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For a Standard 7(a) loan, businesses will typically be asked for current and historical Profit and Loss statements, Balance Sheet statements, business tax returns, personal tax returns, and a schedule of outstanding debt.
Depending on the lender, you may also be asked for a Statement of Cash Flows, accounts receivable and accounts payable aging reports, financial projections, and a personal financial statement on SBA Form 413.
However, what you end up needing to provide will ultimately depend on the size of the loan, the lender’s underwriting standards, how long the business has been operating, and what the funds will be used for.
Honestly, producing the statements is the easy part. Your QuickBooks Online will generate your Profit and Loss and Balance Sheet statements in one click.
What makes things difficult is that an underwriter is going to read the statements line by line against your tax returns and your debt schedule. They are not looking for perfect bookkeeping, but they are looking to see if the numbers agree with each other.
When the numbers are off, it doesn't necessarily mean you are automatically going to get denied, but it will lead to questions that will delay things for sure. Going back to your bookkeeper, or trying to figure out what happened, can easily make you feel like you are scrambling from there on out. Those are weeks you did not plan for. And in business, time is money.
That said, before you send anything with your application, there are three things you should check before getting scrutinized. These checks also illustrate the difference between basic bookkeeping and professional bookkeeping.
Bank and credit card reconciliations show that the balances recorded in your books can be explained against the balances and activity reported by the financial institution.
They help identify missing, duplicated, or improperly recorded transactions, but they do not by themselves prove that every transaction was classified correctly.
You can check this quickly in QuickBooks Online by going to the menu and clicking Reconcile. Make sure every account is reconciled through the most recent month-end. If it has not been in a while, work through each month until it is current.
Negative balances are not automatically wrong. What matters is whether the account normally carries that type of balance and whether the underlying activity can be explained.
Review unexplained negative balances in cash, accounts receivable, accounts payable, loans, fixed assets, income, and expense accounts.
The lender wants to see that your financial statements are actually what you have been reporting to the IRS.
What you compare depends on how your business is structured and taxed. Here are the most common scenarios.
If you are a sole proprietor, look for Schedule C among the schedules attached to your personal tax return. If you have a single-member LLC that has not elected S Corporation tax treatment, it works the same way. Compare your prior-year Profit and Loss statement against Schedule C for the same completed tax year.
If you have an LLC with business partners and have not elected to be taxed as an S Corporation, look for the business tax return, Form 1065. Right on the face of it you will see revenues and expenses to compare against your Profit and Loss statement. You also have to compare your Balance Sheet against page 6 of that same form. That is where the Balance Sheet goes. Make sure the beginning and ending balances match.
If you have an LLC by yourself or with partners, and you elected to be taxed as an S Corporation, look for your business tax return, Form 1120-S. Page 1 shows revenues and expenses, and page 4 shows your Balance Sheet. Again, compare your Profit and Loss statement, and compare your beginning and ending Balance Sheet balances.
Will they match 100%? Nope. The forms do not list every account in your general ledger, so some of your expenses will be grouped under Other Deductions. There should be a statement attached to the return showing the detail, so that is where you go to see what makes up the number.
The Balance Sheet works the same way. Do not expect every account to show up on the form. Compare the total assets, total liabilities, and total equity numbers instead.
Lenders and other creditors want to feel assured that you will be able to pay them back.
Revenue matters, but revenue alone does not show that the business can repay the loan. Lenders, investors, government, and frankly any other funding or accounting institution deem that no single piece of financial information proves a business is healthy and able to carry and pay back its debts.
That is why they may ask for some or all of the pieces below. Each one shows something the others do not, and together they let a third party looking from the outside in financially understand the business as a whole before deciding whether to give you money.
The Profit and Loss statement shows revenues and expenses, simple.
However, lenders and other creditors you are seeking capital from are also looking to understand how efficiently the business makes money.
That requires the business to correctly separate the costs that make up gross profit from the expenses that make up operating profit. If those are mixed together, nobody reading the statement can tell where the money is actually going at each stage of operations. A P&L should read cleanly from top to bottom, showing what happens to a dollar of revenue at every step.
The Balance Sheet lists what the business owns and what it owes. The difference between the two is owner equity, or what remains after the liabilities are subtracted from the assets.
Business owners tend to focus on the P&L. But looking at both statements together is how you know whether the business is profitable and how much risk is involved. The relationship between the two is how you see whether a business is healthy.
The Statement of Cash Flows shows where cash came from and where it went during a period of time.
That said, lenders can often calculate historical cash flow from your tax returns, income statements, balance sheets, and debt schedule, rather than relying on a formal Statement of Cash Flows.
For the most part you will be asked for financial statements covering the last two or three years, but you will also be asked for the current year in progress.
The fresher a financial statement is, the more it actually represents the business today.
