8a Certification of financial statements: what are the requirements and how does the SBA review them?
8th Certification – The financial statements of your company?
What is required to present?
All companies applying for Certification 8a must submit the following:
has. A copy of the company’s current year-to-date balance sheet and income statement. The date of these statements cannot be more than 90 days old when they are submitted to the SBA. We suggest that you provide the latest possible date.
b. If the company’s financial statements are prepared on an accrual basis and the current year-to-date balance sheet shows accounts payable or accounts receivable, you must provide the corresponding aging statements. If the company’s financial statements are prepared on a cash basis, an aging statement of accounts payable or accounts receivable is not required to be provided.
against A copy of the company’s last three full year-end balance sheets and income statements or as many as have been in business, if less than 3 years.
On what basis (cash or accrual) should the company’s financial statements be presented?
I suggest that you file your balance sheet and income statements on the same basis that you filed your company’s federal income tax returns. If you prefer to provide your financial data on a different basis than what is reported on your federal income tax returns, be prepared to support any significant increases or decreases with supporting documentation if requested by the SBA.
Is it okay to use tax returns as financial statements?
No, you must provide a balance sheet and income statement prepared in accordance with generally accepted accounting principles or on an accepted cash basis. If you use QuickBooks, we suggest that you use the standard report as the copy to send.
What minimum requirements must the current year-to-date balance sheet and income statement exhibit to meet basic eligibility requirements 8a?
Current year-to-date financials must exhibit positive net income, positive total equity, and positive working capital at a minimum.
What exactly is the SBA looking for when reviewing and filtering current year-to-date financial statements?
has. Is the current year to date balance sheet and income statement no more than 90 days old from the date received?
b. Have balance sheets and income statements been prepared in accordance with generally accepted accounting principles or on an accepted cash basis?
Cons If the company’s financial statements are prepared on an accrual basis, are the aging schedules for accounts payable and receivable consistent with the current year-to-date balance sheet?
d. Are there accounts payable or receivable that are more than 90 days old? If so, the SBA may discount these amounts and could possibly reflect negatively on your business’s potential for success criteria.
me. Does the company have fixed assets? If so, are these fixed assets correctly recorded? Are fixed assets reported with depreciation or at real value?
F. Do the fixed assets of the company correspond to its type of business? For example, if the company does construction work, does it have construction equipment? If you are a general contractor and your balance sheet does not show fixed assets (hammers, drills, construction equipment, etc.), your income statement should show the lease costs associated with renting the equipment needed to complete your projects.
gram. If the company is a distributor, wholesaler or supplier, does the company maintain any inventory and is it shown on their balance sheets?
H. Are there any loans or notes receivable from a stockholder, officer or partner that appear on the balance sheet? If so, has a copy of the loan or promissory note been provided within the application documentation? If the loan is from one of the applicants, has it been correctly reflected on their SBA Form 413, Personal Financial Statement?
Yo. Does the company have the capacity to pay the debts? (for example, minimum of 90 days of working capital)
d. Are there any loans that are questionable or that may raise control concerns? Does the business have funding from non-disadvantaged people who would be considered critical funding? Also, is the loan payable on demand? Do these loans reflect generally accepted repayment terms? If not, is this item overinflating the company’s assets?
k. Are reported retained earnings reconciled to previous financial statements?
ME. Does the company’s capital stock match that reported on the SBA Form 413, Applicant’s Personal Financial Statement?
Mister. Does the profit and loss statement show income in the proper business activity (NAICS)?
No. Is “Cost of Goods Sold” included?
Y. Are the items recorded in the balance sheet and income statement consistent from year to year?
p. Does the income statement show an expense for employee wages? Does it appear that the applicant is not the best compensated? Are there indications that excessive withdrawals have occurred?
q. Does the income statement show an insurance expense and, if required, a worker’s compensation expense?
A. Are there large outsourcing expenses that seem questionable? A service-related business must not subcontract more than 50% of the charged labor portion of a contract. If you are a construction company this percentage is 85% and 75% for the construction business (plumbing, electricity, etc.)
What exactly is the SBA looking for when reviewing and analyzing your prior year-end financial statements?
has. Are year-end balance sheets and income statements provided from the beginning of the calendar or fiscal year to the end date of the fiscal year?
b. Does the revenue reported in the income statements appear to be in the same line of business from year to year?
vs. What pattern do revenues, gains, and losses show? Is it necessary to ask for clarification, such as an explanation of the reason for a downward trend or a sudden drop in revenue?
d. Are there discrepancies between the company’s tax returns and financial statements? Are these discrepancies based on cash versus accrual? If not, is reconciliation required? Does taking into account cash versus accrual reconcile the accounts?
me. Do the balances correspond to the tax return calendars? For example, are there shareholder loans on the tax return schedules that are not reflected in the financial statements?
F. Do the financial statements and related tax returns reflect any conversion from accrual accounting to cash accounting?
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