When preparing to complete a loan application or speak with your banker about extending an existing line of credit for your farm, don’t be surprised when they request tax records from both your personal and business filings. “It’s all in the family,” your financial family that is. Let’s review the various types of financial information that a lender may request.
1. Farm/Business Income Tax Returns – If you have a farm or business that is incorporated or is an LLC and you own more than 20 percent of the entity, you should provide the most recent 3 years tax returns of that entity. As mentioned, these tax returns are a legitimate way to determine the cash flow available within your business. A lender will look for a fairly stable cash flow to feel confident that the money provided in the loan will be repaid.
2. Personal Income Tax Returns – A lender will also ask for your personal income tax returns over the last 3 years in addition to tax returns on businesses you own. Your personal tax return is a strong indication of how you manage your finances.
3. Personal Financial Statement – A personal financial statement provides lenders with a more complete look at your financial situation, as income tax returns do not adequately reflect personal debt service for such things as vehicle payments, personal bank loans or credit card debt.
These pieces of information, in addition to a business plan, are excellent tools to help you demonstrate your current financial situation to a lender.
Bob Rawson is the community president for Arvest Bank in Huntsville, Ark.
