Why Lenders Want to See Your Bank Statements

 

Bank Statements

Bank Statements

As you’re getting ready to embark on the application process for a restaurant business loan, you’ll soon realize all the paperwork necessary to get approved by a lender. There are a lot of requirements you’ll have to meet as a loan-seeking small business owner, namely because business loans are riskier for a lender, so eligibility is stricter than it is for a personal loan. Typically, you’ll spend lots of time gathering a range of financial documents and information to complete the application. Lenders are interested in your credit score, how long you’ve been in business, and your annual revenue, among other things. Requirements may vary from lender to lender, however there is one single item you can pretty much bet will be necessary no matter who you apply with: your bank statements. But why are lenders so interested in these? Let us explain…

Typically, a lender is going to want to see at least three months of bank statements. According to Forbes, there’s a perfectly reasonable explanation for this: “To confirm the accuracy of your accounting documents, lenders will typically request copies of your business’s bank statements for a specific period of time. This will give them an idea of your cash flow and how well you handle your money.”

There are three basic things lenders are going to be looking at on your bank statements:

Your Business’s Name

We should clarify—your business’s registered name. It’s critical that lenders see your bank statements are in your business’s registered name (or “Doing Business As” name) in order to prove these are your business’s bank statements and not your personal ones.

Your Bank’s Name

This one is pretty obvious, but bank statements prove your money is being taken care of by a credible, official banking institution.

You Included Everything

Lenders, believe it or not, are looking at each page of your bank statements—not just the first one. They’re checking to make sure you’ve included the entire document and haven’t altered it in any way. If you’ve excluded a page, changed some unfavorable numbers, or edited any information whatsoever, they’ll find it (and there goes your shot at a loan).

That can’t be everything they’re looking for, right? Of course not! The most important information requires a little more digging. First, a lender is going to want to see your average balance: What’s going in and out of your account. They need to see you’re keeping sufficient funds in your account and maintaining a healthy average balance, which gives them more confidence you’ll be able to pay them back.

Next up, lenders are checking that you keep non-sufficient funds and overdrafts to a minimum (or you don’t have them at all). If you frequently have NSFs or overdrafts, this means you likely won’t be able to handle a regular loan payment.

Daily deposits are another important item lenders will be checking for on your bank statements. Businesses making regular deposits are showing signs that business is doing well. On the flip side, infrequent activity and deposits display your business is not on the upswing.

Finally, a lender may be looking to see if you have any recurring withdrawals in your account. Frequent, regular withdrawals may suggest you are making payments to another lender, which puts the potential lender in a risky spot called a “second position.” Second-position lending is not always a deal breaker, but it’s something to be aware of.

When it comes to handing over your bank statements, there are many reasons a lender wants to see them—and it all boils down to how risky the numbers make it to loan your business money. If you’re in the market for a restaurant business loan, ARF Financial can help decide which is right for you. We offer quick approvals, easy terms, fixed payments, and your very own personal loan consultant. Get in touch today!