Now that you are utilizing a variety of products offered by your financial institution such as overdraft protection, online banking, a business check card, and merchant services, let’s cover the importance of establishing a healthy bank rating and account history.
These two play a big role when you apply for bank financing from your financial institution. For example, when you apply for a line of credit they not only review credit ratings and financials but they will also review your company’s account history, deposit history, balance rating, NSF record, etc.
There are specific steps you can take that can improve your company’s chances for obtaining the amount of financing it needs. Remember, the less risk your business presents in the bank’s eyes, the more chances they are willing to extend credit to you.
In a nutshell, the bank wants to ensure that your company has the necessary funds to repay a loan. How they determine this breaks down to you and your company’s credit ratings, cash flow, financials, returns, and banking relationship.
Previously we covered the importance of utilizing your bank’s products and services but this is only one part of establishing a favorable banking relationship.
Here is how to establish a positive bank rating and account history:
1.Make consistent deposits – This can be easily accomplished if you use this account to receive your credit card settlements from your merchant service provider. Consistent deposits show a healthy cash flow coming into the business. With a consistent cash flow a bank can easily determine that your company has the ability to pay.
2.Keep a healthy account balance – This is just as important as making consistent deposits because after paying all your company expenses, what’s left over at the end of each month is your excess cash flow. If all the cash flow that comes in goes out every month, how can your company handle another expense like a loan payment? This would clearly show a bank that your company has no additional cash flow and can hurt your chances for getting a loan or line of credit. Ideally, you should aim to maintain at least $10k in your account at all times.
3.Maintain a positive bank account history – If you took advantage of adding overdraft protection to your account and focus on keeping a healthy account balance, maintaining a positive bank history should not be a problem for you. Don’t make the mistake of writing bad checks and causing overdrafts on your account because this is a clear red flag for banks.
4.Season your bank account – The longer you stay with your bank and maintain a positive bank rating, the greater the relationship you will establish with your financial institution. This shows your bank that you run a stable company with longevity.
Your business banking relationship is another key benefit when building a Business Credit Asset™. Even though your bank account history does not appear on your business credit reports, any loans, lines of credit, and business credit cards that you obtain from your bank can help further improve your company’s creditworthiness.
Your financial institution will help further expand your company’s ability to obtain financing while providing you with the necessary tools needed to manage your company’s finances on a national level.
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