You can tell a lot about people by the way they spend their money. That goes for businesses, too. When a business owner applies for financing, one of the first items lenders request are the most recent business bank statements. Most lenders (including us at One Degree Capital) look at each page of the bank statement, not just the summary. Why? Because how business owners handle their daily banking says a lot about how they handle their business in general. Here are 3 things you can start doing today to ensure your business bank account looks healthy to any perspective lender:
Use an Actual Business Checking Account
Business lenders lend money to real businesses, not hobbies. If you are running your business transactions through a personal bank account your business looks more like a side hobby than a real business. Yes, business checking accounts have monthly fees, but this is one of the costs of doing business.
Even if you are just starting out, open a business checking account to show perspective lenders that you are seriously committed to starting your business.
Make Regular Deposits
Regular deposits show lenders that people regularly want what your business provides. Holding on to money and making weekly deposits (or even less frequently) makes it difficult to show how well your business cash flows throughout the month, which can impact the options available to you for financing.
If your business receives a lot of cash payments from customers, it can be tempting not to deposit those funds at all. After all, what you deposit must be reported and taxes paid (remember, taxes are owed on everything you make, not just what you report). While “pocketing” the cash may sound great in theory, it is impossible to show how healthy your business truly is, which will impact your ability to obtain the amount of financing your business may need (and get you into trouble with the IRS, but that’s another topic).
Keep Business and Personal Spending Separate
I’m always amazed at the number of business owners who use their business account to pay for their daily trips to Starbucks and McDonalds – adding up to hundreds of dollars a month. (For one customer, it was thousands per month – he must have been feeding a small village with all his fast-food stops!)
Resist the urge to use your business checking account’s debit card as your daily personal source of cash. Treat yourself as an employee of your business and pay yourself a regular salary that is deposited into your personal account, then give yourself an allowance for special treats like Starbucks and the occasional Big Mac attack.
There are many other ways lenders review your business before deciding whether to provide financing, but following the 3 guidelines above will help get you on the right track to show prospective lenders that your business is successful and capable of paying back a loan.