One of the biggest challenges that Small and Medium-sized Enterprises (SMEs) face is getting funds for their business operations. To ensure your venture functions seamlessly, you can opt for an SME loan. However, a well-maintained balance sheet is a must, as it helps lenders analyze how their funds will be utilized and whether your business is eligible for additional loans.
What is a balance sheet?
A balance sheet documents the liabilities and assets of your business. It reflects the financial condition of the company on any given day. It is one of the most important SME loan documents that lenders ask for scrutiny. It helps them get a clear picture of the expected returns.
Here’s why balance sheets are essential for businesses
A balance sheet helps lenders to:
- Seek information about your assets
Lenders always make sure that an SME has substantial assets to meet the business demands. The balance sheet provides information regarding the current and non-current assets of your business.
- Current assets: These include assets that you will use within one year to run your business, such as cash and inventories.
- Non-current assets: These include assets that will not be utilized within a year, such as building, land, machinery, patents, trademarks, copyrights, and goodwill.
- Learn about your liabilities
Every business has some debts, and these are clearly stated in the balance sheet. Lenders will review your business-related liabilities, such as outstanding expenses, bills payable, bank overdrafts, and much more.
- Know about capital and reserves
Capital is the amount invested while reserves and surplus are the accumulated profits of your business. The balance sheet helps lenders ascertain your SME loan eligibility in terms of the capital and reserves you already have to run the business. Moreover, this information paints a clear picture of your enterprise’s finances.
- Assess the track record
When you apply for an offline or online SME loan solutions, lenders first try to verify the business’ track record. The balance sheet will help them determine your loan repayment record, credit history, and the financial health of your business.
- Analyze risk and return
Using the balance sheet, lenders establish if you have enough financial backing to sustain the business. It also gives them an idea about your ability to generate profits. With this information, they can decide whether it would be feasible to give you a loan.
Now that you know how a well-maintained balance sheet can help you get a business loan, it is time to find the right lender. If you are looking for affordable SME loan interest rates, easy documentation, and flexible norms, visit Mahindra Finance’s website and apply for a loan now!