Erika Nessman, BBA
COMOX VALLEY – One of the best parts of my job is helping business owners like you to expand and flourish. Your success not only strengthens your livelihood but also our local economies, which benefits us all.
If you’re looking to borrow to help build your business, you might do so by pledging personal assets. Often under the retail division verses commercial, this type of borrowing can make a difference in rates, fees, timeline, and even complexity. Your personal or business banker can help you decide which option is best and your business structure will determine what your lender will need. The most common business structures—sole proprietorship and a corporation/ limited company—are spoken to here.
It’s important to know that lenders rely on income history for qualification rather than projected income when you borrow under the retail banking division. Understanding your earnings story, as well as your company’s cash flow, will help determine sustainability when calculating your ability to service a new debt.
As a self-employed individual, it’s very common for a lender to consider the lesser of a three-year average or the most recent filed year. Year over year revenue and income trends are reviewed carefully. It’s possible to look at industry experience where less than three years exist.
In the case of corporate income, reviewing your financial statements is an important step to understanding the cash flow and viability of a business. When you have an outlier year, be pre-pared to explain it. The impact of the pandemic on business operations is being considered, so it’s possible additional years of income history may be requested.
Writing down your income significantly, while benefiting you tax wise, can limit your borrow-ing ability. For a sole proprietorship, we look at your net income rather than your gross. Re-member that there are specific lines that can be added back to your net income such as capital cost allowance and business use of home. As a corporation, you’ll need to provide up to three years’ worth of financial statements as well as your T1 generals for that period.
Whichever borrowing strategy you select for your business, it helps to have a strong relation-ship with a lending expert who can inform the conversation with helpful, proactive advice.
Erika Nessman, BBA is a Business Services Area Manager for Coastal Community in the Comox Valley
