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No Business Checking Account? You’re Damaging Your Loan Approval Odds

Meredith Turits

Contributing Writer at Fundera
Meredith is a writer and editor. Drawing on her background in small business and startups, she writes on business, finance, and entrepreneurship. Her writing has also appeared in the New Republic, Rolling Stone, Vanity Fair, ELLE, The Paris Review Daily, and more.
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If you’re a small business owner who needs a loan but doesn’t have a business checking account, you now have an excuse to open one on the double. According to a recent survey conducted by researchers at Nav, 70% of small business owners who didn’t have a business checking account were denied a loan over the past two years.

Worse yet, 26% of small business owners with no business checking account considered closing shop altogether. They cited the amount of work required to manage bookkeeping on a daily basis. (You guessed it—a business bank account helps with keeping an eye on money.) For comparison, only 14% of small business owners with a checking account for their company considered closing up shop.

That’s a fairly grim outlook for companies that don’t have business checking accounts—especially in an economy when small business optimism has never been higher.

Half of all small business owners polled for Nav’s 2018 Business Banking Survey reported that they wanted to open a business checking account, but simply lacked the time to set one up. But it’s important to set aside the time to get it done—and, obviously, there are financial repercussions for your business that go well beyond not having ATM access.

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Why Business Checking Accounts Are So Important in the Business Loan Process

Why does having a business checking account affect your ability to get a small business loan?

Fair question, since there’s not a lot in common between a checking account, which you use to manage your daily finances, and a business loan, which gives you capital that you eventually repay to a lender. Sure, they’re both money. But two don’t appear to have much in common at first glance, so why should banks care about where you store your cash before they extend you a loan?

Prove You’re Not a Risky Borrower with Evidence of Your Company’s Financial Health

Small business lenders, regardless of whether they’re institutional banks or alternative lenders, aren’t in the business of handing out money to people who can’t repay their debts. With that in mind, the more proof you have of your company’s financial health, the better your odds are that a bank is willing to take a calculated risk in lending you its money.

By “financial health,” we mean that you’re generating revenue, making enough money each month to cover your overhead and other recurring expenses, and not coming up short for payroll, don’t have a ton of outstanding invoices, and things like that. If you’re not using a business checking account to track payments, expenditures, and purchases, your would-be lender has no way of knowing just how financially healthy your company really is. And as much as they’d love to go on your word, it just won’t cut it for small business financing.

What a Lender Can Understand from Your Business Checking Account

Your checking account contains a ton of information about the financial health of your company. Each month’s statement provides a snapshot of how much money your business takes in every month, how much goes out the door, and what it gets spent on.

Basically, checking accounts provide an accurate sense of your company’s cash flow—and provide a more comprehensive glimpse at your business’ financial health than even the best bookkeeping can.

Banks need to know what your business’ cash flow looks like in order to determine if you’ll be able to repay the loan. This helps banks determine risk—the all-important metric that helps determines how safe it is for them to lend you money with the expectation that they can recoup their investment in you (with interest, of course). Knowing how much money comes in, goes out, and where it gets spent helps banks assess your risk level.  

Cash flow is a hugely important metric for every business applying for a loan—but especially if you’re a seasonal business. Plow streets in the winter, or sell shaved ice in the summer? Your cash flow is going to vary dramatically throughout the year since you’ll make the bulk of your revenue in just a few months. For that reason, you’ll definitely want to be able to show a lender checking account statements during your high season, proving a hearty store of cash to get you through your quiet time.

Why You Might Get Denied for a Small Business Loan Without a Checking Account

Since a small business checking account provides a definitive record of your company’s cash flow, not having one could create a gaping hole in a lender’s ability to determine your creditworthiness.

But more importantly, many lenders require you to have a business checking account before even considering your loan application. Most ask for the about the last three statements from the account as well. This helps them glean a broader picture of your company’s solvency and overall health. If you can’t provide this information, odds are you will have a difficult time getting your loan application approved.

Let’s go back to that example of a seasonal business again. Say you run Mrs. Plow, a snow plow company in Springfield, Mass.. With public and private contracts, and one-off commissions, you make all of your money between November and April (those freak late-season New England snows keep things flowing!). If you apply for a small business loan during March with three checking statements from December, January, and February, you’ll be able to show your lender strong earnings—and they won’t have to second guess whether or not you’ll have the money to pay back your loan.

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Getting a Business Checking Account Is Way Easier Than You Think—and Your Credit Score Doesn’t Matter

There’s nothing stopping you from opening a business checking account. As long as you have some kind of cash to put in the account (even if you don’t have it right this minute), you can account open a business checking account in a matter of minutes.

Although many business checking accounts require you to open an account with a minimum balance, a handful will let you open an account without having to put funds in until later.

Others offer free business checking, which means that you can begin to establish a paper trail for your company’s cash flow without having to pay your bank for the privilege of holding on to your money. And best of all, there’s no need to have a stellar credit history to open an account. Credit scores don’t matter with regards to checking accounts, so you’re in the clear even if your credit history isn’t.

2 Business Checking Accounts You Can Open Online Right Now, So No Excuses

You need a business checking account. Why don’t you open one right now and get ‘er done? Here are two different kinds of options that’ll get you up and running:

Chase Total Business Checking

If you want to have the accessibility of a brick-and-mortar bank with decades of history, consider the Chase Total Business Checking account. This account offers 100 free monthly transactions, plus unlimited electronic deposits (aside from wire transfers). Plus, if you keep a minimum daily balance of $1,500, you’ll avoid a $12 monthly service fee—that makes this account free.

Also: Chase is also offering a $200 bonus for a limited time if you sign up now, which is a pretty sweet reward for getting your company’s financial fundamentals in order. You can see details here, or click above.

Azlo Digital Business Checking

If having a local bank branch near your business doesn’t matter as much to you, consider opening an account with Azlo Business Checking—a feature-laden online bank for entrepreneurs and small business owners. Azlo offers free checking, fee-free withdrawals at participating ATMs, US-based live support via phone and chat, and digital invoicing solutions to help you make bookkeeping and finances less of a chore.

Plus, Azlo is backed by BBVA Compass and FDIC insured, so you’re completely covered with the foundation of a trusted bank.

Open a Business Checking Account and Get Yourself on the Path to Small Business Financing

If you don’t have a business checking account when looking for a loan, you’re at a clear disadvantage. So, at the risk of being too blunt, there’s no good reason not to open a checking account for your small business.

You’ll be setting yourself up for a major requirement for any future loans you may want to take out, and making your financial management a heck of a lot easier than keeping track of paper receipts and invoices.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Meredith Turits

Contributing Writer at Fundera
Meredith is a writer and editor. Drawing on her background in small business and startups, she writes on business, finance, and entrepreneurship. Her writing has also appeared in the New Republic, Rolling Stone, Vanity Fair, ELLE, The Paris Review Daily, and more.

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