Couple of restaurant business owners sitting in cafeteria discussing finances, doing paperwork, and discussing options for a business bank account
By: rkapur
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How To Manage Your Business Bank Account To Get A Loan

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How can a business bank account help you as a business owner? Let’s start with the facts: small businesses often depend upon external sources for their capital needs. The ability to raise money when you require it could help you to increase your revenues and boost your profits. However, if you can’t access funds at the right time, your company may lose out on a lucrative business opportunity.

At times, the consequences of a lack of cash could be worse than that.

You could find yourself in a position where you are unable to meet your financial commitment to your suppliers or to pay your employees. As a business owner, you can’t afford to let that happen. Your reputation is your greatest asset, and you must maintain it at all costs. Opening and maintaining a business bank account could be the first step to avoid all these problems and secure the financial stability of your company. In this article, we’ll see why.

Why is it essential to have a business bank account?

Among other factors, a properly managed business bank account can ensure that you can get a business loan when you need it. Did you know that a review of your bank account plays a critical role in the lender’s pre-approval process?

When you make a loan application, the lender is going to ask you for details of your bank account. It’s highly recommendable that in order to ease this process, you have an online bank account. Remember that you need to provide the bank statements related to your business bank account. Don’t make the mistake of using your personal account for your business operations. The bank could find it difficult to identify your company’s transactions in the statement.

Say, you provide a lender with a bank statement that includes receipts and payments for your business as well as your personal transactions. Will the bank turn down your loan application because of this? Probably not, but the bank may not view your proposal as seriously as it would have if you had submitted details of an account that you maintained exclusively for your company transactions.

Remember that a business bank account is a primary requirement. Having one can help you to increase the chances of getting a loan approval. But, it is a “necessary but not sufficient” condition.

This means that while having a business bank account can improve the chances of getting a positive reply from the bank, it does not ensure that your loan will be approved.

What will lenders look for in your business bank account? Are there any steps that you can take to create a favorable impression in their minds about your business?

 

What do lenders want to know about your business bank account?

Here’s a listing of what the lender will look for in your bank statement:

Average cash balance

Are you always running short of cash? Does your account usually have very little money in it? If your balance remains low on most days, the lender is not going to view this positively.

Banks would like to lend money to businesses who maintain a healthy cash balance. This may seem contradictory. If you had enough money in your account, why would you need to approach the bank for funds? But look at the issue from the lender’s viewpoint. Their primary concern is to get their money back.

If you are in the habit of spending every last dollar, the bank may think that you will not be able to accumulate enough funds to meet your monthly repayments to them. It’s advisable to build a cash buffer in your account. This will reassure the bank and will help you in getting your loan application approved.

Deposits into your account

A review of your deposits will form a vital part of the lender’s credit review process. They would like to know how much money you deposit into your business bank account. Their analysis will include:

  • Do you have a consistent stream of revenue? Or, are there days when you have a high level of receipts and others when there are no sales at all?
  • Do you deposit all your revenue into your bank account or do you hold some back?
  • What is the total amount that you deposit in a month/year?

Most lenders will link the sum that you deposit into your account with the amount that they are willing to lend you. The loan amount could be limited to a certain proportion of your total deposits. Although this percentage could vary, the bank will usually restrict the sum that they advance to 10% to 15% of your yearly sales.

When did you open the account?

A new business bank account isn’t going to provide much information to the lender. Your account should be at least nine months to a year old.

Withdrawals from your account

How do you use the money generated from business operations? Payments to suppliers and employees could form a large part of your expenses. The lender should not have any objections to these.

But do you make regular withdrawals that aren’t related to your business? This could be looked at unfavorably.

Before you submit your bank statements, take the precaution of reviewing them yourself. Don’t delegate this task to your accountant. Can you explain every entry? If there are any transactions that you are unfamiliar with, you may want to dig a little deeper so that you are in a position to provide an explanation if the need arises.

Payments for other loans

If you have already taken a loan from some other financial institution, the repayments will reflect in your bank statement. You can be sure that the prospective lender will examine these very carefully.

They will check your loan application to see if you have disclosed details of the earlier loan that you have taken. It’s essential that you provide complete information about the existing loan account.

The new lender will want to know the sum that remains outstanding on your old loan. They will also want details about the repayments that you have made. If you have delayed payments, you should be able to explain the reason for this.

Bounced checks

Have you ever issued a check when you didn’t have enough money in your account? If this has happened once or twice, you can probably provide an explanation. Perhaps an expected payment didn’t come through, and the balance in your account was insufficient.

However, if this happens on a regular basis and your account statement contains charges for multiple NSF (Non-Sufficient Funds) checks, it can ruin your chances of getting a loan.

Are you dependent upon a handful of customers?

Does your business have a well-diversified customer base? Or, are the bulk of your sales restricted to one or two large customers?

A small customer base can be a negative factor. If you lose a client who accounts for 50% of your sales, your business may be in trouble. If several of your largest customers move to the competition, your company could find it difficult to survive.

The lender’s analysis of your bank statement is going to focus on this point. A large customer base will be considered to be an asset. But if your customer list is restricted, it could be viewed as a disadvantage. Be prepared to explain your company’s strengths. You should be able to convince the lender that their money will be safe with you and that they will receive their repayments on time.

Do you maintain a positive cash flow?

It’s crucial that the total deposits into your business bank account exceed the withdrawals. This will lead to a positive cash flow and provide the lender with the confidence to give you a business loan.

 

Which type of business bank account should you have?

The business bank account that you have could be a:

Business checking account, or a

Business savings account

What’s the difference between the two?

A business checking account allows you to access funds when you require. It can help you to manage your cash flow efficiently. It’s a good account for new businesses.

A business savings account, on the other hand, is for mature companies who don’t require access to funds on a regular basis. The most significant advantage of this type of account is that you will earn interest on the balance that you maintain.

So, which account will help you to get a loan? As far as the lender is concerned, both types of accounts are acceptable. What’s important is that you should have a healthy cash balance and that the lender should be convinced that you will be in a position to repay the loan installments on time.

Review your bank statements periodically

What if you don’t need a loan right away, but think that you may require one in the future? It’s advisable to identify a potential lender and keep your documents ready. If you do that you will be in a position to raise money faster when you need it.

One of the steps that you should take is to carry out a detailed review of your bank statements on a regular basis. You should check if you are maintaining a healthy cash balance. Try and ensure that you don’t give the bank a chance to charge you NSF fees.


Apply for a business loan with Camino  Financial

Would you like to know if you are eligible for a business loan? All that you have to do is to provide some basic information to Camino Financial. The company’s representative will get in touch and guide you through the loan approval process. If you are pre-approved for one of their business loans, Camino Financial will request accesses to your business bank account. They download the last six months of your bank account activity to verify your business income. This process is done electronically; you don’t need to go through the trouble of providing paper statements. It’s also quick, easy, and absolutely secure. Camino Financial’s review of your bank statements is a soft pull of your credit, and it will not have an impact on your credit score.

What is Camino Financial checking when they access your business bank account? Camino Financial doesn’t need to see that your business is making high profits: they want to make sure that everything is in order and your account is in good health. They will basically look for the signs and items explained in this article to make an informed decision about your business loan guarantee they can match you with the best business loan solution. If you are ready to take the first step, apply today. Filling and submitting this application will only take you a few minutes and won’t impact your credit.

Do you qualify for a
small business loan?