Before any financier, be it a bank or other financial institution, an investor, a non-profit, or the government will be willing to provide financing for your small business, they will need to believe that you will be profitable enough to repay the financing and/or provide a good return on the investment made. In order to analyze the likelihood of your profitability, financiers require three documents: a business plan, financial statements, and financial standing.
Business plan
A financier will generally request a copy of your business plan to be included with your application. A financier uses the business plan to help him see how you intend to be successful and whether your vision is realistic. When a business plan fails to secure financing, there are two likely culprits: (A) the assumptions made are unrealistic; or (B) assumptions are unfounded/not justified.
Financial statements
Financial statements are usually included as part of the business plan and will usually be presented as attachments to the main document.
Financial statements take three forms: Balance Sheet, Income Statement, and Cash Flow Statement:
The Balance Sheet shows your financial position; it contains information as to the companyâs assets, its liabilities, and the distribution of ownership.
The Income Statement, sometimes referred to as the Profit and Loss Statement, shows the companyâs income, expenses, and profit for a given period.
The Cash Flow Statement looks at the companyâs operating, investing, and financing activities.
Financial standing
The Financial Standing refers to that of the company owner in most cases. Many small businesses depend on the financial standing of the owner and the financier will want to make sure that you, as the owner, have a demonstrated history of responsible financial management and that you are not starting the business while dealing with a large personal debt. That is not to say that if you have a mortgage, a car payment, and a student loan that you will be ineligible. However, the financier will want to see that you will be able to reasonably make your payments until you have established your business.
Who can help?
The Small Business Administration (SBA) is a government organization that provides free guidance to new and current business owners. The SBA can help you with every part of opening and running a business â from the business plan to weighing financing options. They have volunteers that can partner with you to develop the documents needed for financing, to set up systems for management of the business, and to ensure you are in compliance with local, state and federal laws.
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