Linda Keith CPA

Temperature or Tides? Wants or Needs?

2010-03-10T19:42:48Z

Your business borrowers are making big decisions in very 'confused seas'. Is it time to:

Rehire workers?
Add to production?
Beef up inventory?
Market more aggressively?
Borrow money?

Last weekend I planned to take the kayak out for a trial run. I moved the seat forward and wanted to see if it improved my stroke.

Tide was the highest early in the morning and in front of my house, putting in at high tide is easier. But, ah, this is the Pacific Northwest. The day would be at it's warmest around 2pm...maybe up to 55 degrees!

Was tide or temperature the most important factor?
Since I can know tide with certainty (I can look it up on charts or just look outside) but cannot know the weather with certainty, should that impact my decision?
How much more difficult would it be to put in around 2pm, the scheduled low tide? I'd have to carry that kayak across mud to do it. Isn't that why I bought a 34 lb boat?
What is the benefit of getting it out of the way (early morning) versus getting sidetracked (or comfy in front of the fire with a good book) later in the day?
Does the fact that I can do something about temperature (wear more clothing) and cannot do something about tide come into play?
Is it time to take low tide out of the equation by buying portable wheels?

Look at the steps your businesses and business borrowers are taking as we move into the recovery. Most decisions will have some certainty and some uncertainty. Sometimes quick action is the best move and other times holding off will be better. It is uncertain which is best in each situation.

As the business lender, you may be called upon to pass judgment on the results of this borrower's decision-making when you consider their next loan.

As the business owner, you may be reluctant to share all the false starts, missed opportunities or initiatives that just did not work.

But if a business is not willing to suffer a setback right now, it may not be taking any action at all. That is probably the wrong move, too.

Did I go out in my kayak?
If I did, when did I go?
Tides or temperature...what do you think?
Email me and I'll tell you!

Looking for strong business borrowers? Try pegging.

2010-03-03T16:32:40Z

Aldonna Ambler is a growth strategist and a friend of mine. She has a background in venture capital and in starting and growing multiple businesses. She works with community banks among other client niches. She has personally advised U.S. Presidents on Small Business Needs.

Are you competing for the remaining strong business borrowers? All the business lenders I talk to are!

In this post on Pegging, Aldonna shares a marketing strategy that sounds like it is about Catholic Single Moms and Grandfathers, until you read Step 9.

Read it here.

Lucky 13: Additions to cashflow you may be missing

2010-02-24T00:36:54Z

This would be a bad time to miss an add to taxable income. Your borrower's need all the help they can get to qualify for your loan.

Some in this list are personal and some are business. Let's face it, if you are lending to a business-owner you need to understand business cashflow. And if you are lending to a business, you need to understand the owner/guarantor's personal cashflow.

Add to cashflow...

Before you add anything to cashflow consider:

whether you are doing historical or recurring cashflow (don't add nonrecurring income)
how your guidelines handle these items
whether it is needed to qualify the borrower (save time and hassle by not pursuing adjustments that will not make a difference)

That said...here are some possibilities!

Child support

WHAT: Support from a non-custodial parent
WHERE: Not listed on the tax return. Get it from their application
DOCUMENTATION: Divorce decree to prove it should continue and perhaps bank statements to show the borrower has been receiving it

Military pay in Iraq or Afghanistan

WHAT: Payment for services in a qualified combat zone
WHERE: Not listed on the tax return. Get it from their application
DOCUMENTATION: The W-2 will indicate the amount excluded.

Minister Housing Allowance

WHAT: An amount paid by a religious organization as housing allowance for an ordained minister, rabbi or
WHERE and DOCUMENTATION: Not listed on the tax return. See W-2, Box 14, Other or letter from religious institution.

Foster Care payments

WHAT: Payment from a state for care of children who are wards of the state
WHERE: Not listed on the tax return.
DOCUMENTATION: None is required by the IRS. Request documentation from the paying agency.

Tax-exempt interest

WHAT: Interest on municipal bonds
WHERE: 1040 Line 8a, 1120 (Corporation) Sch K Line 9, 1120S (S Corporation) Sch K Line 16a, 1065 Sch K Line 18a
DOCUMENTATION: None needed. They would not have reported it on the tax return if they did not receive it. As for deciding if it is continuing, consider interest income as a whole (taxable and nontaxed). If significant and needed to qualify, request documentation of underlying assets.

