In the process of having a small business become bankable it is very important that the business has a reporting term loan or line of credit from a local or regional business friendly bank. The reason for this is something called the “Small Business Financial Exchange”.
The Small Business Financial Exchange is where banks exchange information on their small business customers. The Small Business Financial Exchange is not a credit reporting agency and does not create any credit reports. The data they collect is shared with the business credit reporting agencies of Experian, Equifax, Dun & Bradstreet and LexisNexis and thereby get incorporated into the FICO Small Business Scoring Service.
Separately, a Bank Verification (the moment you hand over your routing and account numbers) exposes far more: a 36-month deposit and balance summary, every NSF return, and each account signer’s name, SSN and driver’s license. Lenders flag any full-signature signer who is not an owner or a C-level officer.
A business does not have the same privacy rights as do individuals personally.
Therefore, through the Small Business Financial Exchange other small business lenders and the business credit reporting agencies can get data on any business, such as date the account was opened, the business bank rating, open loans, lines of credit, credit cards, the loan or credit line amounts and your payment history.
Lenders can access the business banking information which means that they can see how much money has gone through the business bank account over the last 90 days and as far back as the last three years. Most importantly they can see how much of that money was retained which can be a critical determining factor in showing the ability to debt service any new loan approvals.
Lenders accessing this data cannot see what the money coming in and going out of the business account was spent on, but they can quickly determine the business' average daily bank balance. The average daily bank balance in the business general ledger account for the last three statement cycles is the basis for the Business Bank Rating.
Lenders can access a large amount of data regading a business's banking
While not directly related to the Small Business Financial Exchange, something to be aware of is what is called a “Bank Verification”. When a business provides the business bank account routing and account number to lenders or credit providers they can do a Bank Verification, this allows them to see:
- A 36-month summary of deposits, average daily balances, and month ending balances
- Current balance status of the submitted bank routing and account numbers
- First date opened and last activity dates of the business bank account
- Bank ratings of that account and other accounts associated with the company
- Dates and amounts of all NSF returned debits and checks on the account
- Verification of all account signers including Name, SSN, and Driver’s License
One of the critical parts of a Bank Verification is to look for anyone who has fully signature power on the business general ledger account who is not listed on the business ownership documents and or not a “C” level officer of the company. This can raise a red flag to a bankable lender about who this person is and why they will have full access to the loan funds.
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