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Traditional banks are increasingly wary of lending to small businesses because it’s simply not profitable enough. Instead, they go after the “big fish,” leaving startups and entrepreneurs out in the cold. As you look into your business loan options, you are probably also doing everything you can to save money on your taxes. Believe it or not, these priorities can go hand in hand.
These days, there are numerous loan options that bypass the big banks. These include asset-based vehicles such as merchant cash advance and accounts receivable loans. Investigate the many loan products sponsored by the Small Business Administration, an independent federal body that incentivizes local lenders around the country to fund small businesses. Alternately, crowdfunding options such as Kickstarter and MicroVentures can spread the word about your business to obtain financing from friends, family, and perfect strangers who want to get in on the ground floor.
These are all viable options well worth researching, but you still might be interested in pursuing a traditional short- or long-term business loan from a bank. As you might imagine, this process will involve providing extensive documentation to prove your stability, profitability and general trustworthiness to the potential lender. Expect this paperwork to include tax documentation that you’ve submitted to the IRS in past years.
Financially speaking, that is. Lenders don’t want to see IRS penalties for late filing or audit reports. The more you can stay on top of every aspect of your business’s fiscal health, the better it will look – both to Uncle Sam and to potential lenders.
Unless they are so significant that your company is severely crippled, this practice will show you in a poor light to lenders. Before they approve a loan, they want to be sure that they have a reasonable chance of getting their money back, plus interest. If your company looks like a major risk, they probably won’t favor your application.
Running a successful business and staying on the right side of the IRS are no easy tasks. Remember that the decisions you make in one area of your business can have ramifications throughout the rest. That’s why it is so important to keep careful financial records and consult accounting professionals. By taking these steps, you’ll keep the tax man at bay while preparing for an easy loan approval process.