Lenders ask to see your business bank statements to get a better understanding of how your company is managing its finances. 

Your bank statements tell a lot more about your business than just how much money is in your account. They provide an overall view of your income and expenses and help lenders determine if you’re a solid candidate for funding. 

Here are more details about why lenders ask to see your business bank statements and how they impact your ability to borrow funds.

What Are Bank Statement Business Loans?

With bank statement business loans, lenders will review several months of your company’s bank documents to get an idea of your average daily balance, cash flow and income. This gives lenders insight into whether you have the ability to repay the loan you’re requesting and alerts loan providers to potential risks in lending. 

If you’re searching for a business loan without a bank account, consider opening one. You’ll be hard-pressed to find business loans without bank statement requirements. In some cases, applications for an account can be completed online. With a company bank account, you can start building the banking history you’ll need to apply for a business loan. 

What Documents Do You Need When Applying for Funding?

Whether you’re applying for a merchant cash advance with an alternative lender or a small business line of credit with a bank, you’ll likely need to provide at least several months of bank statements, or the last a year’s worth if your business is seasonal (the number of required bank statements varies by lender and loan type). 

Don’t feel uneasy when a lender asks you for your past 3-6 months of bank statements: Most lenders require your most recent bank statements to assess the financial health of your business.

One of the things they’re looking for is your business’s registered name or its doing-business-as (DBA) name. This confirms you’re using a business account (and not a personal bank account) to operate your business.

Are you wondering, “Do lenders verify bank statements?” The answer is yes. Lenders can either contact your bank directly or send a verification or proof of deposit request to your bank to validate your account balance and history.

In addition, lenders evaluating you for a business loan based on bank statements also may want to see the following documents:

  • Your driver’s license
  • Voided business check
  • Proof of ownership
  • Tax returns

How Do Lenders Use Business Bank Statements to Determine Risk?

Applications for business loans using bank statements allow lenders to verify several factors relating to the health of your business.

For example, a low balance warns lenders that an applicant may not be able to handle additional payments. Low or negative daily balances are a sign that your business won’t be able to afford taking on another payment. Bank statements also will show recurring payments you’re making as well as any deposits made by another funding company.

To avoid confusion, be as transparent as possible with your lender during the application process so they aren’t surprised by anything they find.

Turning over your bank statements to a lender can be nerve-racking if you aren’t sure what they’re looking for. We’ve already touched upon some of the red flags that they’ll be looking for, but what are some other factors they consider? 

Average Daily Balance

Your average daily balance says a lot about the way your business functions. Being able to keep and manage sufficient balances on your account is the most important thing lenders are looking for in your bank statements.

If a company’s bank statements indicate a struggle to keep a positive daily balance, getting approved for a loan may prove difficult.

If, at the very least, you’ve been able to maintain a positive balance in your business bank account, lenders are more likely to approve your company for financing.

Person presses keys on a cell phone. Transparent images of a bank, ATM, credit card, dollar bill and shopping cart are shown.

Nonsufficient Funds

Lenders use your business’s bank statements to determine whether you’ll be able to repay their investment. Avoiding nonsufficient funds and overdrafts is a part of keeping your account balance positive. That isn’t to say that 1 or 2 incidents are going to diminish your chances of finding a lender.

Keeping your account balance positive and minimizing your amount of nonsufficient funds and overdrafts will help increase your chances of approval.

Daily Deposits

Here’s another thing lenders asking for bank statements want to see: frequent deposits to your account. If your business is receiving multiple deposits a day, your business is generally considered healthy.

However, if you haven’t received a deposit in weeks, lenders might shy away from financing your business. A lack of daily deposits can be the result of a handful of things, none of which are particularly promising for your business’s chances of being approved.

Recurring Payments

Lenders will also scan your bank statements for any recurring withdrawals. This checks to see if your business is already repaying a debt owed to another lender.

Some lenders will shy away from being what’s referred to as a “second position” lender because there is an increased risk of loss. Legally, if a business defaults, the second lender must wait for the original lender to be repaid before they begin seeing compensation for their loss.

If your business is repaying pre-existing debt, it doesn’t mean you have no chance at being approved–but your lender will want to know of any remaining balances your company may have.

Professional in a suit stands in front of a screen projecting graphs, stacks of coins are in the background.

Business Bank Statement Loans: The Bigger Picture

At the end of the day, all the bank statements lenders review should indicate that your business is healthy and consistent.

While the definition of a “healthy business” varies from lender to lender, if your business is making enough to operate comfortably while paying expenses, employees and debt, then chances are, you’ll be considered a good candidate by lenders.

Although minimum time in business requirements vary by lender, if your business has shown the ability to turn a profit for 1 year-2 years, you’ve demonstrated your consistency. This is incredibly important for lenders to see because they want to make sure that your business is sustainable before they extend capital to your company.

Don’t be afraid to share your company’s bank statements with your lenders, even if you’re worried they aren’t impressive. If you’re honest with your lender from the beginning, your company will have a much better chance of being considered for financing.

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