When applying for a business loan, lenders closely examine your travel and entertainment (T&E) expenses to get an accurate picture of your company’s financial health and cash flow management. This process, known as T&E expense verification, helps lenders differentiate true business expenses from personal or excessive costs that could risk loan repayment.
What Counts as T&E Expenses?
T&E stands for Travel and Entertainment, typically including costs incurred while conducting business away from your office. Common T&E categories are:
- Travel: Airfare, hotels, rental cars, fuel
- Meals: Business meals with clients, prospects, or employees
- Entertainment: Client events like games, concerts, or other outings
- Conferences: Fees for industry trade shows or professional events
While the IRS has specific rules for deductibility (see IRS Publication 463 for details), lenders focus on these costs to assess your financial discipline and cash flow rather than tax deductions.
Why Do Lenders Verify T&E Expenses?
Lenders want to confirm your ability to repay the loan by evaluating your financial habits through your T&E spending. Here’s how they use this evaluation:
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True Cash Flow Assessment: Lenders review your Profit & Loss statements and may adjust cash flow by excluding one-time or excessive T&E costs to see your effective cash generation.
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Detecting Fund Co-mingling: Mixed personal and business expenses, like family vacations or personal shopping charged to business accounts, raise red flags about financial discipline.
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Ensuring Business Expense Legitimacy: Your T&E should align with your business operations. Unexpected high travel expenses for a local retail store, for example, could cause lenders to question stability.
Example: Clear vs. Messy T&E Records
Consider two similar companies applying for a $100,000 loan:
- Business A tracks all expenses on a dedicated business card, categorizes them clearly, and maintains detailed receipts. This professionalism builds lender confidence.
- Business B has unorganized records with unclear personal vs. business expenses, raising doubts about financial management and loan repayment ability.
Tips to Prepare T&E Expenses for Loan Applications
| Do This | Don’t Do This |
|---|---|
| Use a dedicated business credit card for all T&E expenses. | Mix personal and business expenses on one card. |
| Keep detailed receipts and document the business purpose of each expense. | Rely only on credit card statements without explanation. |
| Implement a clear T&E spending policy, even if you’re a sole proprietor. | Allow unclear or unjustified spending. |
| Use accounting software to categorize and annotate expenses. | Label expenses vaguely as “business meals” or “travel.” |
| Be ready to explain unusual or large expenses to lenders. | Assume lenders won’t question unexplained costs. |
Maintaining transparent, organized T&E records not only supports tax compliance but significantly strengthens your business loan application. For more on the loan process, see our Business Loan Underwriting guide and Business Loan Application tips.
