5 red flags that get PEI loan applications declined.

The short answer: the five flags are books that stop at last year-end, HST or payroll money owing, margin swings nobody can explain, owner draws outrunning profit, and debts the application didn’t mention. Every one is fixable before the application goes in.

Monday’s note walked through the order a lender reads your financials in. This is the companion piece: the five things that stop the reading. None of them means the business is bad — every one of them is fixable — but each one, left in the file, drifts the answer toward no. Here they are, in the order they usually surface.

1. Books that stop at last year-end

The application lands in July and the newest numbers are from fourteen months ago. To a lender that reads one way: nobody is watching this business closely — including the owner. It’s the most common flag and the easiest to fix: current, closed monthly books, with statements a lender can date to the last month or two. That alone puts you ahead of most files on the desk.

2. HST or payroll money owing

The HST you collect and the payroll deductions you withhold were never yours — you hold them in trust for the CRA. When they show up as arrears, a lender reads it as: when cash gets tight, this business borrows from the CRA. And the CRA collects ahead of everyone, including the lender you’re asking. If there are arrears, deal with them before you apply — filed returns and a payment arrangement read very differently than a surprise.

3. Margin swings nobody can explain

Margins that jump around don’t kill a file on their own — seasons happen, costs spike, a big job lands. What kills the file is the shrug. If gross margin fell from 38% to 29% and the answer to “why?” is “huh — not sure,” the lender assumes the worst version of the story. Know the one-sentence why for every swing in your statements. If you can explain it, it’s context. If you can’t, it’s a flag.

4. Owner draws outrunning profit

The business made $52,000 and the owner drew $70,000 — the gap came out of the company’s hide. A lender sees a new loan payment lining up behind the household, not ahead of it. Sometimes there’s a fine reason — a one-time draw, a planned catch-up — and if so, say it in the file. Otherwise, right-size the draws for a few months before applying. It changes the arithmetic and the story.

5. Debts the application didn’t mention

The application lists two loans; the file turns up a third — an equipment lease, a line at another lender, a vendor arrangement. It’s usually an honest miss. It never reads like one. An undisclosed debt makes every other number in the file suspect, because now the lender is auditing instead of reading. Disclose everything, first, yourself — a bigger debt load told straight beats a smaller one discovered.

The part nobody tells you

Every flag on this list is fixable, and the cheapest time to fix them is before the application goes in — not after a decline is sitting on your file. That’s exactly what the free Books Checkup is for: I read your books the way a lender will, before a lender ever does, and tell you which of these five would come up — and what to do about each one.

Notes like this are general information, not advice on your specific situation — that’s what the kitchen table is for. — Dominic