Choosing a bank to handle your small business finances involves more work than opening a secondary account where you do your personal banking.
When you selected a bank for your personal checking and savings accounts, convenience and fees were likely the two primary factors that influenced your decision. However, businesses often have greater needs.
Whether your needs are simple (a business checking account) or complex (a line of credit), finding the bank that meets your needs is crucial. Here are five areas to consider in your search for a small business-friendly bank.
Factor #1: Business Transactions
First, think about the kind of transactions you do on a daily, weekly or monthly basis. Do you need to make daily cash deposits? Some business bank accounts limit the amount of cash that can be deposited per billing cycle and charge a handling fee for any deposits that exceed that limit.
Do you receive most of your revenue in the form of checks from clients? Maybe you want a bank that offers mobile deposits so you can cut down on trips to the bank. If you accept credit card payments from your clients, you may want a bank that can help you with a merchant account.
Beyond your deposits, consider how you pay the bills for your business. If you prefer to pay bills online versus mailing a check, you want to find a bank that offers online payments to reduce paper costs and save you time by letting you automate recurring payments.
Pro-tip: Before you decide on a bank, make sure they can handle the kinds of transactions you’ll have on a regular basis.
Factor #2: Unforeseen Fees
Now that you’ve considered the kind of transactions you’ll need your bank to handle on your behalf, it’s time to find out how much it will cost. Many banks advertise “free checking,” but make sure you know exactly what that offer includes. They may have a minimum balance requirement, limit the number of transactions you can initiate per month or charge for online payment services.
At the end of the day, those fees can really add up, so look for a business checking account that closely fits your needs and banking habits to lessen the impact of fees. Whether you need just a straight business checking account, lockbox service, wire transfers, a merchant account or other services, get a detailed breakdown of the fees your bank will charge for each service.
If the bank you want to work with charges fees that you don’t want to pay, ask if they’re willing to waive them. Some banks are willing to waive certain fees in order to lure in new business clients. It never hurts to ask!
Factor #3: Additional Business Services
Many banks and credit unions that offer small business checking accounts also offer additional services catered to small business owners.
They may provide payroll service, employee benefits administration, send invoices, collect client payments, provide investment advice and even tax preparation assistance.
Consider not just the services you need right now, but those you may need in the next two-to-five years as your business grows.
Once you’ve established your accounts with one bank, changing banks can be an inconvenience. (You don’t want to outgrow your bank within a few years!)
Factor #4: Personal Perks and Service
Large national banks may offer a lot of convenient ATM and branch locations, more online services and greater perks for using their services. But, remember, bigger isn’t always better.
Smaller, community banks may be more attuned to local market conditions and more willing to lend to small business owners based on character and overall profile rather than simply looking at a credit score.
If you value a personal touch, you may be happier working with a local bank where you can develop a personal relationship with your banker.
Whether you choose a community bank or the local branch of a national bank, make sure their hours of operation are convenient for your business.
Do they have weekend and evening hours? Are they able to accept cash deposits at the end of your business day? Free checking won’t make up for not being able to get help when you need it, and inconvenient schedules can cost you time and money.
Factor #5: Borrowing Needs
At some point, your business may need access to financing, whether that means a small business credit card or a loan to fund expansion.
Interview relationship managers at banks in your community and ask whether they have lending authority and how large a loan he or she can approve without referring your application to a central head office. Some banks see small business lending as their bread and butter and give more discretion to their local relationship managers.
Smaller banks and credit cards are generally considered to offer more flexible lending options for small businesses with which they have a relationship, but larger banks may be more willing to issue corporate credit cards.
Ask potential banks about their loan options for small businesses, including federally-backed Small Business Administration loans and compare their published interest rates with those of their competitors.
When it comes to finding a small business friendly bank, referrals from other business owners can be invaluable. Ask other business owners in your industry or community where they bank and who they recommend, especially if they’ve gone through a loan application process. Ask for a referral from your accountant as well.
Some banks may tell you what you want to hear when they’re trying to get your business, but a stamp of approval from another small business owner who’s been in your shoes is more reliable.
Evaluate and Re-evaluate Your Bank
Once you find a bank, view it as a long-term relationship. Meet with your bank at least once a year to offer an update on your business’ finances. This helps them understand your business and industry, including your creditworthiness and seasonal borrowing needs.
They may see your growing business as an opportunity to provide more useful services or help you out when you run into a financial emergency.
A small business friendly bank can prove to be an invaluable partner to a small business, helping you borrow capital and plan for the future, so put some effort into finding the right bank and nurturing your relationship.
But even after you choose a bank, it’s a good idea to shop around periodically. If your banking needs change or your bank changes its fees or services, you may want to reevaluate whether that bank is still the right one for you.
about the author
Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. You can learn more about her work at jberryjohnson.com.