Your business entity must have a minimum of one bank reference. It would be great if your business bank account was at least two years old, but more importantly to place your business in a good lending position it should have an average daily balance of at least $10,000 for the last three months. This is called the magic “low 5″ rating.
Your business banking reflects how you manage your cash flow. Lenders want to know that your cash flow is capable of handling the business debt and expenses on a consistent basis. Accounts that show NSF returned checks can be deal breakers!
If a funding request amount requires a $2,000 a month payment, lenders will want to see at least a “Low 5″ bank rating. Your “Bank Rating” is based on your average daily minimum balance over the last 3 months.
Here is how “Bank Rating” works. It is based on your average daily balance over the past three (3) months, so your rating would be:
Low 4 for $1,000 – $3,999
Mid 4 for $4,000 – $6,999
High 4 for $7,000 – $9,999
Low 5 for $10,000 – $39,999
Mid 5 for $40,000 – $69,999
High 5 for $70,000 – $99,999
Low 6 for $100,000 – $399,999… etc.,
I hope you see the pattern here.Having the $7,000 balance gets you rated at a “High 4″. But having $10,000 gets you a rating of a “Low 5″ and that really changes things. Not having it will not stop the process of building a favorable business credit rating, but it can slow it down. If you don’t have the $10,000, consider borrowing it from family or friends. Remember, you are not going to use it, it will sit in the account so you never go below that important level. Just let it act as your base line in the business account so that your balance never drops below that amount.
The NY Fed has some very good, detailed information on the credit process for small business loans.
Remember, make sure that your business bank account is reported exactly as your legal business entity name and at the same physical address as your business, not a Mail or P.O. Box.
For more detailed information on why this is critical and how it fits into your master plan of intelligent business funding, request your free copy of our CARE Report.
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Your post has some useful and educational information in it.
I now understand with more clarity why lending institutions were not a success for me when I was in the process of looking for funds to expand my business.
I was not approved through the traditional lending institutions, even though I had great credit.
I was making enough money after I had paid my bills, and the traditional lending institutions found this to be very risky.
I ended up find success of the beaten path at http://www.thesnaploan.com.
I hope you continue to post educational information for the small business community.