Disability income

WHAT: Income received from the Veterans Affairs for disability or from a disability policy the taxpayer paid for personally is not taxable as income. (If the employer paid for the plan, the disability income is taxed on the wages line of the return.)
WHERE: If not taxable, it will not be reported on the tax return at all.
DOCUMENTATION: Statement from the payer of the disability income.

Untaxed wages

WHAT: Taxable wages reported on Line 7 of the 1040 are less than gross wages to the extent that the taxpayer deferred compensation into a 401(k) or similar plan, received adoption benefits, or made certain contributions to Archer MSA (medical savings accounts)
WHERE: These untaxed wages will not be reported on the 1040. You may discover them due to a discrepancy between what the borrower lists on their application and the amount listed on Line 7 of the 1040. You also may note a difference between the Officer Compensation on the 1120 or 1120S and the amount listed for the same period on the 1040.
DOCUMENTATION: Either Line 5 on the W-2 (Medicare wages), the Gross Wages on a year-end pay stub, or the Compensation for that Officer on the 1120 can be used instead of the amount on 1040 Line 7.

Proceeds from sale of personal residence

WHAT: Generally the taxpayer can exclude proceeds on the sale of a personal residence lived in two of the most recent five years. (Some gain exceptions apply).
WHERE: You will not see this on the tax return.
DOCUMENTATION: Since you are unlikely to treat this as recurring cashflow, you probably do not need documentation. This comes into play, however, when you suspect fraud (cannot figure out how the person supports this lifestyle or came up with the money to support a struggling business on the income reported) and the 'missing' income turns out to be legitimately unreported since it was from sale of a personal residence.

Portion of unemployment compensation. Up to $2,400 on 2009 returns

WHAT: As part of the response to the recession, a portion of unemployment compensation was not taxed.
WHERE: 1040 Line 19 shows the taxable amount. The borrower does not have to report the first $2,400. HOWEVER, if you do not think the unemployment compensation is recurring, you should not add it.
DOCUMENTATION: The taxpayer received a 1099-G from the government showing the total amount received.

Foreign source income in some cases, if you live outside the U.S.

WHAT: U.S.Citizens are generally allowed an exclusion of up to $91,400 for income earned outside the United States if they also live outside of the United States.
WHERE: The Foreign Earned Income Exclusion is reported as a reduction to AGI on Form 1040, Line 21 (Other). The supporting IRS schedule is Form 2555.
DOCUMENTATION: Form 2555 provides the information you need.

Portion of Social Security/IRA/Pensions

WHAT: Depending on whether the contributions to IRAs and Pensions were before- or after-tax, and what type of IRA the borrower has, a portion of distributions may be untaxed. With social security, there is always an untaxed amount ranging from the full distributions to 15% of the distributions.
WHERE: Form 1040 Lines 15, 16 and 20
DOCUMENTATION: None needed. The amounts reported on Line 15a, 16a and 20a are the full amounts. BEFORE YOU ADD IT: Consider if the distributions are continuing.

Portion of Notes/Contract payments received

WHAT: If your borrower is receiving payments on a note or contract receivable, they are taxed on the interest income and in some cases, part of the principal received. A note or contract receivable results from a sale (a rental or a business for example) or a loan to an individual or business.
WHERE: You will see the interest income on 1040 Schedule B and may see the principal received on Form 6252 Installment Sale Income.
DOCUMENTATION: You need the copy of the contract to determine the full amount received and, as importantly, how much longer the payments will continue. SHORTCUT: If you have the Form 6252, Line 21 shows the principal received that year. You can add the interest income from Schedule B to the principal received from Form 6252 to determine what the borrower actually received that year. It does not tell you, however, how much longer the payments will continue or if the borrower was receiving payments as agreed.

Stolen Property

WHAT: You have to ask? The IRS Publication 17 says: 'If you steal property, you must report its fair market value in your income in the year you steal it unless in that year you return it to its rightful owner!'
WHERE: Form 1040, Line 21 (or the 'other income' line of business returns)
DOCUMENTATION: Hmmmm. Not sure about this one! I guess you should look at several year's returns to see if it is recurring!

What else?

What else are you finding to add or add back?
What else are you wondering if you can add or add back?

LLCs Primer: Forms, Risk Exposure and Cashflow

2010-02-16T18:05:55Z

Limited Liability Companies...the darling of small business. Along with S Corporations, probably one of the most used entity-types.

