As an entrepreneur, you want to have a good relationship with your bank. But what happens when you decide your current financial relationship just isn’t working? Will breaking up with your bank backfire?
One small business owner recently asked us, “Will changing banks hurt my business credit?”
Business credit reports don’t typically include bank account information, though some credit reporting agencies do allow business owners to supplement their credit report data with additional financial information. So simply changing banks shouldn’t cause your business credit scores to drop.
But it could have an effect when you try to get financing, so it’s important to understand how your banking relationship can impact your ability to get a small business loan.
Many lenders are interested in your company’s cash flow–the money coming in and out of your business–and how you manage it. They may want to connect to your bank account or accounting software to analyze that information, or they may want you to provide business bank statements so they can dig into those numbers. For some, it’s the primary information they use to decide whether to make a loan. For others it could be part of a trifecta of information used to evaluate loan applications: personal credit, business credit, and bank account data.
Don’t Raise A Red Flag
Lenders usually rely on one primary bank account for this information, so while changing accounts isn’t necessarily negative, it could create a bit of a hassle when they try to analyze your bank account history. If you are hoping to get a business loan or financing in the near future, you may want to wait until you’ve secured those funds to make the switch.
In addition, if you split transactions among multiple accounts, it could paint a less than clear picture of your business finances. You want your bank account balance to look as healthy as possible.
Ways to Boost Your Balances
Beyond bringing in more revenue (always a good goal), what can you do to keep your bank account looking as healthy as possible?
- Don’t split transactions among multiple accounts, especially if your revenues aren’t really strong. Doing so can paint a less than clear picture of your business finances.
- If you get paid via sources outside your bank account (such as Paypal, for example), try to transfer funds into your bank account as soon as possible to boost your balance.
- Park some cash in your bank account—$1000 or more is ideal-—-and keep it there as a cushion. Pretend it’s not there and don’t touch it unless absolutely necessary.
- Collect money owed to you as soon as possible. The sooner you can get it into your bank account, the better.
What Does Matter
Your business credit report contains information about how you handle accounts with lenders, vendors, and other companies that report accounts to commercial credit agencies. Paying on time and keeping debt low are two of the best ways to build a good business credit score. If building and keeping strong business credit is your goal, make sure you review and monitor yours to ensure they are as accurate as possible. (You can get your personal and business credit scores together with a free Nav account.)
This article was originally written on February 23, 2017 and updated on November 12, 2020.