4 Factors banks use to approve your business loan

4 Factors banks use to approve your business loan

You run your own business and find yourself in need of money for operating costs, inventory and payroll. A business loan may be the solution to giving your business the best chance to make it. Here are a few things that banks look for when deciding whether to approve or deny your loan.

1) Credit Score

Your credit score is one of the most significant indicators that you are a financially responsible person. Banks want to know they can trust you to pay your bills, vendors, and lenders on time. A credit score of 700 or more shows you’ll know how to properly manage any money they lend you.

2) Collateral

Banks want to protect themselves in case your business struggles, leaving you unable to pay back the loan. Should you default, they’ll try to recoup their investment by taking ownership of your vehicles, property and personal assets.

3) Business Size and Age

A brand new business will have a hard time getting a loan, but having a large business can improve your odds. With too small of a following, the bank will see it unlikely that you’ll make enough money to cover your expenses and pay them back. Your chances of an approved loan increase if you run an established business with a large customer base.

4) Your Knowledge and Experience

Are you opening your own business based on your decade of experience in the field? Or, are you risking it all on a hobby? Banks want to know that you have the industry knowledge needed for success before handing over any cash.

Be Prepared

When you approach a bank for a loan, be fully prepared with any documents you might need. Your first impression tells them a lot about how you’ll run your business. Showcase your expertise, have the numbers for your credit and collateral, and detail your plan to pay back the loan on time.

 

Posted in 4506-Transcripts, Financial, Small Business Loans | Tagged , , , , | Leave a comment

How is business income taxed?

How is business income taxed?

When you own a business, there are many important details that you must attend to. Taxes are one of the items that should top your list when it comes to following the rules. Filing business taxes incorrectly could create long-term problems with the Internal Revenue Service and nobody wants that.

Depending on what the structure is of the business, such as a sole proprietorship or limited liability corporation, the profits and losses will be calculated on your personal income taxes differently. Corporations pay a flat rate of 21 percent in contrast to other business types who are taxed based on their personal tax brackets and their filing status.

The good news for limited liability corporations and sole proprietorships is they can deduct a maximum of 20 percent of the business’ income if their income is no more than $157,500 for single filers. For joint filers, those who make $315,000 or less can take the deduction. This is a good way to lower your taxable income right from the start. It’s important for business owners to find and take the deductions relevant to the business to help lower your taxes overall. Tax percentages range from as low as 10 percent and as high as 37 percent based on the income for the year.

There are other taxes that a business may have to pay like employment taxes. Companies who have employees must withhold the following from employee paychecks: social security, Medicare, and unemployment taxes for both the federal and state portions. Other business taxes include sales, property, and excise depending on what kind of business it is. There are also state income taxes for businesses that vary in tax rates.

Since federal and state taxes for businesses can be complicated, many owners opt to hire a professional tax preparer instead of doing it themselves. Using a tax service saves time and money, and potentially any problems in the future.

 

Posted in 4506-Transcripts, business taxes, Financial | Tagged , , , , | Leave a comment

What can be used as proof of income?

What can be used as proof of income?

Several places require proof of income for many different reasons. Income is important for determining your ability to pay back a loan, or in determining access to various health care insurance plans. Your income can impact your life in many different ways.

Banks and rental companies often ask for proof of income because it determines your ability to repay your debts. They may ask for a proof of income letter which summarizes and verifies your employment and income. Many times, this letter can be written by your employer or, if you offer freelance services, an accountant.

Proof of Income from Employment
With a proof of income letter, you may be asked for additional documents like a pay stub or a copy of your previous federal tax return. Be sure your documents are original and not copies and include pertinent information like your full name, personally identifying information, date and amount of income, and name of the employer.

If including tax information, two common forms of proof of income include last year’s tax return or your 1040, or your W-2 wage and tax statement.

Proof of Income for Unearned Income
If you have unearned income, such as unemployment, you could obtain your unemployment benefits statement from your state’s unemployment office.

For social security benefits, your social security proof of income letter or your benefit verification letter should be sufficient.

If you receive an annuity, an annuity statement can be obtained from your insurance agent.

Self-Employment Proof of Income
It is essential to stay organized if you are self-employed. Keeping relevant documents together in a safe place is a good idea. For proof of income needs, bank statements are excellent for showing your history of regular deposits and can prove you have a stable income.

There are also your wage and tax statements or a Form 1099. Your accountant can also provide your ledger documentation, or a profit and loss statement reflecting your income.

Posted in 4506-Transcripts, business taxes, Financial, IRS and Tax Transcripts, Small Business Loans | Tagged , , , , , , , | Leave a comment

What happens if you don’t report self-employment income?

What happens if you don’t report self-employment income?

Self-employment income is the money someone earns when they work for themselves. People who are freelancers and solopreneurs are obligated to report their income to the government. If they don’t, they can be charged with tax evasion. There are various penalties and consequences if you don’t report your self-employment income.

As a self-employed individual, it’s important to understand what can happen if income isn’t claimed.

You’ll Pay Extra Interest

Anyone who fails to report their self-employment income will be subjected to penalties. Similar to how you file for taxes, you may have a reduction in how much you have to pay when you report your income. However, not reporting on time can have you paying more than you originally thought without deductions. The reason why the bill is so much higher is because of the added interest tacked onto the original bill.

You Are Forced to Pay a Fee

Another penalty that comes with not reporting your income is being charged fees. How much you’ll be charged varies on how long you go without reporting. In terms of paying fees, you’ll have to pay $205 once two months have passed. The most severe fee you must pay is 25 percent of the total amount of taxes you owe in addition to the bill itself.

You Could Face Incarceration

Last, but not least, failing to file your self-employment income could have you arrested. It is illegal to accumulate all the funds that you’ve earned and not report it to the IRS, this is considered tax evasion.

Although the cost of taxes can be substantially high at times, they are used to fund necessities like hospitals and police stations. It’s also worth mentioning that there are plenty of ways to deduct the amount of taxes you owe, which is far better than avoiding paying taxes completely. If in doubt, ask a qualified tax accountant for help while doing your taxes.

Posted in 4506-Transcripts, business taxes, Financial, IRS Tax Audits | Tagged , , , | Leave a comment

How do you show proof of income for self-employment?

How do you show proof of income for self-employment?

There are going to be times in life when you need to show proof of your income, and it’s important to know how to do this if you’re self-employed. For instance, you may be trying to get a car loan or applying for an apartment to rent. Most businesses ask for pay stubs to show your most recent earnings. When you’re self-employed, you won’t have traditional pay stubs to prove your monthly income.

Just because you don’t have a regular 9-5 job doesn’t mean you can’t show a potential landlord or lender your worth. It’s important to specify on your application that your status is self-employed or that you’re a freelancer. Ask the loan or property management company what documentation they need, so you can keep your application moving forward.

One of the best proof of income sources for the self-employed is your federal tax returns. These documents will show your annual earnings along with other information to validate your data. You may have to show more than just your tax returns to verify that all the information is correct. Don’t worry though, because there are other options to help you.

You can use your bank statements to show that money is deposited into your account on a regular basis. Make sure to remove your bank account number to prevent fraud before sharing this important financial information with anyone, regardless of where they work or who they are. You can easily filter your bank account information to show only deposits covering a certain period. Most lenders and landlords want to see at least two months’ worth of verifiable income.

There are also online services that provide accounting features to help you track your incoming payments from clients. As a final note, it’s smart to keep all your income documentation easily accessible because you never know when you’ll need it.

Posted in 4506-Transcripts, business taxes, Financial, Small Business Loans | Tagged , , , , , | Leave a comment