NG, ALYNA JAE L.

ACTBAS1 Section C-31

ID#11716738 October 27, 2017
Individual Business Case: Missing Financial Statements - A Messy Situation?
A business applies for a loan for good reasons such as expanding or building credit for the
future; however, it may also be for bad reasons such as a business going in debt (Hecht, 2015).
A company called Clean-Your-Room has applied for a loan, however, the owner and president,
Lyn, has only told her accountant to provide the bank with its Statement of Financial Position
(SFP) and omit the other financial statements because of the net loss.
The situation with Lyn’s loan application will affect the bank, who is considered as an
external user of the business as the creditor, since they need to obtain the complete information
of the business in order for them to thoroughly evaluate if the business should be granted a loan,
particularly the financial statements because these are information which are of utmost
importance when making business decisions. By not providing the bank with complete
information, the owner is violating the ethics by lacking integrity, due care, and objectivity.
Owners would be willing to provide the banks with information that would give them an advantage
such as its assets because it shows its resources that they control from which future economic
benefits are expected to flow to the entity; however, they would not be willing to provide banks
with information such as the net loss, because it is an indication that the business is not
performing well. An SFP can be formed once the business is established, but if the business has
already incurred expenses and earned income, they can already form other financial statements,
thus there is no excuse for Lyn to not provide the other financial statements. According to Arora
(2014), banks would basically require personal information, business plan, personal credit and
business credit report, income tax returns, financial statements, collateral, and legal documents
when applying for business loans. These documents will work hand-in-hand as evidences to
support the verifiability of all the information provided. I believe that it is better to take the risk
in providing the bank with complete information, since they will see that the business is reliable,
neutral, and practices good business ethics. Furthermore, by providing the bank with complete
information about the business it is a form of giving their trust to the bank, from which it will
form good business relationships.
I would recommend for the owner to craft a business plan before establishing the business
so that he/she would have a better projection, particularly on the business’ future economic
benefits, by constructing projected financial statements and a break-even analysis because it will
help avoid a net loss and make good economic decisions.
Bibliography:
Arora, R. (2014, June 5). What you need for a small business loan. Fox Business. Retrieved from
http://www.foxbusiness.com/features/2014/06/05/what-need-for-small-business-
loan.html
Hecht, J. (2015, November 9). 6 smart reasons to get a business loan. Entrepreneur. Retrieved
from https://www.entrepreneur.com/article/250973