When you are applying for finances, the financial institutions do not have much scope to analyse your income. Primarily, they use your payslips, group certificates, and tax returns for verification. Scenarios change if you are a business and not an individual. To reduce your chances of manipulating the figures, the banks demand a declaration from your accountant and here are certain assurances that they need:
• The past income that represents your future income
• Assets that will be used for business
• The loan to be used for business
• If you have already sought independent financial advice
• You bear the capacity to pay back your proposed loan amount
But why is the declaration a problem?
The declaration forms need to be signed by the businesses, but there are no probabilities that whatever is stated will always be a true future occurrence. There are other multiple unsure factors like:
• The unpredictability of future trade graphs as compared to the past ones.
• Lesser surety about the purpose of using the car that has been recently bought. It can be used as a fleet vehicle and not for business needs.
• Banks are not always sure about how the loan money will be used.
• Banks do not know if the businesses have already sought financial advice.
• Banks know less about what personal expenses will be incurred by the business and if they will be able to repay off the proposed loan amount.
The liability then falls on the shoulders of the accountants who are verifying the application processes. The accountants are expected to take guarantee of the businesses applying for the loans, which becomes a big problem in the later stage.
What can be signed off on?
To avoid those confusions, it is ideal to sign off “factual information”. The present and the future figures can be declared purely based on assumptions and calculations. Till the time the banks ask the accountants to predict the future rightly, factual signing is highly preferred.
The accountants prefer taking their own sweet time to ensure that the declaration is accurate and would clarify the levels of risks associated with it. In course of collaborating with the businesses to process their loans, the accountants are not willing to risk any of their reputations.
To avoid these circumstantial problems, it is always better for businesses to opt for loans without having the declarations signed by the accountants. There are processes through which even the banks cannot hold back your application.