What is in a name?
Be cautious...a Limited Liability Company (LLC) is not the same as a Limited Partnership. Both have the word 'Limited' in the name.

What form do they file?
A one-owner LLC will file in the owner's 1040 as if there was no separate entity. If a business, look for it on Schedule C (or Schedule F if farming). If rentals, look for them on Schedule E with personally owned rental properties.

If more than one owner, the LLC actually gets to choose what form to file. Most choose the 1065 for it's flexibility combined with the pass-through tax savings.

How do I tell it is an LLC?
If one owner:

it may not be obvious
look for LLC at the end of the name of the entity on the Schedule C or F
for rentals, you may not be able to tell from the tax return

If more than one owner:

look for LLC at the end of the name on page two of Schedule E of the part-owner's personal return
on the 1065, look at Schedule B, Line 1 (2009 returns)

Why does the lender care?
A sole proprietor has unlimited liability for any debts or claims against his/her business. Likewise for a rental owner.

The owners of an LLC (even if only one owner) have limited liability. That means more protection and less risk exposure for the owner. That also means that as long as the lender gets a personal guarantee, the lender also has more protection. If something else the owner/guarantor is involved in goes down...it may not take your collateral down as well.

How do I calculate cashflow?
Since the LLC does not have a special return, you cashflow it just as you would any other entity filing that form. The good news: no new form to learn. Of course, that means you need to know how to cashflow a 1040 and a 1065.

Where do I learn more about LLCs and the forms they file?
My online lender training site has several eCourses to help you.

These eCourses are complimentary. Check them out!
These require a subscription (as low as $79/mo to access the entire eCourse list).

Analysis: General Topics

Types of Business Entities (22:58 minutes)

1040 Personal Tax Return

1040 C 1) Basics and Overview (14:35 minutes)

1040 C 2) Detailed Review (25:01 minutes)

1040 Schedule F Farming (21:35 minutes)

1065 Partnerships and LLCs

1065 1) Basics and Overview (17:16 minutes)

1065 2) Company Cashflow (16:24 minutes)

1065 3) Owner Cashflow (19:49 minutes)

How to I subscribe to Lender's Online Training?

I thought you'd never ask! '-)

An individual subscription costs $79 each month and gives you access to all of our eCourses. As I write this blogpost there are more than 20 with more on the way.

Or your entire financial institution can save money by subscribing enterprise-wide or even putting my eCourses on your Learning Management System (LMS).
Here is the link to check it out.

Subscription Options for Lender's Online Tools and Training

8 Strategies for Business Growth...Info for lenders and borrowers

2010-02-09T17:47:31Z

Here is a business resource for you. Use it:

to understand business growth strategies better so you can

have more helpful conversations with business borrowers
better assess their growth strategies...will their plan work?
strengthen your relationship

as a good excuse to connect with your current borrowers. This is a resource that may help them.

Dell and the SBA have partnered on a site called "Strategies for Growth". I spotted it because the Journal of Accountancy recommended it to the CPAs in private practice for the same reason I am suggesting it to you...a good resource for clients.

Here is the link to the overall site: SBA | Strategies for Growth

And here are some of the topics covered:

	reparing for Growth Expanding your business requires planning...		ederal Contracting Sell to the government to grow your company...

	eam Building Working together helps growth happen...		xporting Opportunities Expand your market overseas...

	echnology and Growth The right tools help your business grow...		isaster Recovery After a disaster, coming back, growing stronger...

	arketing Research, promotion, ads, sales, feedback and more...		rofiles of Success They grew their businesses, you can too...

The Thud Factor - What will it take to keep the regulators 'happy'

2010-02-03T00:00:38Z

Sam Thacker works with small businesses to secure all types of financing. He is often referred by bankers who either can't do the deal themselves or realize the borrower needs help putting together the loan package. He is also the Finance Expert for AllBusiness.com. I talk to Sam at least once a month to get his latest on what is happening in small business finance.

In his latest post, Due Diligence and the Thud Factor, he warns business owners that even for a loan the business lender is comfortable with you are requiring significantly more documentation to fend off an unfavorable regulator review. The thicker the file, the more it goes 'thud' when you drop it on the desk.

Read Sam's 11 recommendations to the business owner to get a loan approved more quickly. Sam's full article is definitely worth a read since he is interacting with business bankers from many different banks. Compare what you are requiring to his list.

