Business Financing – Are your Tax Returns helping or hindering?

May 29, 2019

How to Finance your business with your 1120 S

What role do your business tax return play in financing? We focus on two key line items on your returns and explain how they impact business financing.

What are the most important lines on your business tax returns when you’re seeking large amounts of business financing? What exactly will your lender look for on your 1120 S before granting an approval? I’ll break all of this down for you pay attention because it’s like getting the answers to a test that you haven’t taken yet.

Gross Revenues

Line 1C on your 1120 S

First and probably the most important is your gross revenues. This is Line 1 C on your federal tax return this line represents how much money has gone through your business in a 12-month period.

Lenders use this line to determine the amount that they should lend to your business, generally it’s about 10 to 20% of your gross revenues. If you’re a high-risk business category, it’s closer to 10%, if you’re a low risk business category, it’s closer to 20%.

Let’s say your business did $1,000,000 in revenues last year, this would make you eligible to borrow up to $200,000.

Net Profit

Line 21 on your 1120 S

When a lender determines how much your business can borrow, they then need to determine how much you can safely repay. This takes them to line 21 on a standard 1120s business tax return, this is your net profit.

This line helps the lender determine how big of a burden your loan payment will be on your business, as a rule of thumb the higher this number the easier it is for your business to repay.

What if a business loses money?

Can it still be approved for financing?

Now what if your business had a lost last year, and this number is negative, are you still eligible to get financing?

I’m going to go over that in next week’s video! Make sure you subscribe to this channel so you get a notification when next week’s video is up! For now, pay attention in line 1C and line 21 on your business tax return as these will make or break any financing opportunities for your business.