Why do lenders need to see my bank statements?

It is a question we often get asked by our clients. When we are discussing their commercial finance requirements with them, we go through the documentation that lenders might request as part of their underwriting. One thing lenders often ask for is the borrower’s bank statements. And one thing the borrower often asks is “why?”

The answer is usually quite simple. You can tell a lot about a person from their bank statements, in particular about their spending habits. Lenders don’t really care if you like going out to restaurants, or spend money on your stamp collection, but there are things that they look for. These include:

• Your income. Your bank statements can show a lender your salary, or other sources of income which lenders take into consideration for their calculations of what you can afford to borrow and ultimately repay
• Money management. If you are frequently overdrawn, or have bounced direct debits, it is going to raise a potential flag to lenders. They want to know that the borrower is on top of their finances, and that their interest will be paid on time, and without the need to be chased
• If there are large recurring items of expenditure, lenders will again bring these into their affordability calculations.
• Other warning flags. Some lenders will look at specific transactions. For example, if bank statements show a lot of money being spent on something like gambling, then lenders might be concerned. If there’s the odd payment then it is likely not to cause any issues, but if there are regular losses, a lender might factor this into their decision making process

What should you do if you think there are items on your statements that might cause issues? The first answer is to speak to us. The importance that lenders will place on the bank statements will vary depending on the amount you are looking to borrow, and the type of commercial finance. The right approach is to understand your overall financial situation before talking through the options available.