Saturday, 9 November 2013
An Audited Financial Statement Can Help when Looking to Borrow
According to the Biz2Credit Small Business Lending Index, more than one-half of all small-business loan applications are being rejected by banks. Companies in need of capital might find lenders more receptive in a hard-hitting lending environment if they invest in audited financial statements.
“We’ve had clients who needed these statements to even get the loan, and it can make a difference in the interest rate you get,” says David G. Barbeito, a principal in the Miami office of Morrison, Brown, Argiz & Farra, a large independent accounting firm.
A study by Michael Minnis, assistant professor of accounting at the University of Chicago Booth School of Business, published in the Journal of Accounting Research found that companies with audited financial statements have interest rates that are nearly three-quarters of a percent lower than companies that do not. In most cases, large companies are more possible to necessitate audits in order to collect loans; on the other hand, Minnis found that firms with yearly revenue of $10 million were not for all time asked to provide those said materials, while firms in the $500,000 range sometimes were.
Before hiring an auditing firm to pore over your books it is significant to do the math. Audited financial statements are expensive, in the ballpark of $15,000 to $20,000 for the smallest businesses and $50,000 to $75,000 for middle-market businesses, estimates Eric Martinez, CPA, an auditor with Jericho, N.Y.-based accounting firm Grassi & Co. In several situations, a review by an auditing firm may be all that is essential, yielding the same lending benefits at about half the cost.
“One of the first things you need to do is to talk to the banker and understand what they’re looking for. A lot of times, we’re able to achieve the bank’s objectives with a reviewed statement,” Martinez says. He recommends business owners make sure the bank is comfortable with the auditing firm in advance, as the bank may have standards of expertise that the auditor needs to meet.
Minnis have the same opinion that a cost in opposition to benefit evaluation is significant before acquiring the expense of audited financial statements, specifically if a loan authorization is not at risk. Still, audited statements may have other benefits to business owners, like helping them set up larger and more favorable lines of credit with suppliers or meeting the management review requirements to catch the attention of outside investors.