Making Your Business Bankable: The Importance of Showing a Profit on Your Business Tax Return
For many new and small businesses, getting access to reliable financing is essential. However, in order to qualify for most financing programs, lenders will want to see a profit and loss statement, as well as the most recent business tax return. There are a number of very important reasons for these requirements, but they all come down to making your business bankable.
Risks Facing Entrepreneurs And Lenders
The main reason why lenders want to see a profit on your business tax return is because many new and small businesses are considered risks. New and small businesses do not have the same financial track records as larger, well-established companies. This poses a risk to lenders, and brings a number of variables into question. What if the business folds? Is this business catering to the right market to ensure long-term revenue? Will this business be able to make enough sales to maintain operations and repay any loans? Lenders often take these unknowns into consideration when determining whether a loan application should be approved or denied. Showing a profit on your business tax returns shows you lender that your business is bankable, which means the next step is an approval for the loan request.
Deducting Yourself Out Of A Loan
It may seem strange, but some businesses can actually take too many deductions. In the first five years, businesses must be able to claim a profit for at least three. Yet many businesses want to keep the amount owed to the IRS as low as possible, so everything from leased assets to mobile barrier bills, mileage, and more are listed as deductions. If there are no profits to show, not only will the IRS get highly suspicious and increase the chances of an audit, but lenders will flat out deny requests for financing. Showing a profit is a good thing. The lower the profits, the less funding a business will receive. If businesses seem risky to lenders because they are not bankable, other requirements such as large amounts of collateral, may be necessary to access financing. In short, use your deductions wisely, and try to show a profit which reduces the risk to your lender and makes your business bankable.
Thinking Outside The Bank
At CounselPro Lending, we offer solutions that are not confined to the rigid requirements of traditional institutions. Contact our offices today to learn more.