Building personal and business credit scores are traditionally essential for getting small business loans. Your credit score may range between 300 and 850. The higher it is, the better.
Lenders will use your FICO score when determining whether to give you a loan. There are usually five elements that make up your FICA score:
- 35 percent your payment history
- 30 percent amount owed in debt
- 15 percent the length of time you have had credit
- 10 percent the type of credit you use
- 10 percent recent credit inquiries
The reason lenders care about your personal credit score is because it may help them see how you manage debt.
What Is Needed for Small Business Loan Bookkeeping?
Banks and other lenders may ask for legal documents, financial documents, and documents pertaining to tax planning. Some documents needed for small business loan bookkeeping may include:
- Income statements and balance sheets
- Government issued IDs
- Business and personal income tax returns
- Business licenses
- Financial projects for newer businesses
- Resumes indicating business experience or management experience
Gathering the necessary documentation to get a small business loan may be time-consuming and may be best-left sort out with your small business CPA.
Effectively Managing a Small Business Loan
Small business loans may be beneficial or detrimental, depending on how they are administered. The success of borrowing may depend on the planning that goes into the investment.
Small business loan accounting generally starts before applying for the loan. It may be beneficial for you to get a firm grasp on your current cash flow situation beforehand. A good small business CPA should keep you up-to-date with the current state of your finances and the potential of your business. This may help you determine if you should borrow money and how much to borrow.
Small business loan accounting may help you adequately invest the money you borrow, making every dollar count. Substantial investments of a small business loan may include
- Buying inventory or equipment to meet increased demand
- Hiring more employees during high demand
- Expanding retail space, opening a new office, or expanding production capabilities
What Is Involved in Small Business Loan Tax Planning?
Generally, small business loans do not materially change what you owe in taxes. Getting a lump sum in your bank account is not the same as earning money through your business. In most cases, the principal is not going to be taxed.
Where small business loan tax planning comes into play is with the interest payments you make on a loan. Based on the legal structure of your business and the type of loan your business receives, you may be able to deduct your interest payments, thereby lowering your tax burden.
Small Business Loan Financial Advise
If you are considering getting a small business loan, you are making a decision that could impact your business for years to come. Here at Fusion CPA, we want to help you take some of the confusion out of the small business loan process. Our team of skilled small business financial advisers may help you make heads or tails of your profit and loss statements, cash flow statements, and balance sheets to give you an accurate picture of where your business is today and then offer advice on loan amounts or the types of loans that might help facilitate future growth. We are here to help answer questions you have about tax planning, bookkeeping, and small business accounting. You can learn more about our services by clicking the button below to schedule a complimentary discovery call today!
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.