Key takeaway: Start with the lender’s written document list, then provide dated statements and supporting reconciliations. Explain differences among bank deposits, book income and tax income, and calculate repayment ratios using the lender’s definitions.
This article is part of our guide to cash flow forecasting and financial planning.
A financing request can expose gaps in otherwise useful bookkeeping. The lender may need a current balance sheet, a debt schedule that includes every payment, or financial statements at a particular assurance level. Getting that specification early helps a small business prepare the right package.
Requirements vary with the lender, loan product, amount and borrower. The SBA’s 7(a) application guidance expressly says the contents depend on loan size and processing method, with the participating lender determining the documents needed for the applicant’s circumstances.
Confirm the scope before assembling files
Ask the lender to identify the borrowing entity, required owner or guarantor records, reporting dates, historical periods, forecast horizon and financial reporting basis. Also confirm whether it wants internally prepared statements, a compilation, a formal review or an audit, and whether it supplies an aging or covenant template.
Keep separate columns for “requested,” “prepared,” “submitted” and “follow-up needed.” Use the borrower’s correct legal name on the package and explain trade names or related entities. A sole proprietor’s business schedules and an LLC taxed as a corporation do not have the same return package; legal form alone does not decide federal tax classification.
A practical document checklist
The periods below are preparation suggestions, not universal lending rules. Bank of America’s lending guidance lists two to three years of business returns, personal financial information, current financial statements, debts and collateral among possible requests. Follow the actual lender’s checklist if it differs.
| Record | Useful starting package | What to check |
|---|---|---|
| Income statement | Latest closed period, year-to-date and requested prior years | Dates, basis, revenue and expense classifications |
| Balance sheet | Latest requested date and comparative year-end | Assets, liabilities and equity; supporting schedules |
| Historical cash-flow statement | Requested completed periods | Operating, investing and financing movements |
| Bank and card statements | A working folder of three to twelve months, subject to the lender’s request | All relevant accounts and pages; reconciled balances |
| Business tax returns | Two to three filed years as an initial planning range | Complete schedules, amendments and extensions where relevant |
| Owner or guarantor records | Returns and personal financial statements for the people specified by the lender | Program, ownership and guarantee requirements |
| AR and AP aging | Same reporting date as the related balance sheet, unless requested otherwise | Nonoverlapping buckets and reconciliation to control accounts |
| Debt schedule | Current balances and payment obligations | Principal, interest, maturity, security and proposed debt |
| Collateral and inventory schedules | Current listings with supporting records | Ownership, liens, condition and required valuation basis |
| Ownership and use of funds | Current legal documents and financing narrative | Borrower, related entities, requested amount and intended uses |
| Forecasts and covenants | Lender’s requested horizon and measurement periods | Assumptions, definitions, downside results and supporting calculations |
If the business is new or a return is not yet due or filed, explain the situation and ask what substitute records the lender accepts. Do not manufacture a missing history or describe draft tax work as a filed return.
Reconcile deposits to revenue instead of making them equal
A bank statement documents cash movement. An income statement reports recognized income and expenses for a period. A balance sheet reports assets, liabilities and equity at a date. These records should be consistent through reconciliations, but their totals need not match.
Illustration: assume bank deposits total $170,000 for the period. They include $30,000 loan proceeds, $10,000 owner capital and $20,000 transfers from another business account. The remaining $110,000 represents customer collections. With opening receivables of $15,000 and closing receivables of $25,000, recognized accrual sales are $120,000: $110,000 collections plus the $10,000 increase in receivables.
This simplified bridge assumes no customer advances, refunds, write-offs, sales tax or netted processor fees. Add those reconciling items when present. A lender should be able to trace the $170,000 deposits and $120,000 revenue without anyone recoding the loan as sales.
Likewise, compare book income with the tax return through a separate schedule. For example, $35,000 book profit plus $3,000 of assumed nondeductible costs minus $8,000 of additional tax depreciation produces $30,000 of business tax income before other adjustments in that illustration. Confirm the actual tax rules, entity classification and return lines; this is not an owner’s complete taxable-income calculation.
Preserve both the filed return and the financial statements supplied to the lender. Explain timing, depreciation, basis and other differences. A correction should have an audit trail and an explanation, including whether a previously submitted version or filed return needs attention.
Make receivable and payable aging unambiguous
State whether aging uses the invoice date or due date. If the lender supplies a template, follow it. Otherwise, a clear overdue schedule uses current/not yet overdue, 1–30, 31–60, 61–90, and over 90 days past due. Each invoice belongs in one bucket at the reporting date.
Include customer or supplier, invoice reference, due date, amount and relevant credits or disputes. For receivables, identify retainage, related-party balances, concentrations and collection concerns separately where relevant. Do not assume an old invoice is fully collectible because it appears in the report.
Tie gross receivables to the ledger and show any allowance separately. For example, a $70,000 gross aging less a $4,000 allowance reconciles to $66,000 net receivables on the balance sheet. Present the lender’s collateral-eligibility exclusions separately; an accounting receivable is not automatically eligible borrowing-base collateral.
