Most lenders require a business checking account when you apply for a small business loan because it shows a history of funds available and the availability of current cash flow to make payments. It’s separate from personal finances, which makes it easier to track the financial health and stability of your company. Unless you are a sole proprietor, your business bank account will require an EIN number, which lets the lender look up how long you’ve been in business.
Lenders assess how likely it is you’ll pay the loan back, so the length of time your business has been around combined with a track record of profitability and financial stability can make your loan application stronger.
You can have your business checking account at whatever bank or credit union you choose, but it may help to have the business checking account with the same financial institution you take the business loan from. Here’s some more information on why lenders require business checking accounts before giving you a business loan.
Reasons Lenders Require Business Checking Accounts for Loans
The bank or credit union that you choose for your business account doesn’t impact your ability to get a business loan. The important thing is they are trustworthy, licensed to operate, and regulated, as this adds to their credibility.
Here are some of the reasons your business checking account will help your approval chances when you apply.
If it is with the Lender
One advantage you can have is having a business checking account with the lender you’re applying to for the small business loan. In this case, the lender can quickly verify if you have the cashflow for making payments, your business financial history, and what is available for a deposit, if one is needed. On top of verifying that you have the cashflow, having your business checking account with the same lender does the following:
- It shows you have already verified who you are and that your business is real.
- It makes it easier to transfer the payments when they’re due.
- It demonstrates that you will be loyal and want to grow together with the lender.
When everything is in one place and the lender can see your history without additional work, it could speed up the process and possibly get you a better interest rate if the lender values your brand loyalty.
Transparency
Some lenders will allow you to use personal guarantees on a small business loan, where you need to prove you have the personal assets to cover the cost of the loan if your business defaults on payments. In most cases, you will need to separate your finances, as personal assets can inflate business assets, especially in a start-up or LLC.
By having business and personal assets separate, there is a clearer picture of your company’s financial standing and risk levels for the lender. When you have a separate business checking account, you make the lender’s job easier, so it will be easier to get an approval decision.
Proof of Funds
Having a business checking account lets the lender call your bank and have a trusted third party verify that you have the funds available. Liquid assets like cash in the bank build trust that you will be able to make payments, so the lender will not have to worry about a default and losing money.
A History of Cash Flow
If your business bank account has been active for a few years, you can get monthly bank statements or an account history printed out or verified. Showing the balance each month over an extended period where the amount is more than enough to cover a business loan payment is one of the strongest signals you can send for your trustworthiness.
If your business is expanding and you need a small business loan to open the next location (and you already have a few locations to begin with), your business checking account can show how revenue fluctuates as each new location opens. The financial statements prove how you, as a business leader, can stabilize and grow cashflow from the new location, making you seem less risky as a borrower.
Having a business bank account builds instant trust for a lender because you can show you have the funds available to cover payments. It can also demonstrate a history of financial stability.
