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Selecting the Right Bank for Your Small Business

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Selecting the Right Bank for Your Small Business

By JamieD
Published: September 1, 2009 Updated: February 16, 2011

Choosing a bank for your business can be an overwhelming and frustrating process, but it can also have a big impact on your success. Whether you find yourself having too many choices or not enough, it's important make an effort to find the bank that makes the most sense for your business. Follow these tips and tricks when it comes time to make your decision...

Each Bank is Different


It's easy for people to fall into the trap of thinking that all banks are the same - that each is just a copy of the last with a different name. Although financial institutions are heavily regulated, they make many individual decisions that shape the way they operate and their culture.


Each bank establishes their own policies on the types of services they offer, loan qualification criteria, account minimums, interest rates, and service charges. The truth is that each bank is very different than the next. Bank A may offer the same services as Bank B but for different fees - or maybe their fees are comparable but bank A specializes in home loans while Bank B specialize in business loans. It's important to know this before you choose a bank so you know what you're dealing with. Be sure to do your background research and take the time to review all your options before making a decision. Your goal is to find a bank with services and culture that are customized to
fit your business, not the other way around.


Knowing Your Requirements is Key


Before you can begin to evaluate the services offered by each bank, you must have a clear understanding of what your requirements are. Having a concrete idea of your business needs will make narrowing down banks a much easier process.


Requirements to Consider:


  • Checking and Savings

  • Merchant Card Accounts

  • Deposit Frequency

  • International Requirements

  • Sweep Accounts (Automatically manages funds between primary cash account and a secondary investment account)

  • Commercial Credit Cards

  • Wire Transfers

  • Payroll Services

  • Availability of SBA and Other Government Guaranteed Loans


Tip - Make a written list of your business requirements and record which banks are best able to fulfill those requirements. Most banks provide a list of their services on their websites.


Even Small Fees Can Add Up


The fees banks charge for their services can make a big difference on their compatibility with your business. While small fees may not seem significant, over time they can really add up. Consider these scenarios:

 

  • Bank A charges a $25 deposit fee and Bank B charges $35. Bank A may be the smarter option for a small business with a high frequency of deposits. Over time, ten dollars here and there can eat into your profits.

  • Bank A charges a $20 wire transfer fee while Bank B has no additional fee. A business that operates internationally would most likely go with Bank B.

  • Bank A charges 1% for merchant card services while Bank B charges 2%. Any business who has a requirement for a merchant card account should think about that 1% difference. Bank A is probably the better choice.


Once you've narrowed down your choices based on services, make an appointment with each bank to discuss costs. A business account officer will be able to answer all your questions.


Tip - Business banking costs are not the same as personal banking account costs. Do not assume you know what a bank charges simply because you understand their policies for personal accounts.


Bank Compatibility Makes a Difference


Personal compatibility and customer service are intangible aspects of each bank that can often be overlooked or underrated. If you have a good personal connection to your bank, you're more likely to have a successful working relationship. Take note of how you feel while working with each bank. If you feel welcome and comfortable, then you have found the right place.


Tip - Many small banks have continued to loan money during the economic crisis. These banks are usually less formalized and more likely to consider personal factors in their decision to loan your business money. Establishing a good relationship with your banker before you're in need of a loan can go a long way!

Don't be afraid to reach out to the community and ask other small business owners about their experiences with any banks you are considering. Personal accounts can sometimes be more informative than anything you could find on paper.

Related Resources:


Message Edited by JamieD on 09-01-2009 12:11 PM

About the Author:

Comments:

The prior comments illustrate the dilemma between choosing a small bank for its more personal customer service or a big bank for its better systems and offerings. Add to the pros and cons the following: Due to their larger critical mass, bigger banks are more likely to have greater expertise and service offerings, but you may have to deal with someone remotely. On the other hand small banks are catching up on the systems front and many have Web offerings that rival the biggest.
A huge feature point for me in choosing a bank to house business accounts is their online banking functionality. Can I access my accounts 24/7? Can I transfer money on the go via mobile? Can I pay bills online? These are much more important questions for my business than any others.
The thing that I would recommend is that if you're going to deal with a big bank, but you find it difficult to forge a relationship with the bank manager, then skip the bank. Find a bank that is not so busy and that way you can try to develop a relationship with the bank manager. Otherwise, a better idea might be to work with a community bank. They are smaller, you can get close to the manager and they have a vested interest in the community.Bank Signs Seattle
It all depends on what services you need for your business. Banks differ in services offered for checking accounts, saving accounts, business debit cards, and lines of credit. Carefully examining each of the banks strengths for the service your business needs can save a lot of time and hassle.
Thanks for the great information.

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