Build a debt and covenant schedule from the agreement
For each obligation, list lender, balance, interest rate, required principal and interest payments, maturity, collateral and guarantees. Include relevant leases, credit lines, merchant advances and related-party debt as the lender requires. Distinguish a credit limit from the amount borrowed, and an expense from repayment of principal.
A covenant worksheet should identify the agreement clause, measurement date or period, defined numerator and denominator, required threshold, actual result and supporting records. Use the agreement’s permitted adjustments rather than inventing add-backs for costs management dislikes.
Hypothetical debt-service coverage ratio: assume the agreement defines annual cash flow available for debt service as $150,000 after its required adjustments, and annual debt service as $120,000 including all required principal and interest under that definition. DSCR is $150,000 ÷ $120,000 = 1.25.
If that hypothetical agreement requires 1.20, the minimum numerator is $144,000, leaving $6,000 of headroom. A downside case of $135,000 divided by $120,000 gives 1.125, below that threshold. The example does not establish a universal lender minimum or show that the borrower satisfies every covenant.
EBITDA, net income and cash available for debt service are different measures. The agreement may specify taxes, owner distributions, leases, capital spending, related entities or other adjustments. Include proposed debt in the forecast and identify which historical or projected period each ratio uses. Contact the lender about a potential breach under the agreement’s notice provisions; do not alter the definition to manufacture compliance.
Specify the statement engagement level
A CPA’s involvement does not automatically make statements audited or reviewed. The AICPA’s explanation of compilation, review and audit services distinguishes the assurance provided.
- Preparation: financial statements are prepared under the applicable engagement requirements; no assurance is provided.
- Compilation: an accountant assists with presentation and issues a compilation report, with no assurance. Lack of independence, if applicable, must be disclosed.
- Review: an independent CPA performs inquiry and analytical procedures, with further work as required, to provide limited assurance.
- Audit: an independent CPA obtains evidence to provide reasonable, not absolute, assurance about material misstatement and expresses an opinion.
Checking reconciliations during ordinary bookkeeping is not a formal review engagement. A business’s revenue falling within a particular dollar band does not itself establish a lender-wide requirement for compiled, reviewed or audited statements. Confirm the actual requirement and whether the provider offers that engagement before setting a delivery date.
For related guidance, our article on Small Business Financial Due Diligence walks through this in “Financial Due Diligence Before Buying a Small Business.”
Identify the right owner and guarantor documents
A percentage mentioned in one program should not become a rule for every loan. For example, 13 CFR 120.160 generally requires holders of at least 20% ownership to guarantee SBA business loans and permits other guarantees when appropriate. That guarantee provision is not a universal rule limiting personal tax-return requests to 20% owners.
Ask the lender which owners, guarantors, controlling persons and related businesses must supply information, and which reporting periods apply. Keep personal and business records identified separately. Use the lender’s designated submission channel, verify recipient details, and retain a record of what was supplied.
Label forecasts and explain assumptions
Historical statements describe completed periods. Forecasts estimate future results. Present the forecast separately, state its preparation date and identify assumptions for sales, collection delays, inventory purchases, payroll, taxes, capital spending and debt payments.
Show an expected case and a downside case with a concrete change, such as slower collections or a lower sales volume. Carry the effect through receivables, inventory, payables, cash and debt service. More sales can require more working capital before the cash arrives, so a profit projection alone does not demonstrate repayment capacity.
A use-of-funds narrative should reconcile the requested borrowing with purchases, refinancing, working capital and any owner contribution. Support significant amounts with quotes, agreements or schedules. Keep historical results visible when presenting adjusted or forecast figures.
Finish with a controlled handoff
Review the package against the lender’s list, explain unresolved items and retain the exact submitted versions. If the lender requests newer statements, update the related debt and aging schedules to compatible dates and explain any changed figures. Management remains responsible for the information and assumptions supplied.
CPA Firm South Florida’s published preparation pricing includes cleanup needed for the quoted tax return. Lender-package work, forecasts or a specific financial-statement engagement should have an agreed scope and fee. Contact the firm with the lender’s actual requirements to discuss the work needed.
Frequently asked questions
How many years of returns and months of statements should I gather?
As a preparation range, assemble two to three years of filed business returns, owner returns requested by the lender, and three to twelve months of bank statements. The actual lender may require fewer, more or different records; obtain its written checklist and current-statement cutoff.
Must bank deposits equal financial-statement revenue or tax income?
No. Reconcile the differences. Deposits can include loans, contributions and transfers, while revenue can include amounts not yet collected. Tax income can differ from book income because of timing and other tax adjustments.
Do all lenders require reviewed or audited statements?
No. Confirm the required reporting basis and engagement level with the actual lender. Preparation and compilation provide no assurance; a formal review provides limited assurance, and an audit provides reasonable assurance.
Does a forecast prove that a new loan can be repaid?
No. A forecast depends on assumptions. Show collection timing, operating costs, capital spending, taxes and existing and proposed debt payments, and test a downside scenario using the lender’s definitions.