Meanwhile, the short version:

accurate financial records
interim financial statement dated within the last 90 days (update may be needed at closing)
corporate organizational records well organized
proof of IRS 941 tax payments and reports
"key man" life insurance.
accurate and up-to-date capitalization table and stock transfer ledger for multiple owners
up to date management bios
20% or greater owner request their personal credit report and correct discrepancies
up to date personal completely accurate financial statements for every 20% or greater shareholder
all information, titles, etc matches across documents
two-page summary that explains your business model and source of revenues

Is your bank or credit union requiring all 11? Any others?

Tax Update for 2009: The long and short of it...

2010-01-29T20:09:39Z

Now it's personal! This is just for you and really has nothing to do with business and lending. Ready to prepare your 2009 tax returns (or gather your info for your preparer)?

Tax Guide from Journal of Accountancy is a short and sweet brochure with the highlights. Don't worry, it is for the general public.

Want a bit more?

I created one of my eCourse presentations covering the 2009 Tax Update and put the link on my home page. Just for fun. Really has nothing to do with lending. Here is the link to the presentation:

Just for you! 2009 Personal Tax Update

Enjoy! With the next blog post I'll get back to business and lending!

Need facts to make the case for small business lending? Why, Who and When

2010-01-26T18:12:55Z

In case you are talking with an elected official or community leader who needs facts to support the anecdotal evidence, here are some facts gleaned from a recent article, For Want of a Loan, in The Economist:

Small businesses (firms employing 500 workers or fewer) have accounted for 64% of net new job creation over the past 15 years
A recent economic study found that cities with more small firms have done better at creating jobs over the past 20 years.
The very small, with fewer than 50 workers--employing almost one-third of working Americans--have suffered around 45% of the job losses of the downturn.

The case for support of community banks:

At a congressional hearing on small business and the economic recovery in early 2009, economist Paul Merski, of the Independent Community Bankers of America, a Washington (D.C.) trade group, told lawmakers that community banks make 20% of all small-business loans, even though they represent only about 12% of all bank assets. Furthermore, he said that about 50% of all small-business loans under $100,000 are made by community banks.

As to the impact of the recession on community banks and small business lending, The Economist says:

Nearly 40% of outstanding small-business loans are held by banks with the greatest exposure to commercial-property risk.
In 1993, the figure was only 11%.
As commercial-property losses grow, those banks may be forced to curtail lending.

Credit Unions are also poised to fill the gap:

Another source of small business lending is the increasing availability of member business loans from credit unions. About 1/4th of credit unions currently provide them and they account for a very small percentage of business loans from all financial institutions.

Should the legislation currently being considered pass (HR 3380)

The limits on credit union member business lending would increase from about 12% to 25% of the credit union's total assets
The loan amount that is considered a business loan would increase from $50,000 to $250,000.
Loans to religious non-profits would not count in the total.

Without the commercial property risk of many community banks, credit unions that have the expertise and the capital are in line to help fill the small business lending gap. That ability will be strengthened should the legislation pass.

Demand first...supply second:

Business needs to pick up before businesses as a group will want to borrow. When that happens, the big challenge won't be whether there is money to lend. It will be how to qualify a borrower when their recent historical financial information does not support the loan.

Business lenders build business knowledge to assess, impress and help borrowers

2010-01-20T13:46:11Z

While business lenders are well advised to be careful giving advice, you also play an important role in the brainstorming process when talking with your borrowers.

Developing your business know-how helps when meeting with:

a prospective business borrower
a current business borrower you would like to keep (and isn't that most of them?)
a current business borrower requesting a restructure of their loan

To that end, I recommend you add to your weekly reading a few stories with practical ideas that a business has used to turn things around for the better.

I'll pass along the ones I stumble onto...and here is one.

Chris Carey is president of Chris Carey Advisors LLC, working with entrepreneurs on business redesign to increase profits and improve performance.

The Case for Sharing Company Performance Data

Small business owners often keep their managers in the dark. That's a huge mistake. Chris shares the steps one company took to bring their managers into the light and reverse a death spiral in the making. Read the article here...

If you like that one, take a look at Chris's Business Tip series published at BusinessWeek.com:

Examine Pricing
Create Forecasting for Business Units
Assess Customer Profitability
Establish Daily Forecasting
Measure Current Performance

What are your favorite sources for honing your business knowledge?

How do you create satisfied small business customers? How does that impact bank profits?

