| If rising labor costs and operating expenses have reduced your profitability, you may have been surprised when the bank turned down your loan even though your business is performing well. Your business has strong revenue.You have good credit.You have liquidity for the down payment and reserves. But the bank still turned you down. This is happening more often today because profitability on tax returns is being squeezed. Labor costs have increased significantly. Insurance, materials, and operating expenses have all gone up. Many business owners are writing off more expenses just to maintain cash flow and stay competitive. Here is what many successful business owners do not realize. There is a tax strategy and there is a loan strategy. These strategies often work against each other. Your CPA’s job is to minimize taxable income.A lender’s job is to evaluate your ability to repay a loan. Banks primarily look at the net income reported on your tax returns. They may add back certain one-time expenses, but they still rely heavily on the bottom-line income. They then compare that income against all personal and business debt combined. This is called the global debt service ratio. If labor costs, operating expenses, and write-offs reduce your net income too much, the bank’s formula may show insufficient income to support the loan, even if your business is healthy and generating strong cash flow. This does not mean your deal is weak.It usually means the loan needs to be structured and presented differently, and matched with the right lender. I work with business owners every day whose tax returns show reduced profitability due to legitimate business expenses and write-offs. Many of these loans can still be approved when positioned correctly. If you were recently declined, there may still be options worth reviewing. Call me at 512-358-1511 and I will look at your scenario. Karen Schimpf Commercial Capital, Ltd. O: 512-358-1511 E: karen@ApplyCommercialLoans.com w: www.linkedin.com/in/karenschimpf/ blog: http://bizloansconnections.com/ website: http://applycommercialloans.com  P.S. SBA Alternative for Business Acquisition Financing: Buyers can acquire a business with just 10%–15% down and as little as $50K in reserves for loan amounts up to $375K unsecured. For loans up to $500K, real estate collateral is required. Minimum 700+ credit score. Closings in weeks—not months—with significantly less documentation than traditional SBA loans. This is an ideal solution for buyers who want faster execution or fall just outside SBA guidelines. |