The first twelve months of deposit history

Every month of bank statements you accumulate changes what you can borrow, but not smoothly. The product set steps at three, six and twelve months, and inside those steps the sizing depends entirely on an arithmetic choice the funder makes and rarely explains: which average of your deposits they use.

For a growing business, that choice is worth more than anything you can do in the same period.

The averaging problem, worked

• Trailing twelve-month average: 28,058.
• Trailing six-month average: 39,467.
• Trailing three-month average: 46,900.

The trailing three is 67 percent higher than the trailing twelve. Same business, same statements, three defensible numbers.

If a funder sizes an offer at one times average monthly deposits, the offer is 28,058 on the twelve-month basis and 46,900 on the three-month basis. The 18,842 difference is not a negotiation, a credit decision or a reflection of your performance. It is a choice of denominator.

So ask. Which average do you use, and over what period? It is a question almost nobody asks and it changes the offer more than the rate discussion will.

A related point on timing: three more months at the same growth — say 58,000, 64,000 and 70,000 — pushes the rolling twelve-month average to about 41,108. Waiting one quarter raises a twelve-month-based offer by nearly half, without any change in how the business operates.

What each stage of history actually opens

What underwriters read besides the total

The average is the headline. These are the things that move the decision underneath it:

• Negative days and returned items. A single returned item in the most recent three months does disproportionate damage. Hold a buffer that makes it structurally impossible rather than relying on attention.
• Number of deposits per month. Forty small deposits read as a customer base. Two large ones read as a concentration risk, and the analyst will want to know who they came from.
• Transfers between your own accounts. These inflate deposit totals and underwriters strip them out. If you move money between accounts routinely, expect your headline figure to be reduced and do not build expectations on the gross number.
• The consistency of the trend. Steady growth reads better than a spike followed by a plateau at a lower level, even where the twelve-month totals are identical.
• Ending balances. An account that runs at zero on the day before each deposit is a business with no cushion, whatever the throughput.

The twelve things to do in the twelve months

1. One business account, opened in month one. History cannot be created retroactively.
2. Every customer payment into it. Cash included, deposited promptly and regularly.
3. No personal traffic through it. Not once.
4. A regular, dated owner's draw to your personal account, the same amount and date each month where possible.
5. A buffer that prevents returned items. Compute your largest single outgoing and keep more than that.
6. Deposits little and often rather than weekly batching, where your business allows it. Deposit frequency is read as customer count.
7. Label transfers clearly so an analyst can identify and exclude them without guessing.
8. Open trade accounts that report to commercial bureaus early, because the reporting history has to accumulate.
9. Keep books that reconcile to the statements month by month, closed within a fortnight of month end.
10. File the tax return as early as you can. It is the single most valuable document you will produce this year.
11. Build the debt schedule now and update it every time anything changes.
12. Do not apply in month four out of impatience. An application that produces a decline or a small, expensive offer costs you an inquiry and sometimes a relationship.

What to ask for

Ask every funder three questions before you send statements: which averaging period do you use, do you strip internal transfers, and how many months do you require? The answers tell you both what the offer will be and whether waiting a quarter changes it.

Ask what a returned item in the statement period does to the decision. If the answer is that it is fatal, your cash management discipline is worth more than your growth rate.

What to refuse

Refuse to submit statements to five funders in a fortnight to see who comes back highest. The submissions are visible, the pattern is recognised, and the offers get worse rather than better.

Refuse an offer sized on a three-month average that you cannot service at your twelve-month average. The funder is sizing off your best quarter; the payment arrives every month, including the quiet ones.