Why these financials matter

Lenders evaluate both historical performance and future capability. Historicals (tax returns, profit & loss, balance sheet) show how the business operated; cash-flow statements and projections show whether it can service new debt. In my 15 years advising small businesses as a CPA and CFP®, I’ve seen well-prepared packages shorten review times and improve pricing.

Core financial documents lenders expect

  • Profit & Loss (Income) Statements: Two years (minimum) of annual P&Ls and most recent interim monthly/quarterly P&Ls. Lenders look for revenue trends, gross margins, and normalized earnings (adjusting one-time expenses or owner draws).
  • Balance Sheets: Recent and year-end balance sheets showing assets, liabilities, and equity. Include notes on large assets and any liens or subordinations.
  • Cash-Flow Statements: Historical cash-flow statements plus a 12-month cash-flow forecast that highlights seasonal swings and timing of payroll and debt payments.
  • Business and Personal Tax Returns: Two to three years of business tax returns; two years of personal tax returns for owners who sign personal guarantees. Tax returns corroborate reported income (see IRS guidance at https://www.irs.gov).
  • Bank Statements: Most recent 3–6 months of business and owner personal bank statements to verify cash balances and recurring deposits.
  • Accounts Receivable / Payable Aging and Inventory Reports: Shows collectability and working-capital needs.
  • Financial Projections and Assumptions: Clear 3–5 year projections (profit & loss, cash flow, balance sheet) with stated assumptions and sensitivity scenarios (best/worst case).
  • Collateral Documentation: Valuation and proof-of-ownership for equipment, real estate, inventory, or AR pledged as collateral.
  • Ownership & Legal Docs: Articles of organization/incorporation, operating agreement, leases, contracts, insurance certificates, and any franchise agreements.
  • Personal Financial Statement & Credit Authorization: Lenders commonly require an owner personal financial statement and permission to pull personal/business credit reports.

What lenders want to see in those documents

  • Consistency: Numbers must reconcile across tax returns, P&L, and bank statements. Reconciliation gaps are a common red flag.
  • Realistic projections: Assumptions should be defensible and tied to market or historical performance.
  • Clear use of proceeds: Explain how funds will be used and how that use improves cash flow or profitability.
  • Repayment source: Demonstrate the primary and secondary sources of repayment (operating cash flow, collateral, personal guarantee).

Practical preparation tips

  • Normalize earnings: Prepare a reconciliation showing adjustments for discretionary owner compensation, nonrecurring expenses, and one-time gains.
  • Provide month-by-month recent results: Lenders want recent performance—include the last 12 months P&L and bank statements.
  • Package an executive summary: One- to two-page summary with ask amount, term, collateral, key ratios (DSCR, current ratio, net margin), and a 90-second credit argument for the borrower.
  • Stress-test projections: Add a sensitivity table that shows the impact of a 10–20% revenue decline on cash flow.
  • Be transparent: Disclose past liens, late tax filings, or bankruptcies upfront and attach explanations.

Common lender metrics to prepare

  • Debt Service Coverage Ratio (DSCR): Cash available to cover debt payments (many lenders require DSCR >1.2 for term loans).
  • Adjusted EBITDA: Show adjustments and back them up.
  • Current Ratio and Quick Ratio: Working-capital measures.

Checklist for a lender-ready file

  • Executive summary and loan request
  • 2–3 years of business tax returns and 2 years of personal tax returns
  • Last 12 months of P&Ls and bank statements; year-end balance sheets
  • 3–5 year financial projections with assumptions
  • Accounts receivable aging, inventory reports, major contracts
  • Collateral documentation and proof of ownership
  • Legal documents (formation, leases, major contracts, insurance)
  • Personal financial statement and credit authorization

Avoid these common mistakes

  • Sending unaudited spreadsheets with unexplained adjustments.
  • Omitting recent bank statements or the most recent interim P&L.
  • Presenting overly optimistic projections without sensitivity analysis.

Related resources on FinHelp

Authoritative sources and next steps

This guidance is educational. For tax-specific questions see the IRS (https://www.irs.gov) and for borrower protections and loan shopping guidance see the Consumer Financial Protection Bureau (https://www.consumerfinance.gov).

Professional disclaimer

This article is informational and not personalized legal, tax, or lending advice. Consult your CPA, attorney, or lender to tailor documents to your situation.