What will you be asked for?
| Document | Why it is needed |
|---|---|
| Profit and loss statements | Revenue trend, margins and profitability |
| Balance sheets | Assets, debts and equity |
| Cash flow statement | Ability to service new debt |
| Business tax returns | Independent check on reported profit |
| Personal tax returns of owners | Owner income and guarantees |
| Debt schedule | Existing loans, terms and payments |
| Receivables and payables aging | Quality of working capital |
| Projections | How the loan or investment will be used and repaid |
SBA-backed lenders also use their own forms, including a personal financial statement from owners. See how to read a balance sheet and the cash flow statement.
Why must the books agree with the tax returns?
Lenders compare the statements with filed returns. Differences from timing, depreciation methods or owner adjustments are normal, but must be explained. Unexplained differences, or books showing much higher profit than the returns, raise questions about which is right.
Prepare a short reconciliation showing book profit, each adjustment, and taxable income on the return. It answers the lender's first question before it is asked.
Personal financial statements from owners should also be consistent with what appears in the business books, such as loans to or from the business.
How do you prepare?
Close and reconcile every month
For the full period requested. See the month-end close checklist.
Clean up classifications
Owner draws, personal costs, equipment and loans.
Reconcile to tax returns
And note the differences.
Prepare schedules
Debt, aging and fixed assets.
Write projections
With clear assumptions linked to past results.
Present the statements consistently from year to year, with the same account names and layout, so trends are easy to compare.
Have the owners' personal tax returns and identification ready too, since lenders usually ask for them alongside the business documents.
What are compiled, reviewed and audited statements?
| Level | What the CPA does | Typical use |
|---|---|---|
| Compilation | Presents the statements; no assurance | Smaller loans |
| Review | Analytical procedures and inquiries; limited assurance | Mid-sized loans, some investors |
| Audit | Testing and evidence; reasonable assurance | Larger financing, institutional investors |
Ask the lender which level it needs before engaging a CPA.
How do lenders measure repayment capacity?
Many use the debt service coverage ratio: cash flow available for debt payments, often based on profit plus depreciation and interest, divided by total annual loan payments, including the new loan. Lenders commonly look for a ratio comfortably above 1, often around 1.25 or higher. A business with $150,000 of available cash flow and $120,000 of annual debt payments has a ratio of 1.25.
How far ahead should you prepare?
Ideally a year before applying: twelve months of clean, reconciled monthly statements carry more weight than a quick clean-up just before. Filing tax returns on time, rather than on extension, also helps, since lenders want the latest year's return. Owners can request IRS transcripts to confirm what was filed.
See how to get business tax transcripts.
What are add-backs?
Lenders and buyers often adjust profit for one-off or discretionary costs, such as owner salary above market, personal expenses run through the business, or a one-time legal bill, to show underlying earnings. Keep a documented list. Note that personal expenses run through the business should not be deducted for tax in the first place.
What do investors look for beyond the statements?
Revenue by customer and product, gross margin trends, monthly recurring revenue for subscription businesses, a capitalization table showing ownership, and clean corporate records. For equity investment, a C corporation is often expected. See Delaware C corp for startups.
Investors also check that taxes, payroll filings and state annual reports are up to date, since unpaid liabilities transfer with the business.
Applying for financing?
We bring your books up to date, prepare lender-ready statements and schedules, and reconcile them to your tax returns.
Questions people ask
What financial statements do I need for a business loan?
Usually profit and loss statements and balance sheets for two or three years plus year to date, tax returns, a debt schedule and aging reports.
Do my financial statements need to match my tax returns?
They should reconcile, with any differences explained.
What is the difference between a compilation, review and audit?
A compilation gives no assurance, a review gives limited assurance, and an audit gives reasonable assurance after testing.
What are add-backs?
Adjustments to profit for one-off or discretionary costs, showing underlying earnings.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- U.S. Small Business Administration: Loans
- U.S. Small Business Administration: Manage your finances
- IRS: Get transcript
Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.
Related guides
More in Bookkeeping
This guide is general information. It is not tax or legal advice for your situation.