Two Big Mistakes That Make It Impossible to Secure Financing
It’s like a slap in the face when lenders say no. But, sometimes they just have to. It is unfortunate that even seasoned entrepreneurs makes these two mistakes. And, they both come from being shortsighted.
One of the most common mistakes we see is when a business hides its true income by not reporting cash sales. The idea is that if the sale is not recorded or easily traceable then the annual revenue reported to the IRS will be less. Obviously, this means lower taxes. This strategy is practiced by more businesses than you would probably guess. The problem is that when that business goes to get a loan for a new project or to expand, the lender looks at their tax return and sees exactly what the IRS sees – the business cash flow is low. The owner may attempt to explain to the lender that the business actually generates much more than is recorded. However, no lender can simply take their word for it. Even more devastating is when the owner decides to sell the business and the buyer takes the business financials to a lender to secure a loan for purchasing the company. Again, the lender is going to determine the amount they are comfortable lending based on the tax records and financial statements. And, by the way, they better match!
The second mistake entrepreneurs make is in the application process. Almost all business owners are very busy and they do not like taking the time to fill out paperwork. Guess what, if a lender sees that you are sloppy at completing required documents, then you will not get much attention from the lender. Listen, if you want a loan, make it as easy as possible for the underwriting team. Believe me, they have plenty of people asking for money and it means nothing for them to set your application aside. Be sure to fill out every form and provide every document as soon as you can make time so that the lender can easily keep a steady pace and feel good about you and your business style. If they feel like you can’t be bothered to provide needed information, the loan simply gets denied.
Both of these mistakes can be avoided when the business leader takes the time to think about the future. “Will I hurt myself by taking shortcuts or trying to save a dollar on taxes?” Yes, you just might. Be diligent to record your income and follow the application process clearly.