Mistakes People Make When Securing a Commercial Loan
1. Not Having a Clean Established Business
Most small businesses are established once an LLC or Corporation is registered with the Secretary of State for the state you live in. You must create an account and complete the registration. The time in business will be one of the determining factors for commercial loans. Additionally, the number of officers on the business should only be the essential operator(s) that are willing to take on the business loan. Typically, a finance company will require all LLC officers to submit a credit application and sign on the loan that is being extended to a business. Finally, this business must be renewed each year by logging in and paying the renewal fee otherwise the business will be dissolved.
2. Lack of Employee Identification Number (EIN)The business owner must apply for a federal EIN. The IRS Online application is simple and free, but there is a very important letter of EIN Assignment that is issued. This letter, provided by the IRS, will identify your business account, tax returns and various other documents even if you have no employees. You must keep this notice in your permanent records and this notice is required by most finance companies.
3. Comingling Funds
Your business bank account and credit cards should be separate from your personal accounts. All business expenses and income should be channeled through the bank account that is established using the EIN provided by the IRS. This shows the finance company the overall health of the business and that business finances are being managed responsibly. Money can be transferred between your personal accounts as needed for wages, but personal expenses should never be paid from your business account or credit card.
4. Incomplete Tax Filing
For an LLC, these wages and expenses would be filed on a Schedule C of your personal tax return. Many finance companies will require 2-3 years of tax filing history to show that you are serious about managing your business. A tax accountant can assist with this filing or most online filing applications will guide you through how to fill out the forms and complete an eFile. Most importantly, you must archive all tax filing forms and supporting documents. The best way to do this is to save a copy on a share drive in the cloud like OneDrive or Google Drive so they can be accessed easily.