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In my last post I talked about recognizing Trends in your credit analysis of an SBA applicant business. This time we’ll talk about Anomalies. When analyzing a credit I’m looking for unusual entries as they relate to the historical numbers. Most business financial data is relatively consistent year over year as to the percentage of revenues. In my analysis I’m looking for significant increases and decreases in these expenses.

Variances in Repairs and Maintenance or Legal Expenses for example could indicate a legitimate addback to your debt service calculation. Other variances may indicate a sign of trouble. Increases in marketing/advertising with no increase in revenues may point to difficulties maintaining revenue levels. Make sure to ask your applicant about these anomalies to ensure you have an accurate picture of how well the business has performed historically.

Trends and Anomalies are more difficult to discern when comparing tax return information to financial statement information because the information can be categorized very differently by the applicant in their internal books vs. what their tax preparer will report. Don’t take for granted this is the case – ask! Understanding the financial condition of the business is paramount to making solid credit decisions.

Come back next week for the final post of this series!


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