When a business applies for a loan, the lender may have specific requirements to ensure there are no potential risks that could have a negative impact. They will conduct the KYB (Know Your Business) process, which includes bank statement verification. It will show how the financial condition of the business, including income, savings, debt history, and also whether it is financially healthy or not, affects the decision to approve or reject their loan application.
Furthermore, bank statements are a common type of document used in fraud activities, especially in financial fraud. Thus, businesses must be aware when reviewing statements, whether manually or with advanced software, to avoid fraud, which results in unwanted cases. This article will provide more details on the importance of bank statement verification for business loans.
What is Bank Statement Verification
Bank statement verification is the process of checking that all information on a bank statement is correct and authentic. This includes the format and all transactions. The purpose lenders use this process is to confirm that the borrower has the ability to repay the loan. This process also detects any signs of fraud, such as errors and unusual transactions that are suspected of being manipulated or fake documents.
There are two methods that lenders usually use, manual and automated. Manual verifications involve checking information in bank statements one by one, it should involve multiple checks to avoid misses. While automated methods use advanced technology like artificial intelligence (AI) to process and detect fraud quickly and accurately. Staff does not need to do multiple checks, as AI will work perfectly.
Why Do Lenders Require a Company’s Bank Statement Verification
Lenders do not just rely on credit scores, they have to dig deeper into a borrower’s actual financial behavior. That is why bank statements are critical documents in the approval process.
1. Confirm the Borrower’s Financial Health
Bank statements provide a clear view of a company’s status based on its historical transactions. This can determine how well its business is stable, earns steady income, and manages its expenses. Lenders can track the borrower’s cash flow to forecast the business’s ability to handle loan obligations without defaulting. This also affects the amount of loan they apply for.
2. Prevent Business Loan Fraud
As with many fraud cases in loan applications, this process helps lenders to avoid it. Typically bank statements are manipulated to make the financial condition appear healthy, so lenders will approve the loan. Fraudsters also use false identities to support their applications. This has emerged as the biggest risk for lenders, potentially leading to financial losses and legal consequences.
Best Practice for Lenders When Conducting Bank Statement Verification
1. Use Trusted Verification Tools
Implementing AI-powered tools is one of the best verification strategies. While manual methods have many inefficiencies, such as consuming a lot of time and effort, and are prone to fraud. As fraud becomes more sophisticated, lenders must adopt advanced technologies capable of detecting fraud, even small modifications like Fintelite AI. Fintelite is one of the greatest AI solutions for extracting, analyzing, and validating financial data quickly and accurately. This can lead to faster and more informed decision-making. Using advanced tools not only protects lenders from fraud and streamlines verification processes, but it also increases satisfaction among both employees and borrowers.
2. Cross-Check with Supporting Documents
Compare bank statements with other relevant documents such as invoices, receipts, and financial statements to verify that reported transactions are aligned.
Conclusion
Bank statement verification is more than just a reviewing step during loan processing. It is a critical step in ensuring that the borrower’s financial condition meets the loan requirements. This step also affects the final approval decision. To make smooth verifications, lenders must use advanced solutions that process documents swiftly and prevent fraud.