2010-01-20T01:16:12Z

SHORT ANSWER in case you cannot read the entire post:

Meet with you small business borrowers for a new needs assessment
Visit at least 3.3 times each year
Understand their business
Demonstrate that you understand their business

LONG ANSWER...
The JD Powers and Associates 2009 Small Business Banking Satisfaction Study provides some specific goals for customer satisfaction that can drive profitability. A small business lender can use these as a benchmark:

First...some interesting findings:

Nearly one-half (48%) of small business customers have a negative outlook about the economy, which may be impacted by tighter credit conditions.
Among business owners who applied for loans in the first six months of 2009, 67 percent of those loans required personal guarantees, compared with 52 percent of loans made three or more years ago.
During that same time period, the average time to approve and fund loans made within the past six months has increased to 15.1 days from 13.1 days in the previous six months.

Does your bank assign an account manager to each small business customer?

Overall satisfaction averages 726 on a 1,000-point scale among customers who were assigned an account manager, compared with 669 among customers without a designated account manager.

Currently, 46 percent of small business customers are not assigned to an account manager.
Only 34 percent of customers who have an assigned account manager report having had a problem with fees and service charges, compared with 39 percent of customers without an assigned account manager.
Only 10 percent of customers with assigned account managers report issues with funds availability, versus 16 percent for those without an account manager.

Do your small business customers think you understand them?

Satisfaction averages 139 points higher among customers who report their account manager "completely" understands their business, rather than just "partially" or "not at all," yet fewer than one-half (45%) of customers report their bankers "completely" understand their business.
Among new customers who report their account manager "completely" understands their business, a thorough needs assessment is conducted 85 percent of the time, compared with only 35 percent of the time among customers who report their business is not understood.
Customers who report their business is "completely" understood by their account manager report receiving 3.3 contacts each year, compared with 1.3 contacts among customers who say their account manager does not at all understand their business.

Here is where I got interested. Understanding business is not something you learn in class. It is something you partially learn in my classes on tax return and financial statement analysis because I focus on understanding. It is also something you can learn from mentor lenders, and from your small business clients themselves.

It takes effort and willingness and interest. And according to the JD Powers & Associates, it will add to the profitability of the bank.

How does this impact bank profitability?

The study found that higher satisfaction among small business customers has a substantial impact on a bank's financial performance. Overall, highly satisfied customers (satisfaction scores averaging more than 800) generate $4,107 of annual net revenue each on average, which is $675, or 20 percent, more than less-satisfied customers.

Need profit? Keep those small business borrowers highly satisfied.

Is it time for a(nother) thorough needs assessment?
How often do you visit your small business customers? Perhaps a good 2010 resolution is at least 3.3 times!
Time to reach out?

What can I include in cashflow from Schedule B: Interest and Dividends?

2010-01-15T21:39:52Z

Great question, since Schedule B is a mixed bag. As always, check your own guidelines. Here is my short list:

Add

Interest from banks, credit unions and S&Ls

When interest rates come back out of the basement, and if this is significant in amount, consider if the borrower still owns the underlying assets

Interest and Principal from a Note or Contract Receivable

See "Interest from an individual or company" in the 'do not add' list below for explanation

Dividends

If significant, consider if the borrower still owns the subject stock. If not, but has been replaced by other stock that will provide dividends, I'd still add it

Do not add

Interest from a Schedule K-1

This is pass-through from an 1120S or a 1065
If the borrower is a low % owner, you need the K-1 to see what they actually received in distributions
If the borrower is a high % owner, you need the 1120S or the 1065 to see what the company can afford to pay the owner

Interest from an individual or a company

This is the result of a note or contract receivable
The full amount received is the interest PLUS the principal
In order to count this, you would need a copy of the contract or note to determine how much longer it is continuing
If continuing long enough and you need the income to qualify, give the borrower credit for the entire amount received, not just the interest income

Nominee Interest

This is interest for which this borrower received a 1099 but it really belongs to someone else
Example: You are on your Mother's bank account for her convenience and they listed you first
You will notice this because there will be a subtraction in the listed interest sources that says something like "Less Nominee Interest"
Match it up with the same amount listed from a bank or credit union up above and be sure to exclude that interest income

If using AGI method, no need. The Nominee subtraction will back it out.
If using the Schedule Analysis Method, just be sure you did not include the subject interest income in the figure you are adding for interest

Consumer, Mortgage and Business Lenders: Here is your Intro to Tax Return Analysis

2010-01-12T20:57:20Z

I just updated my SlideShare Presentation. If you sign-up for SlideShare, you can even nominate it for the SlideShare Zietgeist 2009 Community Awards.

