Your Business Is Making Money—So Why Does the Bank Keep Saying No?

You own a profitable business. Revenue is coming in. Customers are paying. You may even have a healthy amount of cash in the bank.

Then you apply for a business loan and the bank says no.

Or maybe the answer isn't no. Instead, the lender starts asking for more information: a year-to-date profit and loss statement, balance sheet, tax returns, debt schedule, accounts receivable aging, and several years of financial statements.

For many business owners, this is the first time they realize the bank is looking at their business very differently than they are. It's okay if you are ashamed to show someone your books. Building and maintaining a business is hard, and we are not here to judge, only to improve and make things better.

Revenue Isn’t Enough

A lender certainly wants to know how much revenue your business generates, but revenue by itself doesn't say much about your ability to repay a loan.

A business generating $2 million in annual revenue could be financially stronger or weaker than one generating $750,000.

The difference is in the rest of the financial statements.

• How much of that revenue becomes profit?

• How much debt does the company already have?

• What are its monthly obligations?

• Does it have enough short-term assets to cover short-term liabilities?

• Is the company consistently generating cash?

  
  

These are questions your bookkeeping should help answer. If your current records don't provide these answers, it's okay to let someone help. That is my role—I don't judge; I get you organized and I get results.

Your Financial Statements Tell the Story

Three reports become particularly important when someone outside your business is evaluating its finances.

Profit & Loss Statement (P&L)Your P&L shows revenue and expenses over a period of time and ultimately tells the reader whether the business generated a profit or loss.

Balance SheetYour balance sheet shows what the business owns, what it owes, and the owner's equity in the company at a specific point in time.

Cash Flow StatementYour cash flow statement helps explain how cash actually moved through the business. Think of your bank balance as a snapshot, but the cash flow statement is a movie—it shows if you're collecting from customers fast enough to pay suppliers, which is what lenders really care about.

Together, these reports give a lender a much better picture than a bank balance ever could. If you're worried that your statements don't tell a perfect story yet, remember that I am here to help you improve and make them better, not to judge where you are starting from.

Banks Also Look at Ratios

Lenders can use the information in your financial statements to calculate ratios that help them evaluate the financial condition of the business.

One example is the Current Ratio:

Current Assets ÷ Current Liabilities

If your company has $150,000 in current assets and $100,000 in current liabilities, its current ratio is 1.5.

That tells the lender the company has $1.50 in current assets for every $1.00 of current liabilities.

Another is the Debt-to-Equity Ratio:

Total Liabilities ÷ Owner's Equity

This gives the lender an indication of how much the business relies on debt relative to the owner's investment in the company. Depending on the loan, lenders may also examine debt service coverage and other measures of cash flow and leverage.

There isn't one ratio that automatically determines whether you'll receive a loan.

Industry, loan type, collateral, credit history, cash flow, and other factors matter.

But poor financial records make all of these questions harder to answer. Running a company is a challenge, and it's okay to let someone help you navigate these complexities. My goal isn't to judge your past ratios, but to get you organized so you can see better results.

This Is Where Bookkeeping Becomes Important

Bookkeeping isn't simply categorizing transactions in accounting software.

Good bookkeeping gives you financial records that can be used to run the business.

That means accounts are reconciled. Revenue and expenses are categorized correctly. Loans are recorded properly. Accounts receivable and payable are accurate. Assets and liabilities are reflected on the balance sheet. Financial statements can be produced when they're needed.

If a lender asks for a current P&L and balance sheet, you shouldn't have to spend the next three weeks trying to reconstruct them.

More importantly, you shouldn't have to wait until you're applying for a loan to find out what those reports say. If you feel overwhelmed of the current state of your books, please know that we are only here to help you improve. My role is to get you organized so you can lead with confidence. It's okay if you are ashamed to show someone your books. We are not here to judge, only to improve and make better. Building and maintaining a business is hard. It's okay to let someone help. That is my role. I don't judge; I get you organized, I get results.

Before You Apply for Your Next Loan

Pull your most recent P&L and balance sheet.

Then ask yourself a few questions:

• Can I explain why our profit increased or decreased?

• Do I know our current assets and current liabilities?

• How much debt does the company currently carry?

• Can I explain the major balances on the balance sheet?

• Are the numbers reconciled and current?

• Would I be comfortable sending these statements to a lender today?

  
  

If you can't answer those questions, that's useful information. The loan application isn't necessarily the first problem to solve.Your books may be.

It's okay to let someone help with that burden. I don't judge; I simply get you organized and get results so you can focus on the hard work of building your business. It's okay if you are uncertain to show someone your books. We are not here to judge, only to improve and make ourselves better. Building and maintaining a business is hard. It's okay to let someone help. That is my role. I don't judge; I get you organized, I get results.

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Arden Hill Partners is a DBA of Belpointe Asset Management. Investment advisory services are offered through Belpointe Asset Management, a registered investment adviser. This material is for informational purposes only and should not be construed as legal, tax, or investment advice. Business valuation and succession planning involve multiple disciplines, including legal and tax considerations. Clients should consult with their attorney and tax advisor regarding their specific situation.