Tax Refund vs. Eligible Income

With Tax Time soon approaching, we feel obligated to remind you of our continued advice about the best methods to prepare your tax returns if you plan on applying for Business Financing in the future.

With Trevor’s 30 years as a Mortgage Loan Officer, he saw this time and time again. While the tax professionals and CPAs might do a marvelous job of getting a Self-Employed Business Owner a GIANT REFUND (or simply lowering the tax bill) these folks never seem to have a discussion with their clients about the long term ramifications of such deductions/lowered income.

The “look back” period to qualify for a mortgage is 2 years; for a business loan of any type, it’s 3 years. That means the Lender will take those “Bottom line” numbers and average them for the time period in question (2 or 3 years) and create a qualifying income. When Schedule C shows a loss or minimal income over the time period, well, do the math. It ain’t pretty.

For a Self-Employed Borrower with a Schedule C (including many LLCs), lowering the net income on Line 31 by deducting oodles of expenses lowers the potential loan. IRS does not “require” anyone to deduct expenses; this is an “option” which helps to lower tax liability. BUT it also reduces a Borrower loan qualification by lowering income.

Whenever you complete a tax return you don’t have to deduct expenses! This feature of a tax return allows you to lower your tax liability.

BUT IT ALSO LOWERS YOUR INCOME.

And for any Loan you may request in future (up to three years later) the Lender will use that bottom line income to calculate your qualifications.
Take extreme care and think long term strategically before making a final decision on a tax return.

Be sure to watch our YouTube video about the “LOOK BACK” period!

5 EIDL Reconsideration Updates 

We’re working on quite a few Reconsiderations for our clients. Here’s some advice for you all based on our recent conversations with SBA Agents and documents requests from the Reconsideration Team at SBA:

  • IRS 4506T: The IRS is requiring a “wet” signature on the form. That means you have to physically sign a paper version with a pen, scan it in to your computer and submit. We’ve been using DocuSign for our clients’ forms successfully for the most part, but recently hit a snag with one file where the Reconsideration Team kept requesting a new 4506T. In my conversation with an excellent SBA Agent, she revealed this concept of the “wet” signature. Trevor was a Mortgage Loan Officer prior to our Consulting business and we’ve used DocuSign for years. Oh. Well.
  • Revenue Projection and Business Plan. We’ve noticed from posts in a Facebook Group and now with two of our own clients that SBA is requesting a revenue projection for the next 12 months. Between you and me and the wall, I’m not sure how any Small Business can project revenue during an ongoing pandemic, but SBA is asking for it. We haven’t determined yet how we’re going to respond to this request. The “Business Plan” aspect can, according to SBA, be a simple narrative of how you’re keeping your business running.
  • SBA changing over the online portal the weekend of JAN 15-17. We’ve already noticed glitches in the online portal over the last few weeks. One SBA Agent opined this is probably the result of the system changeover. To that end, we recommend not submitting a new EIDL Application, or uploading requested documents through the portal, or submitting a new Reconsideration until after JAN 18. That’s our strategy for our clients, anyway.
  • Funding Approved EIDL loans. For most of the past 10 months we’ve seen our clients receive funds within 48 hours of signing Closing Documents. In two instances in the past two weeks, funding took 5 calendar days. Nail-biting continues during the disaster.
  • Continuing confusion of the EIDL Grants. We read an excellent article in an NFIB blog yesterday. The author sought to clear up this ongoing confusion about the $10,000 CARES Act EIDL Grants that many businesses either did not receive or received only partial amounts. Add to this the confusion over the NEW EIDL Grants under the Second Stimulus Legislation.

While we believe the NFIB is a “trusted resource” we defer to our own Chief Financing Rock Star, Trevor Curran who has 30+ years as a Mortgage Loan Officer originating Government loans: wait for the official Governmental guidance.

SBA has not yet released any rules regarding these EIDL Grants. There’s no update on the SBA website, and nothing in the email newsletter we received this morning from our SBA Regional office. While your anxiety over getting this much needed money continues (we feel your pain, we were shorted the Grant too!), our advice is to continue waiting for the official guidance from SBA on this matter.

We’re happy to share our professional experiences to provide vital—albeit anecdotal—information that you can use to achieve a successful result with your SBA EIDL and PPP requests! We hope this information helps!

 

Apply for Disaster Financing

Play Video

Here we outline several fundamental concepts you can follow that helped Trevor to successfully submit hundreds of approved mortgage applications. Trevor was a Mortgage Loan Officer for 30+ years; we continue to use these principles now to assist Small Business Owners like YOU to get SBA and other Disaster financing:

📌 ALWAYS Apply. Don’t “disqualify” yourself.

📌 Don’t leave anything blank. When something doesn’t apply to you on the application form write “N/A”. If application requests a numerical value and it’s a ZERO then enter “0”.

📌 Use the last four digits of account numbers for credit accounts. The Loan Officer will see the credit accounts on your credit report. Putting the last four digits helps match your application information with the credit report. In other words, don’t enter “FirstBank VISA”

📌 Enter full and accurate account numbers for each bank account in the assets section of an application. Whenever possible, enter type of account “checking” “savings” etc.

📌 The more complete an application, the better your chances of approval and the more efficient your process. TREVOR’S GOLDEN RULE ABOUT APPLICATIONS: Your Loan Application is the “roadmap” the “instruction manual” that guides the lending decision-makers about your qualifications.

📌 Review and revise your application for accuracy (including adding up the math and correcting spelling mistakes. Use the “Carpenter’s Rule” when you complete an application: “Measure twice, cut once.”.

📌 Match your personal and business information EXACTLY to supporting documents. If your business bank account is under the name “Trevor’s Handsome Dude Pool Service LLC” be sure that’s the same name that appears on your application documents. Same with tax returns and other supporting documents. SPELLING COUNTS.

📌 FRONT LOAD the application. Find out what documents are required and submit them with the initial application whenever possible. Make the Loan Officer’s job easier, you’ll have a more positive experience as a result.

📌 Documents submitted in a quality format. PDFs only: NO PHOTOS! Clear, legible scans. Always try to “label” documents such as “ABCBank JAN 2021 statement” or “Trevor Driver License” Again: when you make the processing staff and Loan Officer job easier, you get a better result.

📌 NEVER TAKE NO FOR AN ANSWER. Be tenacious, be politely persistent. If a Loan professional or Lender provides a negative response, ask “Why?” and “What can we do to move this application to a favorable position?” and “What other information can I provide that helps support a positive decision for my application?”

Small Business is the BACKBONE of the American economy. Know that, own that, don’t let them tell you “No.”

The money is there for you to get it; your business deserves it. Feel no shame about asking for assistance to help your Small Business survive this horrible COVID-19 disaster.

Business Financing Documents Checklist

Stop worrying about what's required when pursuing a business loan for your small business. This list will indicate what a lender, bank, SBA, etc. will want to know about you and your small business if you're looking for a business loan. These are prudent documents that help tell your small business story. Without them, it's difficult for lenders to assess you as a risk when it comes to lending your small business money. This is NOT SPECIFIC to the SBA EIDL loan.