loan approval with favourable terms.
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The Importance of Financial Statements
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Financials offer lenders a comprehensive view of a company's performance. Through financial statements, lenders can assess a business's profitability, balance sheet equity and debt serviceability.
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Financial Information Required to Prepare for Application
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In addition to financials, businesses may be asked to present bank statements, business activity statements, tax returns and tax portals. In some cases, the business owner's personal financial statements may also be scrutinised. Non-bank lenders tend to request less information and unsecured lenders often do not require any documentation.
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Is it Possible to Get A Loan Approval without Financial Statements?
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Yes, it's possible to get loan approvals without financials. Many lenders, typically non-bank lenders, have low or no documentation loans.
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To get a business loan approval borrowers must demonstrate to lenders they are financially capable of repaying the loan. To do that many lenders require you to present financial statements, referred to as financials, along with other requirements. Financials are lenders’ key to understanding a business’s financial behaviour and history. Let’s examine what they are and their importance to loan approval.
What are Financials?
Financials are accountant-prepared documents that provide comprehensive information about a company’s financial performance, profitability and equity position. These documents are essential for both lenders and borrowers in the loan process. For lenders, financial statements are important tools for assessing the ability of a business to repay a loan. On the other hand, borrowers can use these statements to present an accurate picture of the financial results and attributes of their business.
The Importance of Financial Statements
Here are some of the main reasons why financial statements hold importance when it comes to loan approval:
- Assessment of Financial Performance: Financials provide lenders with a detailed look at a company’s financial health, including its assets, liabilities, equity, income, and expenses. Lenders use these documents to evaluate whether a business has the attributes required to repay a loan.
- Profitability Analysis: Lenders are interested in understanding a business’s profitability as it’s from positive cash flow that’s required to repay any lending.
- Debt Servicing Capacity: Financials help lenders evaluate a company’s ability to service its debt, which includes making regular interest payments and repaying the principal amount.
- Balance Sheet Equity: A company’s balance sheet demonstrates its solvency by setting out its assets vs. its liabilities.
- Management and Strategy Insight: Beyond the numbers, financials can also give lenders insight into the company’s management. This can affect a lender’s confidence in the business’s ability to navigate future challenges and opportunities.
What Are The Main Parts Of Financials?
- Balance Sheet: The balance sheet provides a snapshot of your company’s financial position at a specific point in time. It details your business’s assets, liabilities, and shareholders’ equity.
- Profit and Loss Statement: A profit and loss statement shows a company’s revenue, expenses, profits, and losses within a certain period.
Other Financial Documents
- Bank Statements: Lenders may ask to look at a business’s bank account statements to see its monthly transactions. Bank statements can give lenders insight into a business’s spending activities by looking at its deposits, withdrawals, and other charges.
- Business Activity Statements (BAS): The BAS helps businesses report on their taxes like the Goods and Services Tax and their PAYG. Some lenders may ask for a business’s activity statements to verify income.
- Business Tax Returns: While not a traditional financial statement, tax returns from the ATO are often required by lenders to validate a business’s income and expenses. Tax returns provide a look at the history of a business’s financial performance and are used to cross-check the information presented in the financials.
- The Business Owner’s Personal Documents: In some cases, lenders ask for the personal financial statements of the business director. These include their ATO Notices of Assessment, a statement of position, and other supporting documents.
Get Business Loans With or Without Financial Statements
Although financial statements are vital tools for bank loan assessments, not all lenders will require them. Other lenders, typically non-bank ones, will offer low or no-documentation loans for businesses that need them. Instead of asking for financials, lenders will look at the business owner’s assets and liabilities and their loan exit strategy. In some cases, lenders may require properties and assets to secure the loan and mitigate risk.
Low or no-doc loans are perfect for startups, sole proprietorships, and businesses with less ideal credit history. Borrowers can get funds quickly, but they must be aware of typically higher interest rates and more restrictive terms.
To Get The Best Unsecured Loan for Your Business Work with darkhorsefinancial.com.au
Whether you have financial statements to present to lenders or not, there are plenty of loan options for you and your specific situation. If you need help looking for the right lenders and the best terms, don’t hesitate to contact us. Darkhorsefinancial.com.au are loan experts that can show you the way.
