How Do Lenders Evaluate My Business? A Commercial Banker's Honest Answer

As a commercial banker, I sit across the desk from business owners every week who want to know one thing: what are you actually looking for? Most people assume it all comes down to a credit score or some secret formula. The reality is simpler, and much more within your control than you might think.

Here's how I evaluate a business when it comes in for financing, what slows things down, and what you can do to make your application one a lender is happy to work on.

The First Two Questions I Ask

Before I look at a single number, I want to know two things. Do you have an accountant? And do you have a lawyer?

Why Your Accountant Matters

If you have an accountant, there's a good chance you have accountant-prepared financial statements or financial projections. That means a balance sheet and an income statement, ideally year over year, so I can compare one year against the other. That comparison tells me far more than a single snapshot ever could.

Why Your Lawyer Matters

If you have a lawyer, it tells me you've likely been given advice on your business structure and how to protect yourself. That matters to me as a lender, and it should matter to you as an owner.

These two questions tell me whether you have a professional team behind you. That's often the first sign of whether this application will go smoothly.

What I Look at First: Cash Flow and Net Worth

Once I have the full package, the first thing I look at is cash flow. Is this company making money, and is it making enough to pay the loan back?

The Income Statement

I open up the financial statements and go straight to the income statement. I look at the bottom line. Are there brackets around that number? If so, the company lost money that year.

If it lost money, I look back at the previous year to see if the same thing happened. If you made a profit last year but not this year, that isn't an automatic no. It's a question. What happened? There's often a perfectly good explanation, and I want to hear it.

The bottom line is only my starting point. Then I look at whether the cash the business generates covers the loan payments, with room to spare.

The Balance Sheet

Next, I flip over to the balance sheet and calculate net worth. Is there enough equity in this company to support the loan being asked for?

If either of those two things isn't there, that becomes my feedback to the client.

"Not Right Now" Is Not the Same as "No"

I try never to just tell a client, "No, we're not going to give you lending." What I tell them is, "We can't give you lending right now. Here's what you need to fix before we'll consider it."

That feedback is based on the lending guidelines of the financial institution I work for. Not every lender has the same guidelines, so what one institution needs may differ from another. But a "not right now" with a clear list of things to fix is a roadmap, not a rejection.

The Biggest Thing That Slows Down a Loan

Here's something most borrowers don't realize. I can't start my end of the application until I have every document I asked for. If I've asked for five documents, I need all five before I begin.

Why Lenders Can't Work Piecemeal

Some clients wonder why I can't just start with one piece. The answer is that there's a process we follow from beginning to end. When you split that process up, mistakes start happening. Mistakes mean more delays and more rework. It takes far more time, and frankly costs more money, to stumble through the process than to do it right the first time.

There's also the reality of my workload. I don't only handle lending. I look after my clients' everyday banking, their investments, and all their other business needs. Most of those things move quickly. Lending is the one transaction that takes the longest, and it's the one that suffers most when paperwork trickles in.

The Clock Keeps Ticking

Unfortunately, coming in unprepared happens more often than not. I'll get one document today, another later in the week, and another three weeks from now. All the while, the clock keeps ticking on when the client needs the financing.

Then, two weeks before their deadline, they call wondering where we are with a decision. The honest answer is that we've just started, because the last document arrived last week. Understandably, they feel frustrated and think the bank is dragging its feet. We're not. We simply couldn't begin.

Think of It Like Tax Season

You already know how this works with your accountant. They contact you months before your filing deadline and ask you to gather all your paperwork and bring it in at once. Once they have everything, they can give you a realistic timeline.

Banking works exactly the same way. The timeline starts when the full package is in our hands.

What a Well-Prepared Client Looks Like

I'll share a story that has stuck with me. A business owner contacted me early in their process and asked what I would need. I gave them my document list. A few days later, they booked an appointment, sat down with me, and handed me literally everything I had asked for in one package.

It was probably the first time in several years that had happened.

We went through the financials, what the business needed, and what they planned to do. I had a few questions about the business plan, like who the suppliers were, who the clients would be, and where the revenue would come from. It was a great session.

What struck me most was that this client was nervous about what they had prepared. When I complimented them on how well prepared they were, they got a little emotional. That was a great feeling on my end, and it showed me how much effort and worry goes into this for business owners.

Why Lenders Ask for CPA-Prepared Financials

This isn't a red flag, but it's something every borrower should understand. Lenders have limits on what they can accept for the size of loan being requested.

For example, say you want to buy into a restaurant and need $300,000 after your down payment. The lender may require financials or projections prepared by a CPA.

The Temptation to Do It Yourself

I understand why some owners try to avoid this. Seeing an accountant can be expensive, and there's no guarantee of a loan on the other end. It can feel like a gamble: spend the money and possibly still get turned down, or follow a Google search and prepare the documents yourself.

There are real problems with the do-it-yourself route, especially with projections. Without industry standards to compare against, you're essentially pulling numbers out of thin air. Even with plenty of online research, from a lender's perspective those numbers still lack a credible foundation.

The Value of a Trusted Third Party

A CPA is a trusted third party. Accountants have access to industry journals and vetted, real-world data to compare your numbers against.

Here's what many people don't realize: lenders do the same thing behind the scenes. We have access to many of the same tools and resources, and we stress test your numbers against them, even the ones prepared by a CPA.

A Question Worth Asking Your Lender

If your lender asks for CPA-prepared financials, it's fair to ask why. Is it simply a preference? Is it an institutional policy? In some cases, it may even be a government regulation. Knowing the answer helps you make an informed decision about where to spend your money.

The One Thing You Should Do Before Applying

If I could give every potential borrower one piece of advice, it would be this: gather your information and truly understand it.

Know Where Your Numbers Come From

If a CPA prepared your statements, sit down with them and ask questions. Understand where each number comes from and why it matters. For example:

• Why are sales such an important number?
• What is the cost of goods sold, and why does it matter?
• What is an asset, and what makes an asset tangible?
• What is net worth, and how is it calculated?

These concepts might feel like insider information, but they're not. The information is out there, and learning it will make you a far stronger borrower.

Check Your Numbers Before You Walk In

There are tools that compare your numbers with what lenders commonly look for. They're educational, not a loan decision, but they give you a score and show you where to improve before you sit down with a lender.

Control What You Can Control

Even with perfect preparation, approval is never guaranteed. Lenders weigh many factors you can't control, such as your industry and the institution's risk appetite for it.

But you can control your preparation. Go in organized, know your numbers, know where they came from, and bring everything at once. Do that, and you'll give yourself the best possible chance, and you might even make your banker's day.

Views are my own, not those of any employer. This is general information, not financial or legal advice. Lender criteria vary.