Can a Professional Audit Improve Your Chances of Getting a Business Loan?

Feb 2, 2011

Wall Street Journal Small Business writer Angus Loten‘s recent article discussed a study that found small businesses whose books are audited or reviewed by a professional accountant improve their chances of getting a loan, and at far better terms.

“An audit provides third-party assurance that a company’s financial statements are correctly prepared and based on verified business data, while a review shows the statements are at least internally consistent with data provided by management,” Loten wrote.

One expert interviewed for the article said a business with less than $1 million in annual revenue can ask a CPA to prepare a compilation, which is a cheaper, unaudited financial statement based on recorded sales, inventory and other data.

Audited or not, less than a quarter of businesses with fewer than 500 employees keep financial statements of any kind, according to the Federal Reserve Board’s National Survey of Small Business Finances, Loten wrote.

“There’s a lot of criticism that it’s expensive and difficult to prepare and audit your financial statements,” Teri Yohn, an Indiana University associate professor of accounting who sits on the Financial Accounting Foundation’s blue-ribbon panel on private-company accounting standards, said in the article. “But there are clearly benefits.”

Read the complete Wall Street Journal Small Business article here.