Why Do Lenders Ask for Loan Applicant’s Balance Sheet and Bank Statements?
The main thing which every business lender asks owners is whether their business can repay a small loan, not just on time but also in its entirety. The answer to their question actually lies in your business’s cash flow, and at the end of the day, its working capital.
Lenders check this by looking at bank balances and by evaluating the history of credits (deposits of money) and debits (withdrawals). This shows how your business manages working capital on a short term basis, plus where it is trending. Some lending companies also ask for your balance sheet as a way of assessing your networking capital amount.
Bank statements do not show assets except cash, and these do not show liabilities; therefore, they do not provide a complete picture of your working capital. However, lending companies get some indication about it from your bank balances that represent your business’s outgoing and incoming cash flow.
Short-term online lending companies usually ask for 3 to 4 months of bank statement, but medium-term lenders generally need 6 months’ worth of statement. SBA lenders and banks demand your business’s present year balance sheet to analyze your working capital more formally.