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What Story is Your Financial Reporting Telling Prospective Lenders?
Aug 28, 2025
You run your business using sound financial principles like minimizing your tax burden and putting your earnings to work. When you look at your financials, you see a business that is well positioned to pursue growth opportunities or invest in new equipment.
When you submit your loan application, it can come as a shock to discover your prospective lenders are looking at the same financials and seeing a different story.
It’s easy to understand that lenders and business owners have different agendas, but hard to accept that smart financial strategies can sometimes work against you when applying for financing. What you view as financial savvy, lenders may interpret as financial risk.
How to Make Sure Your Financials are Telling the Right Story for Financing
One of the best ways to strengthen your case for financing is to start planning well before you apply. This gives you time to shape the story the financials tell from a lender’s perspective. Certain numbers can make or break your loan application, no matter how carefully you’ve executed your business strategies.
While many factors play a role in the success of your business, lenders tend to focus less on the big picture and more on specific metrics. These include:
- Liquidity
- Cash flow
- Debt
- Debt service coverage ratio
- Collateral
- Length of time in business
- Purpose of the loan
What You See vs. What Your Lender Sees
Lenders put a strong emphasis on liquidity. So while you may see profits earning a healthy return through investments, your lender may see funds tied up in assets that can’t be quickly converted to cash.
Your tax returns provide another area where your view of the business may differ from your lender’s. Depending on the amount of the loan you are seeking, your lender will want to review two to three years of personal and business financial statements and/or tax returns.
Tax deductions, like Section 179 write-offs for equipment, can lower your tax bill on big purchases. But they also lower your reported income, which affects cash flow and debt coverage ratios your lender uses to decide if you qualify for a loan.
Another factor a lender may question is an unusually profitable year. You see a hot streak; they may see an outlier. While it can be frustrating that a phenomenal year, a reduced tax bill, or an investment strategy might actually work against you in obtaining financing, understanding the lender’s perspective and preparing your financials accordingly will leave your business better positioned to grow and thrive.
How to Ensure Your Financials are Lender Ready
When it comes to loan approval, the most important metrics are liquidity and cash flow, as well as factors such as business and personal debt, debt service coverage ratio and collateral. Lenders are also interested in things like how long you’ve been in business and the purpose of the loan, but the key focus is on mitigating any risk of default. That means a strong focus on numbers that reflect your ability to cover your debt, even in the face of a business interruption.
Here are some best practices for ensuring that your financials can make the case.
Maintain reliable and up-to-date financials. Accurate monthly accrual accounting is one of the strongest moves you can make to position your business for financing. Not only does it ensure visibility into the true health of your business, including profitability and cash flow, it can dramatically simplify the task of providing reviewed or audited financial statements, which your lenders may require.
Ensure that your liquidity is sufficient to cover up to six months of your expenses in the event of a business disruption. If too much cash is tied up in property or other investments, consider converting some of these into cash. In general, the more liquid your assets are, the higher the likelihood of loan approval. Depending on the size of the loan, your lender may want you to have cash on hand to cover expenses for over six months.
Consider a tax strategy that aligns with the business goals. While minimizing taxes is always a priority, it’s equally important to consider how your financials appear to lenders. Taking certain deductions too aggressively can reduce your reported income in ways that make it harder to qualify for financing. Sometimes deferring or spreading out deductions can help you strike the right balance between lowering your tax bill and strengthening your loan application.
Be prepared to provide several years’ worth of business and personal financial statements. You may be asked to provide reviewed or even audited statements, which require review by a CPA firm.
Next Level Accounting Support for Your Growing Business
Finding the right accounting partner for your growing business is an investment in the success of your business at every stage. At Kirsch CPA Group, we provide holistic accounting services designed to provide the financial transparency and insight you need to make strategic decisions that drive your business forward.
Whether it is time for you to invest in new capital equipment or you are looking to take advantage of an opportunity to grow via acquisition or a new product line, with Kirsch CPA Group on your team, you have the tools and expertise you need to take the next step.
Contact a member of our team to learn more about our support for business growth and financing.
Schedule an appointment to learn how we can support you
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Before joining Kirsch CPA Group in 2025, Business Development Manager Sarah Powers spent 25 years in retail and commercial banking, including a focus on commercial lending.
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About The Author
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