What are Lenders Looking at on Your Tax Return?

When you’re applying for an equipment loan, you might feel as if lenders require a ton of paperwork and information before giving you the approval you’re looking for. Although it may seem tedious, lenders have strong reasoning for why they require so much information. Taking all of this information into consideration, lenders can now approve better loans and decrease default rates. This, in turn, lowers your interest rate.

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Verifying Your Revenue

One question that businesses frequently have is, “What exactly are the lenders looking for on my tax return?” Most of the information can be taken directly from your return or inferred from the information contained in various line items.

Your tax return is the most important document that banks and lenders need to have in order to determine your creditworthiness as a business owner.

Annual revenue is typically something that lenders will look at first. If you submit returns for multiple years, they will be able to establish a pattern. If your reported revenue is stable or growing each year, it’s a good sign that you will be able to repay an added expense from a loan. Lenders want to loan money to borrowers who are capable of making timely repayments.
Tracking Business Losses

Losses, like revenues, are also reported on tax returns. Typically, losses are red flags for lenders and can lead to a denial from their credit department. The reason behind this is that if your business is operating at a loss, the chances of you being able to pay back the loan in timely repayments is lower. This is an added risk, but not necessarily the end of your loan chances. This could just result in higher interest rates or a lower approval amount for the loan request.

 

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Differences in loan amounts

One thing to keep in mind is that the type of loan you are looking for could change the amount of information required by the lender. For smaller amounts of money, lenders us your tax return to confirm your annual revenue. For larger amounts of money, your return will also be used to confirm that your cash flow is greater than your monthly payment. As mentioned in other blogs, Harbour Capital has a program where we can secure you up to $150,000 in equipment financing with a simple one-page application – no tax return required!

Now that you know what lenders are typically looking for when they are deciding whether to give you a loan or not, you can help make better decision for your business. Making sure you are cash-flow positive and showing solid revenues each year will bode well for your company when it comes to securing financing.