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Why is Payroll Data Accuracy Important When Applying for a Commercial Loan

The financial success of a business hinges on many moving parts working seamlessly together. Many factors go into making sure your business stays in the black. Markets are continually changing, meaning your company may lack capital when it is needed most. Whether your business is experiencing a cash flow shortage due to money not coming when expected, going through an expansion that will bring in more revenue, or incurring a significant expense, commercial loans can help you get through a tight spot. In order to receive a commercial loan, your business must first qualify. Ensuring your payroll data is accurate is an important, yet often overlooked aspect of qualifying for a commercial loan. Ensuring your payroll data is accurate will increase the chances of getting approved and receiving the requested funds.

How Do You Qualify for a Commercial Loan? 

Several factors are considered, including your business’s financial conditions, ability to pay back the loan, and industry conditions. Your company will need to produce certain documents so that a lender can better understand the risk involved if a commercial loan is approved. These documents include:

  • Current aging A/R and A/P report
  • Debt schedule
  • Pro forma projection
  • At least 3-years of tax returns
  • Year-to-date financials

Poorly Managed Payroll Can Lead to Denial of a Commercial Loan

Lenders look at many aspects of a company when it comes to determining whether it qualifies for a commercial loan, including credit repayment history, available collateral, debt-to-income ratio, and the stability of the industry. However, a business’s current financial standing is the most important factor when lenders evaluate the risk of a loan.

Payroll is a crucial component of your financials that connect your company, employees, and state and federal entities that collect the taxes on the wages that you pay individuals on your payroll. There are five reasons why your payroll data should be accurate and up-to-date before applying for a commercial loan.

1. Prevent Delays

When your company needs additional capital to offset a cash flow shortage, you need it now. If your payroll data is incomplete or mismanaged, it can significantly slow down the process of receiving a commercial loan. The most common instance of incomplete payroll data is failing to generate the tax documents and reports needed by lenders to ensure compliance. 

The most common ways that a company’s payroll data is mismanaged include: 

  • Human error when inputting information
  • Incorrect calculation of employee wages
  • Failure to comply with state or federal tax regulations

Lenders will not approve loans in situations where the numbers do not add up or make sense. 

This means your company will have to spend valuable time combing through payroll data, fixing errors, and clarifying discrepancies to the satisfaction of lenders. Ensuring your payroll data is accurate beforehand will ensure the process is as smooth and quick as possible. The use of payroll software can help prevent delays when applying for a commercial loan by: 

  • Reducing the risk of human error
  • Allowing for the automation of tasks such as report generation
  • Setting reminders to ensure payroll tasks are completed on time
  • Sending automatic notifications when tax updates occur 

2. Prove Accountability

Accurate payroll data shows lenders that the company is meticulous in tracking its financials and takes full accountability for income and expenditures. This is music to commercial lenders’ ears, as their goal is to diminish their risk when approving a loan. Lenders are leery of supporting businesses who keep inadequate records or, worse, minimal to no records at all. 

Inaccurate or missing payroll data send red flags to lenders that you may not have a clear picture of the company’s financial situation. This increases the risk to the lender of the loan not being paid back on time or at all. 

3. Ensure Compliance

Companies who keep up-to-date and accurate payroll data prove to lenders that they are compliant with state and federal regulations. This means that the lender does not have to worry about the company is subject to audits, back taxes, and various other penalties.

4. Forecast the Ability to Repay

Ultimately commercial loan lenders need to feel confident that the loan will be repaid within the agreed-upon loan term. Company payroll is one of the largest expenses a company incurs. The amount spent to pay employees over a specified length of time will give lenders an accurate idea of whether the loan you have asked for will be enough to solve your cash flow shortage and if the ability to repay the loan is a realistic one. 


Lenders look at several factors when determining the likelihood of a company being able to repay, including:


  • What the sales versus labor percentage forecast show in terms of working capital versus operating expenses
  • Whether the company experiences seasonal trends that affect profits and losses
  • Considering payroll is not a fixed expense like rent, its potential volatility can serve as a deterrent to lenders 

4. Potential Growth

A company’s sales and new labor percentages will indicate future potential growth. It is essential to clearly define how the loan funds will be used and during which stages. In most cases, there are certain phases of a business in which the funds are signed beforehand to be approved, with the final disbursement of funds intended for operational expenses. 

Apply for a Commercial Loan with LQD Business Finance

LQD Business Finance uses custom-built technologies to understand your company’s current needs and future goals thoroughly. LQD Business Finance’s solutions are not only comprehensive but flexible to meet your company’s specific needs.


Our financial solution processes are quicker due to automating parts of the underwriting process to receive the funds you need quicker than traditional lending methods. Apply for a commercial or payroll loan with LQD Business Finance today and make sure that your company is headed in the right direction. 

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