Tax Time: What’s Needed For Lending

Tax day marked on calendar

Tax Time: What’s Needed For Lending

We wanted to take some time to clarify what details you will need to provide a lender for financial analysis for your financial advisor loan. As is normal with tax topics, this is pretty dry material. But we hope the following information will be useful in understanding what financials you are expected to submit for review.

Guidelines To Follow

Salt Creek utilizes the SBA loan program for most of our financial advisor loans and SBA has specific requirements for credit analysis of historical cash flow. Technically, there are two guidelines a lender must follow. For loans under $350,000 (7a small loans), there is a less strenuous analysis than loans from $350,001 to $5,000,000. We’ll focus on the general financial document requirements for larger SBA loans as it’s good practice to have the information needed for those loans on hand.

For loans over $350,000, SBA requires the lender to analyze the ability of the borrower to repay the debt based on historical cash flow. A lender will review three years of tax returns and the current year-to-date results, also known as the interim period. While SBA requires interim numbers be “dated” within 180 days of application, Salt Creek prefers to see these numbers within 90 to 120 days.

Extension Situations

Let’s cover what will be needed when April 17th has come and gone. After Tax Day, a lender will need to review the prior year tax return. But what if you file an extension? In this case, you will submit a copy of the tax extension form for the lender to review. It’s commonplace for our clients to request an IRS extension for personal and/or corporate taxes, so from April 17th to Oct 15th, we often rely on internally prepared financials to bridge the gap since the last tax return was filed. Depending on what month your application is submitted, this could involve two sets of financial statements: one from the previous year-end and a second set that covers the YTD interim period. This goes back to the need for interim financials dated within 180 days of application.

From April to June, we can typically proceed with a prior-year-end Profit & Loss statement and Balance Sheet. From June to Oct 15th, we often need a second set of YTD financials to meet the 180 day SBA requirement. Again, as a lender, we typically like to see interim numbers dated within 90 days of application.

Be Aware Of Timing Pitfalls

There is a timing pitfall to watch out for with submitting a loan application just after filing your taxes. SBA requires a lender to review IRS tax transcripts against the tax returns supplied by the borrower to verify their validity. There can be a few weeks delay in the availability of tax transcripts after filing taxes. This could potentially cause a delay if you are seeking an SBA loan near the time you are filing your taxes. These delays are most common around April 17th and October 15th but should be kept in mind when submitting your SBA loan application. As a Preferred SBA lender, we have the ability to approve the loan prior to receiving the tax transcripts, whereas a non-delegated lender must review tax transcripts prior to submitting the loan to the SBA. This gives Salt Creek a timing advantage over many SBA lenders and with proper planning and a proactive approach we can avoid any delays.

Planning Is Key

So what does all of this mean? If you plan on seeking an SBA loan in the near future you should consider the effects of filing a tax return extension. An extension will add to the complexity of financial documents you’ll need to provide, but with proper planning the headaches can be kept to a minimum. If you want to learn more about what financial documents will need to be provided for your financial advisor loan please reach out to a Salt Creek Loan Advisor today.