Lenders usually ask for your business tax return, your personal tax returns, or both, for the prior two or three years.
Your financial statements will be compared against the same returns you provide to see if they agree with each other.
This supplements what you should already be reporting on your Balance Sheet as business liabilities.
It gives the lender the details behind those balances, meaning who you owe, the original amount, the current balance, the interest rate, the monthly payment, and the maturity date on every obligation the business is carrying.
It is rare to be asked for one without the other. Usually they ask for both or they do not bother with either.
Older receivables are revenue the lender counts less on. Older payables may indicate cash flow issues.
Expect each 20%-plus owner and proposed guarantor to provide a personal financial statement, usually on SBA Form 413 or the lender’s equivalent form. This allows the lender to evaluate the financial condition of the people guaranteeing repayment.
Not so fast. This is not where we freely speculate.
How much weight a lender gives your projections depends on how reliable the foundation underneath them is, meaning how trustworthy your recent and prior year financial statements are. You cannot extrapolate credible numbers from books that don’t hold up.
Projections also show a lender how conservative or aggressive you are.
Every possible problem here harms the integrity of your profit number, some push it up, some push it down, depending on the account(s) involved.
Owner distributions buried in operating expenses.
This understates profit, which throws off the lender's math on how much debt you can actually service.
Owner contributions recorded as revenue.
Money the owner put in or back into the business to cover business expenses sitting in income accounts. This overstates profit and may make the business appear able to support more debt than it actually can.
Revenue recorded twice.
Very often an invoice gets recorded, and when the payment comes in, instead of applying the payment transaction against the open invoice, another income transaction gets recorded. This overstates revenue while leaving the original invoice sitting incorrectly in accounts receivable.
Expenses recorded twice.
Often as well, a bill gets recorded only for the payment transaction to be recorded as another expense transaction. This understates profit while leaving the original bill sitting incorrectly in accounts payable.
Large purchases expensed instead of capitalized.
When a large purchase gets run straight through the P&L, the asset never lands on the Balance Sheet. The business owns something of real value and the statement does not show it, which works against you when a lender is reading that statement to see what the business owns. The deduction on the tax return may be correct, since the code allows large purchases to be fully deducted in some cases, but the books should still carry the asset.
Even if the asset is eventually fully depreciated, the books should carry its original cost and the accumulated depreciation against it, with the two netting to a net book value of zero. Expensing the purchase skips all of that. The cost never lands on the Balance Sheet, nothing depreciates against it, and there is no net book value to walk down over the asset's life.
These are the problems that show nobody ever checked the books against anything outside of them. Numbers from an account that was never reconciled are less reliable.
Unreconciled bank accounts.
This is when the cash balance on the Balance Sheet cannot be reconciled against the bank statement.
Unreconciled credit cards.
This is when the credit card liability on the Balance Sheet cannot be reconciled against the month-end statement from the card issuer. Missing credit card activity can leave expenses unrecorded and make profit look higher than it actually is.
Inexplicable negative balances on the P&L or Balance Sheet.
A negative you can't explain usually means something got recorded wrong and never got looked at. If you're seeing a negative and you don't know why it's there, that's the problem right there.
Loan payments going out without a related balance.
When loan payments go out that do not relate to any debt balance on the Balance Sheet, it signals that an entire loan balance is missing from the liability section.
Loan payments recorded entirely as an expense.
Most loan payments include both principal and interest. Only the interest portion is recorded as an expense, and the principal portion reduces the outstanding loan balance.
Fixed assets and accumulated depreciation left disorganized.
Even when a business owner correctly capitalizes a large purchase, the supporting detail is often messy, and changes to accumulated depreciation can be difficult to tie to the tax return.
Nope. Many applications use financial statements internally generated by the business.
However, depending on the loan size, the lender, and the complexity of the financials, it may be more appropriate to work with a small business accounting firm, or a lender may ask for financial statements prepared or formally reviewed by a CPA.
If the checks earlier in this post show something’s up, here is the work to get your books to where they will hold up.
Here is the thing. Nothing on that list is really about the loan. It's part of maintaining clean books throughout the year. That is exactly what our professional bookkeeping services are designed to handle. If you would rather not take it on by yourself, that is what we are here for.
SBA lenders want to see whether the business makes enough money to repay the loan and whether the numbers can be trusted. They compare your financial statements against your tax returns, bank activity, and debt schedule to make sure everything tells the same story.
Jose Cardenas, CPA, EA
Jose is a Certified Public Accountant in the state of Florida and an Enrolled Agent, and is the Founder of Westfront Tax & Accounting. He helps small businesses grow without expensive guesswork. His work is centered on helping owners upgrade to an audit-proof accounting process that helps them, not just the IRS. Since 2021, Jose has helped protect over $55M in client revenue through clean books, tax optimization, and financial systems built for growth.
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