Your Taxes Are Not Done, But You Need a Loan. Now What?

Financial Challenges Post-Holiday Season

After the holiday season, your business may encounter financial difficulties. Sales or credit transactions may not have settled yet, and suppliers might be demanding payment. Or perhaps you didn’t set aside enough money from previous months to cover a dip in revenue. Whatever the reason, you find yourself in need a loan.

The Need for Tax Returns in Loan Applications

Lenders typically require a completed and filed business tax return as part of the loan application process. If you need a loan, while older tax returns are accepted, lenders prefer the most current year to ensure accuracy and minimize risk.

Why Lenders Require Tax Returns

Lenders use tax returns to verify your income when you need a loan and compare it with your bank statements to detect any inconsistencies or potential fraud. This additional check ensures the legitimacy of your reported income, as bank statements alone might not accurately represent your earnings. When you need a loan, tax returns also provide a detailed breakdown of your income and can indicate if your business is profitable.

Alternative Methods to Qualify for a Business Loan

If your tax returns are incomplete or missing, lenders might accept other documents. They want proof that your business can repay the loan, so they may request:

• Previous years’ tax returns
• A robust business plan
• Recent bank statements
• Audited financial statements
• Estimates of fixed asset values as collateral
• Documentation of outstanding debt

Without a current tax return, banks may tighten their lending criteria for those who need a loan, making approval more challenging. They might require higher current ratios or other stringent measures, potentially leading to rejection if your financials aren’t strong enough when you need a loan.

Considering a Business Credit Card

Business credit cards can help cover cash flow gaps, but they come with risks. If you can pay your bill in full before it’s due, a credit card might be a viable option. However, the average interest rate for business credit cards is around 15.37%, and cash advances have even higher rates and fees. Missing payments can lead to substantial interest rate increases and harm your credit score.

Types of Business Loans Available Without a Tax Return

If a traditional bank loan isn’t an option, alternative lenders offer several types of business loans without requiring a tax return:

Bad Credit Business Loans

These loans are designed for borrowers who don’t qualify for traditional bank loans due to credit score, business history, or other factors. Approval can happen in as little as 24 hours, with funding available in 1 to 2 days. These loans are based on monthly revenues, not tax returns. They cater to businesses with at least $8,000 in monthly revenues and a credit score above 500. Interest rates range from 12% to 45% or more.

Merchant Cash Advances (MCA)

If your business generates substantial credit card sales, an MCA might be suitable. The lender advances a sum based on past credit card sales and collects repayment from future sales. No tax return is needed, but you’ll need to show proof of credit card sales and minimum monthly revenues of $8,000. MCAs come with high-interest rates (24% to 49% or higher) and an uncertain repayment period.

Invoice Factoring

For businesses with outstanding invoices, invoice factoring involves selling or pledging past due invoices to a lender. In return, you receive a percentage of the invoice value upfront. This method quickly converts invoices into cash but comes with drawbacks, including receiving less than the invoice’s full value and potential delays in approval.

Conclusion: Securing a Loan Without a Tax Return

It’s possible to get a loan without a tax return, but traditional banks might not be an option. Consider alternative lenders and weigh your business needs, such as repayment schedules and the amount of funding required. If you have questions, consult with an experienced lender like Global Pacific Advisors for guidance.