When you're applying for business finance, your bank statements are like an open book to your potential lender. They can reveal a lot more about you and your business and your attitude to money than you realise. Every financial institution and lender is different; some are looking for a reason not to lend to you, and will look very closely at your bank statements, with low tolerance for poor financial discipline. Others are looking for ways to say yes to your application and will be prepared to overlook some indiscretions. The lenders who are more lenient are like this because they have a higher tolerance for risk, which also means that they are more expensive to borrow from. And they often will make their lending decision purely on what they see in your bank statements. They will also have a range of interest rates on offer, depending on how risky they think you are to lend to.

So, if you want to minimise your borrowing costs, you need a lender with a lower tolerance to risk, or ensure you get the lowest possible finance rate from a more open-minded lender. This means your bank statements must be squeaky clean.

In this article, we give you some insight into what lenders are looking for (and hoping not to see) in your bank statements.

 

The big red flags

 

Gambling

Lenders frown upon frequent transactions at casinos, the TAB, or buying lotto tickets. It signals risky behavior, and they might think twice before lending to you. This is also discretionary spending that, if you slowed down on, might put you in a better financial position.

 

Tax payments

Your lender is looking for evidence that you pay your PAYE and GST regularly. If those payments are absent, and there is also no arrears payments showing up, that make you risky. Skipping tax payments or having overdue taxes can make lenders nervous. It’s like not feeding your Tamagotchi and expecting it to thrive.

 

Bill payments

Lenders love to see that you're paying your bills on time, especially any other loans you have. It shows reliability and good financial management. On the flip side, missed or late payments, bounced payments, and dealing with debt collectors give lenders the jitters. It’s like showing up late to every meeting – not a good look.

 

Financial discipline

Are you disciplined with your money? Lenders can tell. Frequent cash withdrawals, excessive spending at fast food chains, and transactions at dairies and bakeries can signal a lack of control. Think of it like eating junk food every day – it’s not healthy for your financial diet.

 

Personal conduct

Your personal spending habits can reflect your business conduct. Lenders look for signs of responsible behaviour. If your bank statement looks like a list of party supplies and luxury items that are unrelated to your business, it might raise eyebrows. They prefer seeing regular wages paid out and essential business-related transactions.

 

What’s for lunch?

Yes, even your lunch habits can tell a story. Excessive spending on lunches, especially at pricey places, can suggest a lavish lifestyle. While it's okay to treat yourself occasionally and shout smoko for the team, consistency in this area matters.

 

Leisure activities

Spending on leisure is perfectly fine, when your lender can’t see it! Lenders are wary of excessive spending on non-essential items. If your bank statement shows constant splurges on leisure, it could indicate financial instability. So, unless those movie tickets are a reward for an employee who did a good job, try to keep those transactions out of your business bank accounts.

 

What lenders like to see

 

Tax Payments: Regular and timely tax payments are a big plus.

Bill and loan payments:  Consistent and punctual payment of bills shows reliability.

Wages payments: Regularly paying your employees (or yourself) on time is crucial; extra marks for paying the PAYE within two days of running your payroll.

 

What lenders don’t want to see

Cash withdrawals; Frequent cash withdrawals can suggest untracked spending.

Non-business payments: Payments to individuals not related to your business raise questions.

Excessive small transactions: Regular transactions at dairies, bakeries, and fast food chains indicate poor financial discipline.

Gambling transactions: Payments to the TAB, casinos or buying heaps of lotto tickets are unhelpful to your application.

Debt collections and bounced payments: These are major red flags indicating financial trouble.

Exceeding your overdraft limits: Frequently going over your overdraft limit shows poor cash flow management.

Fines and penalties: These show all kinds of a lack of discipline. From parking tickets to IRD late filing fees. These are avoidable costs.

 

Tips for making your bank statements shine

Pay yourself a weekly salary; This can help you to keep your personal transactions, well, personal, and out of sight of your lender.

Timely tax payments. You are meant to file your PAYE return within two days of paying wages. Pay your PAYE when you do your return.

Set aside time every two months to do your GST return. Sweep GST payments into a savings account when you receive payments, so that you can meet your GST payment commitments.

Strategic payment scheduling: Align critical payments with the days you receive payments from customers. If you have direct debits, ask for more suitable payment dates. This ensures you have enough funds to cover important expenses.

Consider an invoice finance facility: for B2B businesses, an invoice finance facility can keep cash flowing smoothly and help meet all your payment commitments. Click here to find out how we can help!

 

By following these tips, you can ensure your bank statements present you in the best possible light to potential lenders. It’s all about showcasing your financial responsibility and discipline, which ultimately makes you a more attractive borrower.

Remember, a clean and well-managed bank statement is like a well-dressed resume for your business. Dress it up nicely, and you'll be ready to impress any lender!