Green Legos, Six Ns and a Map to Tax Return Analysis

Take a look and pass it on to other lenders who need a quick review. Lending to businesses and business owners will be harder in 2010 than it was in 2009. YIKES!

Are you ready?

5 Steps to help 'Main Street' businesses get back to work

2010-01-08T21:19:59Z

Two of the five are for community banks...

President Obama recently 'invited' the 'Big Bankers' to the White House to admonish them...Start lending to small businesses! Sam Thacker in his blog at Allbusiness.com has a better idea. Invite 2 small business owners (those with 50 or fewer employees) from each congressional district to a White House Summit on Small Business.

Here is Sam Thacker's prediction for what they might come up with:

Provide $50,000 of stimulus money to any small business for each new job it creates and keeps for a year. That is about a years worth of salary and benefits for an average manufacturing employee. That will save $270,000 that the government is spending per job now with the stimulus plan. I promise the nation's small business owners will spend their $50,000 per job more wisely than the government is spending its $270,000 per job.

Keep the SBA loan guarantee enhancements on the books for two more years that were provided for in the original stimulus plan. That would give banks a 90% loan guarantee and borrowers no high loan guarantee fees. That has been a program that has worked. Actually, that has been about the only source of loans for small businesses.

Instead of taking the big bank bankers to the woodshed and flogging them for not making small business loans, offer community banks (those banks with less than $1 billion in assets) tax incentives for making business loans to small businesses. Community bankers think in terms of "net interest margin" which is the spread between the cost of funds for a loan and the borrower's rate of interest. Bankers think a big net interest margin is 3%. With tax incentives raise the net interest margin to 5%. Community bankers won't become fat cats but they will have big grins on their faces. While you can't herd cats, you can bribe them with a little piece of cheese. Give small businesses fair access to capital and they will take you out of this recession and create jobs doing it.

Commit $500 billion to helping small businesses that manufacture and sell consumer goods to U.S. customers reach overseas markets, especially China and India. Hasn't Mr. Obama talked to his people at the U.S. Census Bureau? Baby boomers are growing old and won't be buying consumer products like they have in the past. There are far fewer generation X and Y folks out there to take their places, so it makes since to sell overseas. We will achieve an added bonus of reducing the staggering trade deficit.

Immediately stop spending all stimulus money that isn't in the above four parts of the plan. Take whatever is left and provide it to job training programs at accredited community colleges. A trained worker is a productive efficient worker. Many workers are going to have to be retrained because their jobs are simply disappearing. Completely. Give these people direct help by training them to do something that is needed now.

I wonder if Sam is running for election. This makes a lot of sense!

What would you add?

5 lists your borrower should bring you for new years...

2010-01-06T23:27:01Z

Long before I focused on working with lenders to understand business and make good loan decisions, I focused on working with the businesses themselves. I still do.

I am one of the Business Credit bloggers on AllBusiness.com, a D&B Online Portal for small business resources. Here I am on their home page today:

Pass this link along to read and share the post:

New Year's Credit Resolution: Meet with your Lender (Long) Before you Need the Loan

Perhaps your borrower will bring you some good news along with their loan request this year!

Five questions to ask in 2010 to make the loan!

2010-01-05T18:52:38Z

I predict the 2009 tax returns will be filed earlier rather than later. Why? The congress has liberalized the rules for carrying back Net Operating Losses. If the business paid taxes in any of the prior 5 years, they can carry back the loss to any of those years. Tax refunds anyone?

If that is the case for some of your business borrowers, you will soon be including 2008 and 2009 in your analysis, the worst years of the recession. So here are your questions:

How do you (or will you) qualify a borrower for a business loan when the two or three most recent year's tax returns or financial statements do not support the loan request in terms of required debt coverage ratio and other financial requirements?
How do you distinguish a business that has done poorly from a business whose owner chose to forgo profits to keep their business recovery-ready?
If the business owner chose not to pay themselves during the downturn in order to keep their staff, continue to market in a downturn and otherwise keep the business as strong as possible, how will that impact your analysis of them as a guarantor? (They may not 'qualify' even if their business is now doing well and back to paying them.)
What compensating factors are going to make up for a recent two or three year's financial performance that is not sufficient to qualify for the loan?
Are loans to continuing businesses going to need to be assessed more like loans to start-ups?