There isn’t a cookie-cutter approach to explaining how a business owner can establish a proper relationship with a bank. Each funding approach varies because banks have specific rules and lending criteria that depend on your business type. So instead, it is essential to understand the basic principles most banks follow.

What is a bank looking for in a customer relationship?

Be aware that the banks only want you to know what they want you to know! You must not allow banks to keep you in the dark; you must gain the upper hand. Wasting time banking at the wrong bank for your business can be very costly to your business.

Suppose your business needs money to buy property, buildings, vehicles, machinery, equipment, etc. In that case, the variables can change a lot versus companies that need open lines of credit with the freedom to use the money for anything. One is secured somewhat by assets versus the latter option, which requires other security determiners.

Below you will find information that is a common denominator to gaining a favorable relationship with banks – called a business bank rating.

1. Maintain a healthy balance rating – this rating is your average minimum balance maintained in your business bank account over three months. For example, a $10,000 balance will rate as “Low 5″, $5,000 rates as “Mid 4″, $999 rates as “High 3″, and so on. Your goal should be to maintain a minimum “Low 5” bank rating ($10,000) for at least three months. Unfortunately, without at least a “low 5″ rating, most banks will assume your business has little ability to repay a loan or a line of credit.
2. Keep a positive bank rating cycle – Each cycle is based on your balance rating during the previous three-month period. So before you decide to apply for credit, keep a balance rating of at least a “low 5” for the past three months.
3. Manage your account responsibly – Avoid writing non-sufficient funds (NSF) checks at all costs as it destroys bank ratings. NSF checks are something you can’t let happen from this point forward. Instead, we suggest adding overdraft protection to your bank account as soon as possible. Overdraft protection minimizes the possibility of ever getting an NFS check on your banking report.
4. Show a positive cash flow – The cash coming in and going out of your company’s bank account should reflect a positive free cash flow. Positive free cash flow is the revenue left after your company has paid all its expenses. When your account shows a positive cash flow, it indicates that your business is generating more revenues than is used to run the company. Again, it’s essential to recognize that banks are motivated to lend to a business that has consistent deposits.
5. Establish bank history – A seasoned bank account shows stability and longevity in the eyes of lenders. Keeping a healthy and long-standing relationship with a bank is crucial for your company.

In addition to a positive bank rating, your bank should act as a trusted advisor that can assist you in growing your business. You may want to consider working with a financial institution that provides banking services tailored to your specific industry.

Working with a lender who already understands your business makes getting a loan approved easier than other lenders. It is easier because most lenders have difficulty assessing the credit risk of most small businesses.

Standard applications require statements, tax returns, business credit, and a personal credit check. Still, the most surefire way to underwrite your loan risk is to find a lender specializing in loans for companies like yours.

What are some other tips and tricks?

Choose a small, business-friendly bank and establish a solid bank rating so your company can qualify for the credit and financing it needs to grow further and expand.

Be patient. Patience is required to build your relationships with lenders. Do your due diligence, and interview the banks to determine which one is the best for your business. Suppose you understand when and what it will take for your business to qualify, then you have done it right. On the other hand, if you are unclear and aren’t sure, but you decide to open a bank account anyway, you have failed. All you will have now is a bank account, and you could’ve got one of those anywhere.

1. Does your bank offer a line of credit or loan that can be used to _____? (Fill in the blank here by asking specifically what your business may need money for.)
2. Do you base your decision on what I use the money for, or is it primarily based on average monthly deposits?
3. Do you need to see previous years tax returns, or would you prefer bank statements?
4. Do you require a minimum monthly balance I need to average in order to qualify?
5. Will you use our projected income for qualification or only base it on average business bank account balances?
6. Is there a minimum time requirement for my account to be open in order to qualify?

Find the bank that makes you feel the most comfortable. Don’t give up just because one bank makes it impossible to qualify. Usually, when that happens, they don’t typically give financing to small businesses or don’t have funds available to lend. If you are a new business, find a bank in the process that doesn’t require you to produce business tax returns right now. Instead, try to find one who bases their decision primarily around average bank balances and deposits. The other option would be to find a bank that allows you to use your personal credit to determine the creditworthiness of your business (this applies to those with good personal credit).

Also, know that you shouldn’t expect a bank to qualify you immediately because most of them will want to see at least a 3-month history. Try to find the most reasonable bank that clearly states what you will need to do to qualify. The idea is to not waste time with a bank that will never be able to offer you financing for what your business needs. Be willing to throw projected numbers of bank balances out at a bank to see how they react.

For example, if they say, “there is no way your business can qualify until 12-24 months from establishing your account”, react by saying: “What if our balances in the business account average $50,000+?” This rebuttal could change their perspective and give you an idea of their willingness to work with you based on how they answer. It’s not that your balances will average $50,000+; you’re forcing the bank to answer questions based on hypothetical scenarios. Also, you must know what the required average balance numbers would need to be for your business to qualify for a line of credit.

If you don’t know, how could you decide if it was worth leaving money in the account or setting a goal to get to that number?