Which data sources are recommended to assess a SME borrower without audited financial statements?

• A. Public credit scores and social media
• B. Tax returns, bank statements, cash flow analysis, owner personal financials
• C. Appraisals and collateral value
• D. Only last year's tax return

Answer: (B)

When assessing an SME borrower without audited financial statements, you rely on sources that reveal the business’s actual cash flow and the owner’s ability to support or guarantee debt. Tax returns help verify earnings trends and taxable income over time, offering a view of what the business reliably generates. Bank statements show real cash activity, liquidity, and how deposits and withdrawals align with operating needs. A cash flow analysis translates income and expenses into the timing and sufficiency of cash available to meet debt obligations, accounting for seasonality, working capital needs, and planned investments. Owner personal financials capture the owner’s liquidity and net worth, which matters because owners often provide guarantees or funds to support the business.

These sources together give a practical picture of repayment capacity in the absence of audited statements. The other options don’t provide that comprehensive view: using public credit scores and social media isn’t a reliable gauge of a SME’s cash generation; focusing on appraisals and collateral value addresses asset value rather than the ability to repay; and relying only on last year’s tax return misses trends and current cash-flow dynamics.