Eh!? What Are You Looking For In My Bank Statements Huh?!




Have you ever wondered why do all banks, p2p, and private lending companies want to see your past months' bank statements? Isn't your financial statement enough to determine the financial strength of your company?

What are they trying to pinpoint from all the bank statements of your business?

Lenders just lend and borrowers just pay, isn't it like a marriage of both parties?


Sounds simple and easy, doesn’t it?


A bank statement gives a periodic and immediate view of all the transactions undertaken by them including deposits, withdrawals, transfers, debit card payments, interest earned, bank service fees, outflows or debits, and inflows or credits over a period of time, as well as the other installments they are paying.


Lenders analyze the frequency of the transaction to estimate an applicant’s ability to repay the loan in time and the analysis of the financial transactions of borrowers. Therefore, lenders spend a lot of their resources on assessing if a borrower is worthy, and the ability to repay the loan.


  • bank statement analysis gives the cash inflows from customers’ payments and cash outflows based on payments to vendors.

  • status of customer cheques in terms of whether a cheque got cleared or bounced

  • reconciliation of customer payments.

  • events of non-payment and default or insufficient fund


Balance On Your Bank Statement


Lenders will evaluate by accessing the positive, or negative cash balance in the bank account statement of the SME on a day-by-day basis. It signifies the amount of money available to the borrower at a given moment. Cash balance also showcases how the business manages its cash flow properly. A borrower who maintains a positive and healthy cash balance over these periods can be labeled as a ‘responsible’ one.


A positive cash balance increases the chances of loan repayment in the future. and negative cash balances on the bank statement can reflect mismanagement of finances by the applicant and can be a big No for most of the lenders. The ideal amount of cash balance in a borrower’s bank account depends on the loan amount they have applied for and the consistency of its availability in the statement. Simply speaking, the larger the loan amount, the higher the balance a borrower must maintain.


Deposit On Your Bank Statement


In order to ease the lending process through bank statements, it’s essential to mark down regular deposit sources. Monthly regular deposits are an indicator of an SME's steady sources of revenue. Furthermore, hefty deposits in a business’s bank statements indicate profitable operations and consistent revenue streams from profitable business transactions.


Lenders also look for a regular, steady deposit into the bank account of a loan applicant as they increase the chances that they will make on-time monthly repayments of the loan. If the lender sees that the last deposit was made months ago, it indicates unsustainability and inconsistency in income sources and the deficiency in chances of loan repayments. And also bear this in mind, irregular huge deposits or sparse deposits right before the time of loan application will not impress a lender. As a lender, the credit officer will ask for an explanation about the origin of these funds and demand adequate justifications.


Withdrawals on the Bank Statement


Lenders will critically look into the bank statement for any hefty or sudden withdrawals made from the bank account before the loan application. Even frequent withdrawals of a similar amount from the bank account arouse suspicion about some undisclosed loan, debt from maybe private lenders, or a recurring expense that needs to be paid off regularly.


Lenders will deduct business liabilities from the average monthly profit to get a realistic view of the bank statement of an applicant. Lenders will ask the borrower about any liabilities which are not disclosed in the bank statements in view, whereby the SME borrower will usually fill up a loan declaration form. The business's bank statements with regular withdrawals and liability payments with figures that are less than regular deposits are fit recipients for a business loan due to their capability of being able to pay it back. Simply speaking, it is a good sign for lenders when your monthly withdrawal is regularly lesser than your monthly deposit.


Overdrafts on the Bank Statement


Borrowers can easily withdraw money from their bank account at any time through a bank’s cash overdraft facility. If a loan applicant writes a cheque for funds that are not enough, an overdraft facility applies in that case. Lenders can ease the lending process by looking at bank statements and marking such overdrafts on an applicant’s bank statement. It is likely to show how the SME struggles to manage his company's finances. Lenders usually assume that there is a likeliness of difficulty in repaying the loan in case of an overdraft.


All financial lending companies have different guidelines passed down to their loan

application analyst for bank application analysis. Additionally, the bank statement of a

loan applicant is a single factor among many others that the lenders access during a loan

application assessment.


Conclusion


All financial lending companies have different guidelines passed down to their loan credit officer for bank application analysis. Additionally, the bank statement of a loan applicant is a single factor among many peer-to-peer and private lenders during a loan application assessment.


So the next time when you plan to withdraw from your company account or do some sudden deposit into it, think again.


Ready to get your SME loan for your business? Visit www.devise.sg to learn more or contact us to inquire.