With many ways to finance essential business equipment, it requires more than just a basic understanding of your credit score to find the best lender for your needs, situation and goals. At the heart of every financing decision are financial statements—documents that reveal the financial health and operational status of your business. For lenders, these statements often tell a story beyond mere numbers or credit score, offering insights into a business’s viability and long-term sustainability. Therefore, it’s critical to master the basics of financial statements and their significance to your equipment financing application decision.
1. Income Statement (Profit and Loss Statement)
What is it?
The income statement provides a snapshot of your company’s profitability over a specific period. It showcases revenues (incoming cash from sales) minus expenses, resulting in either a profit or a loss.
- Revenues: Money earned from sales before any expenses are taken out.
- Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold.
- Gross Profit: Revenues minus COGS.
- Operating Expenses: Costs associated with running the business, such as salaries, rent and utilities.
- Net Profit: The bottom line, indicating the profit (or loss) after all expenses are deducted from revenues.
Why is Your Income Statement Important for Equipment Financing?
Lenders, even Story lenders like Global Financial & Leasing Services (GFLS), review the income statement to gauge the profitability of your business. A consistent record of profitability can indicate good management and a viable business model, making you a more attractive candidate for financing, even if you have less-than-perfect credit.
2. Balance Sheet
What is it?
The balance sheet provides a comprehensive view of your company’s assets, liabilities and equity as of a specific date. Think of it as a snapshot of what your business owns and owes.
- Assets: Items of value that your business owns. They are categorized as current (converted to cash within a year) and non-current (long-term assets like property or equipment).
- Liabilities: Debts and obligations owed by the business, also categorized as current (due within a year) and long-term.
- Equity: Represents the owner’s interest in the business. It’s the residual interest in the assets of the entity after deducting liabilities.
Why is Your Balance Sheet Important for Equipment Financing?
The balance sheet reveals the financial stability of your business. A lender will assess the ratio of assets to liabilities to understand the company’s debt load and its ability to take on additional financing. A strong balance of assets relative to liabilities can boost your financing application.
3. Cash Flow Statement
What is it?
This statement tracks the movement of cash in and out of your business over a period. It showcases how your business generates and uses cash in its operations, investments and financing activities.
- Operating Activities: Cash flows from core business operations, including receipts from customers and payments to suppliers.
- Investing Activities: Cash flows from acquiring or disposing of long-term assets, such as equipment or property.
- Financing Activities: Cash flows related to borrowing, lending and equity transactions.
Why is Your Cash Flow Statement Important for Equipment Financing?
Lenders use the cash flow statement to determine whether your business generates enough cash to meet its operating needs and service any existing debt. Positive cash flow indicates a company can maintain or expand operations, while negative cash flow might be a red flag on your ability to take on more financial commitments.
Why GFLS, a Story Lender, Looks Beyond Your Credit Score
For a Story lender, like GFLS, your credit score is just a single piece of the puzzle. While it gives a quick view of creditworthiness, it doesn’t reveal everything about you and your business. Your financial statements, on the other hand:
- Offer a Holistic View: They provide comprehensive insights into operations, financial health and management capabilities.
- Showcase Business Trends: Year-over-year comparisons can highlight growth patterns, profitability trends and potential red flags.
- Demonstrate Fiscal Responsibility: Proper management of assets, liabilities and cash flow signals responsible financial handling, a crucial factor for equipment financing approval.
Understanding your financial statements is not just about securing equipment financing—it’s about gaining insights into your business’s health and driving strategic business decisions. As you look for equipment financing to grow your business, remember that these documents/reports support and help tell your story. They convey your business’s journey, its ups and downs, and its potential for future success. Equip yourself with this knowledge, and you’ll not only stand a better chance of obtaining equipment financing, but also in leading your business towards long-term growth and success.
GFLS is an established direct lender with the unique ability to finance almost any business seeking to acquire equipment. We have been providing equipment financing solutions since 2009 and have the ability to help business owners and startups who have been turned down by the banks. If you have any questions, please get in touch.