Background

Lenders need reliable evidence of a business’s ability to repay. Over the past decade underwriting has shifted from paperwork-heavy reviews to data-driven checks that blend historic bank records with near–real-time merchant and accounting feeds. In my practice advising small-business borrowers, I’ve seen this shift speed approvals for some applicants while creating new documentation expectations for others.

How lenders verify revenue (step-by-step)

  • Bank statements: Most lenders ask for 3–12 months of business bank statements. Underwriters look for recurring deposit patterns, large one‑time transfers, owner draws, and nonbusiness deposits that should be excluded. For self‑employed or irregular income borrowers, some lenders request 12–24 months to smooth seasonality.

  • Merchant transaction data: Lenders often request permission to access point‑of‑sale or payment‑processor feeds (e.g., Square, Stripe, PayPal). Merchant data shows actual sales volume, chargebacks, refunds, and average ticket size — information that bank deposits alone can obscure. This data is especially important for retail, food, and e‑commerce businesses.

  • Accounting and invoice systems: QuickBooks, Xero and invoicing platforms give clearer revenue vs. transfers, and help lenders match deposits to sales or billed invoices. Many lenders accept connected accounting reports in lieu of paper ledgers.

  • Automated algorithms and alternative data: Lenders increasingly use models that combine bank, merchant and third‑party signals (sales trends, payment declines, online reviews, and even payroll activity) to estimate normalized revenue and repayment risk. These algorithms speed decisions and enable some lenders to underwrite younger businesses.

  • Third‑party verification and fraud checks: Underwriting also includes identity verification, transaction pattern analysis, and checks against public records or tax databases to validate revenue claims.

What lenders look for

  • Consistency: Regular deposits at a level that covers debt service. Large unexplained swings raise questions.
  • Quality of revenue: Recurring subscription or contract revenue scores better than one‑off sales.
  • Cash flow timing: Ability to cover loan payments during slow periods; seasonal businesses need longer histories.
  • Chargebacks/refunds: High refund rates reduce usable revenue.

A short example

A local coffee shop I worked with was denied a higher line of credit when underwriting relied only on bank statements that showed large owner transfers and personal expenses. After granting consent to connect their payment processor and accounting software, the lender could separate true sales revenue from transfers. The loan was approved with a stronger limit and clearer covenants.

What to prepare before applying

  • Provide 6–12 months of business bank statements (more if seasonal).
  • Be ready to connect merchant or accounting accounts via secure aggregators — lenders will request explicit consent.
  • Reconcile your statements and mark any personal deposits or one‑time transfers.
  • Pull sales reports (daily/weekly) from your payment processor and export invoicing records.
  • Keep tax returns and year‑to‑date profit & loss handy in case a lender requests further verification.

Timing and typical data windows

  • Bank statements: commonly 3–12 months; underwriting for higher credit lines may want 12–24 months.
  • Merchant feeds: effectively real‑time (daily/weekly updates) and preferred for rolling revenue verification.
  • Algorithms: produce instant risk scores but rely on the quantity and quality of connected data.

Privacy, consent and data security

Lenders must get your consent before connecting to payment or accounting platforms. Many use data aggregators to pull transaction histories — these services use OAuth-style connections and follow industry security standards. If you have concerns, ask the lender which aggregator they use and what data is requested (only transactions, not full account access in many cases).

Common mistakes and misconceptions

  • Relying solely on bank statements: Deposits can include transfers or personal funds that inflate apparent income.
  • Hiding merchant issues: High refund or dispute rates will surface in merchant feeds and can sink a deal.
  • Assuming algorithms don’t require documentation: Even automated underwriting can prompt manual document requests.

Practical tips

  1. Keep clear bookkeeping and tag personal vs business transactions.
  2. Regularly export merchant reports and reconcile them to deposits.
  3. Use accounting software that integrates with lenders’ systems to shorten underwriting time.

Interlinks

Frequently asked questions (short)

  • How far back will lenders look? Typically 3–12 months; 12–24 months for seasonal or higher-risk loans.
  • Can merchant data replace bank statements? Merchant feeds often supplement or clarify bank statements but usually don’t fully replace requested bank records.

Authoritative sources

Professional disclaimer

This article is educational and not individualized financial advice. For tailored underwriting help, consult a lender or a licensed financial advisor familiar with your industry and financials.