How Important is a Business Bank Account Rating

A business bank account has a crucial role in the management of day-to-day finances within your company. Not surprisingly, the history of your deposits, withdrawals, overdrafts, average daily balances and other aspects of a bank account factor into how your financial institution views the bank rating of your company. Therefore, doing what is in your power to maintain a positive business bank account rating is in the best interests of your current and future business goals.

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Importance of a Business Bank Account Rating

One of the most important financial tools that you will have for your company is a business bank account. You will use the account to manage company finances, prepare reports, make deposits and keep accurate records of money that comes in and goes out of the company. Once you select a financial institution that best serves your business needs, you will want to focus on establishing a favorable rating. Whether it is a credit union, community bank or major commercial bank, the institution serves a purpose in the growth and strength of your company.

Your bank rating plays a crucial role if you need to apply for a business loan or line of credit. Generally, your bank or any lending institution will review your banking history in addition to business credit reports. The picture they glean from the information factors into their overall risk assessment of approving your request.

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Business Bank Rating is Different from a Business Credit Rating

The rating that your company’s business bank account receives is different from the credit rating used to determine if your company qualifies for a financial product. A business credit rating is based on how well – or poorly – your company manages paying its bills. Conversely, the criteria used to determine a bank rating is based solely on factors related to how the bank account is managed. With a positive bank account rating, your company could have greater borrowing capacity for credit cards, lines of credit or business loans.

The total amount of that borrowing capacity is typically known as bank credit, which is determined by how bank accounts are managed. Your company’s balance rating is one of the most important factors that influence your capacity to borrow. In general, your company’s average minimum balance over a three-month period is what the bank looks at to determine eligibility.

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Ways to Establish a Favorable Business Bank Account Rating

Here are five ways that your company can establish a favorable bank account rating.

1. Maintain a strong balance rating. As briefly mentioned above, the balance rating is based on how much money you maintain in your business bank account over 90 days. For example, an average minimum balance $999 will rate a High 3, $5,000 receives a Mid 4 rate and $10,000 will rates as Low 5. You want to reach and maintain a Low 5 bank rating before your bank assumes your company can repay a line of credit or business loan.
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2. Continue a positive bank rating cycle. Your goal should not be maintaining a Low 5 rating for three months, get approved for a loan and keep $5,000 or less balances. Instead, keep a positive rating as consistently as possible. Each cycle is based on the rating you had for the previous three month period.
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3. Manage your business bank account responsibly. Another key component to establishing a favorable business bank rating is managing the account responsibly. This includes not having a negative balance history as well as no bounced checks or overdrafts. When assessing the creditworthiness of your company, your bank history practices will speak volumes to potential lenders.
   
   At all costs, you want to avoid writing non-sufficient funds checks because this is the quickest way to damage your business bank rating. Add overdraft protection to your bank account if you have not already done so to prevent any unforeseen circumstances from destroying your banking reputation.
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4. Have a positive cash flow. Cash that comes in and goes out of your business bank account should be reflective of a positive flow. This is a demonstration of revenue left over after business expenses are paid. A positive cash flow indicates that your company generates more revenues than is needed to run the business. Consistent deposits and fewer withdrawals are a motivation for banks to lend.
   
   Generally, lenders can readily assess whether you have enough revenue to meet current financial obligations why also repaying a loan or line of credit. Ultimately, cash flow reflects the health of your company. Even if you are not applying for a loan, you need a positive cash flow to meet daily obligations.
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5. Establish history with the bank. The length of time that you have had a business bank account is usually looked upon favorably by lenders. It is also an important component in determining your bank account rating. A seasoned business bank account shows longevity and stability that are also positive signs for lenders. Keep a long-standing, healthy relationship with your financial institution. Avoid switching banks because this could impact your banking history at a time that your company needs a seasoned account to help it reach the next level.

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Your Business Bank Account is a Business Partner

In addition to maintaining a positive bank rating, you should have a bank that can act as a trusted advisor. Having a business bank account is just one portion of running a good business; you also want to grow and should have a relationship with a financial institution that provides tailored services for your specific industry.

Joining with a financial institution that understands your company and what it takes to be successful makes it easier to get approved for financial products that contribute to your success. Lenders that have a difficult time assessing the credit risk of some small businesses are not equipped to operate in your best interests. Do your part of managing your company’s finances and connect with the right bank. Tax returns, profit and loss statements, and business credit are common factors in the lending process. However, it is much easier to have your company’s financial risk underwritten by a lender that understands and specializes in companies like yours.

You might have different types of partners throughout your company’s lifecycle. However, the partnership you have with a financial institution will be one of the most important for you to maintain. Not only does a business bank account keep personal funds separate from business funds, but it will help you keep your company organized more effectively.

A good financial institution recognizes its importance and will prove to be invaluable to your goals and objectives. Not only can this partnership assist you with borrowing needed capital, but it can also help you make future plans. When you have a plan for your future, customers and potential customers are assured of your credibility and stability, which is good for business.

Finding the right bank and nurturing the relationship requires just as much effort as hiring the best talent or landing a big customer. Consider a business-friendly bank and work towards establishing a solid business bank account rating. Regardless to the type of industry you are in, a positive bank rating has a critical role in developing your company’s creditworthiness. With a positive rating, your company will have an easier experience qualifying for financing and credit products that will strengthen the growth of the business.