Last issue we talked about DSCR — the cash flow ratio that determines whether a bank will even consider your loan application. If you missed it, go back and read it. It's the most important number in your file.
But here's the thing. Even if your DSCR is solid, there's a second thing underwriters look at almost immediately. And most business owners have no idea it's happening.
We look at your bank statements. Not for your balance. For your behavior.
Your bank account tells a story
Before we ever talk about loan amounts or interest rates, a commercial underwriter will pull 12 to 24 months of your business bank statements and read them like a book. What we're looking for has nothing to do with how much money you make.
We're looking at how you manage what you have.
The three things we look for immediately: NSF activity (non-sufficient funds), your average daily balance, and how long you've banked with the institution. Any one of these can kill a deal that looks perfect on paper. |
NSF activity — the automatic red flag
An NSF — a returned check or failed payment due to insufficient funds — is one of the fastest ways to lose a banker's confidence. It tells us your cash flow management is reactive, not proactive. That you're running close to zero regularly.
One NSF in two years? Probably fine. We're human. We note it and move on.
Three NSFs in six months? That's a pattern. That's a business that doesn't have a cushion. And a business without a cushion is a business that may struggle to make loan payments when things get tight.
Clean up your NSF history before you apply. Give it at least six months of clean statements.
Average daily balance — what it really signals
Underwriters don't just look at your ending balance on the last day of the month. We calculate your average daily balance — meaning we look at what your account typically holds across all 30 days.
A business with $80,000 in monthly revenue but an average daily balance of $1,200 is a business that spends money as fast as it comes in. That's concerning. It tells us there's no buffer, no reserve, no margin for error.
A business with $80,000 in monthly revenue and an average daily balance of $15,000 is a business that manages cash deliberately. That's the business that gets approved.
Banking relationship — the factor nobody talks about
Commercial lending is a relationship business. Banks want to lend to customers they know. If you walk into a bank where you've had an account for six months and ask for a $500,000 loan, you're at a disadvantage compared to someone who has banked there for five years.
The banker can see your full history. They know how you handle your account. They've watched your deposits grow. That familiarity creates trust — and trust accelerates approvals.
This doesn't mean you can't get a loan at a new bank. It means you should apply at the bank where you have the longest and cleanest history first.
What to do right now
• Pull your last 12 months of business bank statements and look for NSFs
• Calculate your average daily balance — add up each day's ending balance and divide by the number of days
• If your average daily balance is less than one month of loan payments, work on building it before you apply
• Apply at the bank where you've had the longest relationship and cleanest history
Next issue: The 5 Cs of Credit — what banks actually mean when they use that phrase, and which one matters most.
— The Credit Desk