How to Obtain Financing for Your Small Business [Sam’s Story Part Six]

Welcome back to the ‘Sam’s Story’ series, where we cover common accounting topics in a real-world scenario. This series helps take the mystery out of what an accountant can do for a small business owner. This week we’re talking about how to obtain a small business loan!

Sam’s Story Recap

If you haven’t read any of our previous Sam’s Story articles, catch up on them now!

Sam’s Story Part One: Selecting a Business Entity for a New Business

Sam’s Story Part Two: Accrual vs Cash Accounting

Sam’s Story Part Three: Subcontractor or Employee?

Sam’s Story Part Four: Lease or Buy a Car for Your Small Business

Sam’s Story Part Five: Fixed Asset Depreciation in Accounting

How to Obtain a Small Business Loan

Over the past few months, Sam’s Sports Bar had been growing in popularity and regulars could be seen almost every weekend.

Sam wanted to keep the momentum going by upgrading and expanding the amount of televisions.  He thought he would need 25 new televisions to be competitive with other local restaurants and draw in a large sports crowd on football weekends.  In addition, Sam was thinking about obtaining a small business line of credit, so he would be able stock up in anticipation for large sporting events like the Super Bowl.  He came to me for guidance on how to obtain financing.

Most lending institutions request the same set of documents when considering a loan, so once organized, we can replicate for a second application.

Common Documents Needed:

  • Personal and business tax returns (3 years)
  • Current business financial statement and/or pro forma
  • Personal financial statement (PFS)

First, Sam collected personal and business tax returns from the three previous years. A current financial statement for the business was also required and since the business was less than three years old, Sam and I created a pro forma. The pro forma showed the bank Sam’s reasonable expectations for future growth and his ability to repay the debt.

Personal Financial Statement

The last document Sam needed was a current personal financial statement.  He gave me a call because he wasn’t sure exactly what it was the bank was looking for and how to get them that information.  I explained to him that just like the financial statements we prepare and provide to him each month for his business, the personal financial statements that the bank was looking for show his personal assets, personal liabilities, net worth and his monthly cash flow.

I told Sam that if the bank did not provide him with the forms for a personal financial statement, which they often do, then we had a template that I could send over to him to fill out.


Under the Assets section I told him to include any personal assets that he had, such as cash in savings, checking accounts and CD’s as well as any large assets such as his home, cars, boats, etc.  The value of his business was also to be included so Sam and I discussed a reasonable estimate for him to use.


Under the Liabilities section, he was to include any debts that he had to banks in the form of a loan, like his mortgage or credit card balances.  The difference between his assets and his liabilities will be his net worth.

Cash Flow

The second piece to the personal financial statement that the bank would need is the information related to his personal cash flow.  This statement shows, on a monthly basis, what his average income is and what his average expenditures are. This way the bank can see what, if any, excess cash flow is available.  The amount that the bank would like to see available will most likely depend upon the type of loan being sought.

Final Application Steps

Most small business loans also require the owner sign a personal guarantee to obtain financing. This means if the business is unable to pay the loan back, Sam can be held personally responsible for repayment.

I helped Sam submit his information with the loan request and told the loan officer to give me a call with any questions on the tax returns or financial statements.  Having worked with Sam for some time, I knew that Sam would have a positive net worth and good cash flow, so his odds of getting the loan were pretty good. Sam felt better now that he understood what the bank was looking for. He didn’t think it would be too difficult to pull all that information together.

I heard from Sam a few days later.  He was pleased as he told me that the bank had already approved his loan!

Do You Need Help Obtaining Financing?

Schedule an appointment with one our experts. We can analyze your business records and help you apply for the appropriate loan.

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