Business bank ratings indicates the size of the loan your business has the ability to debt service.
Your business bank account reflects how you manage your cash flow. Lenders want to know that your business cash flow is capable of handling the business debt and expenses on a consistent basis. Bank accounts with low average daily balances, or that show many NSF returned checks, can get your business loan applications declined.
If a loan amount requires a $1,000 monthly payment then lenders need 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.
Compliance Item – Minimum Low 5 Bank Rating
Bank Ratings Consist of Three Components…
- The first component is your balance rating. This rating is your average minimum balance maintained in your account over a three (3) month period. $10,000 will rate as “Low 5”, $5,000 rates as “Mid 4”, $999 rates as “High 3”, and so on. You need to maintain a minimum “Low 5” bank rating ($10,000) for at least 3 months. Unfortunately, without at least a “low 5” rating, most lenders will assume your business has little ability to repay.
- The second component is the bank rating cycle which is three (3) months. You’ll want to have at least a “low 5” for the three months prior to applying for larger loans.
- The third and final component has to do with how you manage the account. NSF (bounced) checks destroy bank ratings. From this point forward, NSF checks are something you cannot allow.
How To Get a Low 5
If you don’t have the $10,000 required for the low 5 rating, consider borrowing it from friends or family. Maybe pull it off personal credit cards or out of the equity in your home. If you borrow it from friends or family, explain to them you will not be “using” the money, but that it will just be sitting in your business checking account. Tell them you can return it to them in six (6) months. Maybe offer to pay interest. In the steps that follow, we will be looking at other creative ways to get the money you need.
Don’t Have $10,000? Don’t Worry …
Bank ratings are totally separate from building business credit and in no way effect your ability to build strong scores. So if you don’t have the $10,000, or can’t get access to the $10,000 to secure a Low 5 Bank Rating, it will have no impact what-so-ever on your ability to build strong business credit scores. However, bank ratings can definitely have an impact on your ability to secure larger business loans and lines in the future. So when your business starts making money remember to keep your daily balance above $10,000 in order to maintain at least a Low 5 Rating.