One post tagged with "small business loans"

Plain-text accounting can do more than keep your ledger clean—it can make your company credit ready. Whether you are chasing a new product launch or smoothing out seasonal cash flow, lenders reward founders who show meticulous records, reliable forecasting, and thoughtful cash planning. This guide breaks down how to use Beancount to prepare, what funding options to consider, and how to run the loan process without derailing your week.

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Step 1: Quantify the Need and the Payback Plan​

Lenders want to see two stories: why you need capital and how you will repay it.

1. Size the project. Build a Beancount query that models the cash required, the expected timing, and the revenue impact. A simple balance report on your project accounts plus a forecast of Accounts Receivable aging helps show the gap the loan will cover.
2. Stress-test cash flow. Use historical Beancount data to calculate debt service coverage ratio (DSCR = Net Operating Income ÷ Total Debt Service). Most banks want to see DSCR ≥ 1.25 on a forward-looking basis.
3. Define the exit. If you plan to refinance, sell, or pay down the balance with future profits, document that inside your loan memo. Banks love a plan that can be cross-checked in your ledger.

Founder tip: Export a Beancount-generated cash flow forecast to CSV and attach it to your application packet. It shows discipline and saves underwriters work.

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Step 2: Build a Documentation Packet Straight from Beancount​

A clean documentation packet speeds up underwriting. Create a folder that includes:

• Trailing 24 months of financial statements. Use Beancount reports for the balance sheet, income statement, and cash flow statement.
• Year-to-date ledger detail. A print statement filtered by date and account demonstrates transparency.
• Tax returns and filed sales tax reports. Tie your ledger totals to each filing to prove accuracy.
• Owner equity schedule and capitalization table. Lenders scrutinize how much of your own capital is at risk.
• Accounts Receivable and Accounts Payable aging. Export your aging report to spotlight collection discipline.
• Business plan addendum. A concise memo summarizing strategy, market traction, and why the loan will succeed.

Store the packet in a shared drive and label each file using a consistent naming convention (for example: 2024-12-balance-sheet.pdf). When an underwriter asks for supporting detail, you can respond within minutes.

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Step 3: Match the Loan Type to the Business Use Case​

Choosing the wrong product is the fastest way to overpay. Evaluate these common options:

Term Loan (Bank or SBA 7(a))​

• Best when: You need a multi-year lump sum for hiring, inventory, or equipment.
• Loan size & rate: $50k–$5M with terms of 5–10 years; rates typically track prime + 2.75%–4.75%.
• Beancount prep: Tag the capital expense accounts and build an amortization schedule to show monthly impact.

SBA 504 Loan​

• Best when: Funding owner-occupied real estate or heavy equipment with long repayment horizons.
• Loan size & rate: Up to $5.5M with fixed rates based on 10-year Treasury yields plus a modest spread.
• Beancount prep: Model blended payments (bank + Certified Development Company portions) to show total debt service.

Business Line of Credit​

• Best when: You want flexible working capital for payroll gaps or large receivables.
• Loan size & rate: Revolving limits from $20k–$500k; interest accrues only on the drawn balance.
• Beancount prep: Set up a Liabilities:LineOfCredit account and reconcile draws weekly.

Equipment Financing​

• Best when: The asset itself serves as collateral and you need rapid approval.
• Loan size & rate: Covers 80%–100% of the equipment cost; terms 3–7 years.
• Beancount prep: Track depreciation schedules alongside liability amortization.

Invoice Financing or Factoring​

• Best when: Cash is tied up in slow-paying enterprise clients.
• Loan size & rate: Advance rates of 80%–90% of invoice value; fees 2%–4% per 30 days.
• Beancount prep: Flag invoices eligible for funding and reconcile fees as cost of goods sold.

Microloans and Community Development Fund Loans​

• Best when: You need <$50k and value mentoring or technical assistance.
• Loan size & rate: Typically $5k–$50k with 6%–13% APR.
• Beancount prep: Document community impact and job creation stats pulled from your ledger.

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Step 4: Improve Your Credit Package in 30 Days​

You cannot change last year’s results, but you can polish the presentation fast.

• Tighten accounts receivable. Use Beancount’s aging report to target overdue customers and document collection plans.
• Reduce discretionary spending. Update your budget, tag nonessential expenses, and demonstrate improved margins in the latest month.
• Separate personal and business flows. Reconcile owner draws and ensure all personal transactions are coded to equity, not operating expenses.
• Increase cash reserves. Sweep idle funds into a business savings account to show liquidity equal to at least two months of operating expenses.
• Check your personal credit. Download reports from Equifax, Experian, and TransUnion and dispute errors now.

Document each change in a “credit readiness log” so you can narrate improvements during lender conversations.

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Step 5: Shop the Market with a Targeted Outreach List​

Create a lender comparison spreadsheet that captures:

• Loan program and maximum amount
• Rate type (fixed, variable, or indexed)
• Required collateral and guarantees
• Minimum credit score, revenue, and time in business
• Decision timelines and funding speed

Prioritize lenders that already bank your deposit accounts, community development financial institutions (CDFIs) that understand local markets, and fintech lenders known for API-based underwriting. Record each conversation with date, contact, and next steps so you can keep momentum without double-booking meetings.

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Step 6: Submit, Track, and Update in Beancount​

Once you submit applications:

1. Log application fees and deposits. Use a dedicated expense account so you can deduct or capitalize costs appropriately.
2. Track conditional approvals. Create metadata tags like loan_status:"conditional" to surface open requests.
3. Respond to underwriting questions. Build saved Beancount queries (for example, inventory turnover, gross margin trend) so you can export reports quickly.
4. Update the ledger when funded. Record the disbursement, set up the liability account, and schedule automatic postings for interest and principal.

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Step 7: Maintain Post-Funding Discipline​

Winning approval is the start of the relationship, not the end.

• Monitor covenants. If your loan agreement requires quarterly DSCR or minimum cash, schedule Beancount queries that alert you before you slip.
• Automate reporting. Create templates for the monthly or quarterly packages your lender expects. Send them early.
• Document capital deployment. Tag every expense tied to the loan so you can demonstrate compliance with the approved use of funds.
• Plan for renewal or payoff. Build a timeline 6–12 months before maturity with tasks for refinancing or repayment.

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The Beancount Advantage​

Lenders gravitate toward borrowers who think like controllers. By leveraging a transparent, auditable ledger, you can replace frantic spreadsheet scrambles with repeatable workflows:

• Clarity: Double-entry bookkeeping keeps every draw, fee, and payment reconciled.
• Speed: Saved queries and exports answer underwriter questions without manual rework.
• Confidence: Clean books help you negotiate better rates, larger limits, or more flexible covenants.

Use this playbook as a checklist the next time you need outside capital. With Beancount as the source of truth, your numbers speak the language lenders expect—and that can turn a stressful loan hunt into a strategic win.