Choosing a bank for your business involves more than opening a new account at your personal bank or picking the branch office nearest your company. You need to understand what services you require and how much they cost. Ideally you’ll find a banker who will take the time to walk you through how to solve a problem, so you can go back to running your business. Still, some business owners may spend more time shopping for a $300 laser printer than they would shopping for a bank.
Here are a few issues to keep in mind when you look for a banker:
– Does your local banker have lending authority? What’s the largest loan he or she can approve without checking with higher ups? Relationship managers at community-based banks often have more discretion than those at a unit of a big institution and they may consider small-business lending to be their bread and butter. But lately, the distinctions between “large” and “small” banks have blurred with the industry’s consolidation. Many community banks have undergone mergers that now allow them to offer a wider range of services. Banks of all sizes are emphasizing improved customer service, having discovered that many customers still like face-to-face service at branches versus conducting all transactions online.
– Smaller, regionally focused banks may be better because they know local market conditions. They often provide more one-on-one access to a loan officer and put more emphasis on a borrower’s character rather than just applying a credit-score model. And they can be more flexible during tough times, such as covering overdrawn accounts without imposing stiff penalties.
– Rates charged by large financial institutions “are systematically lower” than those charged by community ones, according to a study cowritten by the National Federation of Independent Business, an advocacy group. Larger banks are more likely to issue corporate credit cards to small businesses, which can be used for financing.
– Is your bank comfortable working with the U.S. Small Business Administration (SBA) loan system? Federally subsidized loans help protect the bank against default, which makes it easier for banks to lend money. SBA loans are available to businesses whose credit histories, cash flows or collateral would be inadequate for them to obtain traditional bank loans, and the SBA typically offers more flexible repayment terms. Larger institutions are likely to make loans backed by the SBA, which lets them accept riskier borrowers.
– What extras are available with your account? Despite stiffer lending procedures, larger banks may offer added benefits such as online services that help save time and money on tax and accounting assistance. These may include sending invoices, collecting payments, payroll and loan applications. Some banks may tie such help to requirements that a business’s employees use direct-deposit channels. But keep in mind that banking is a competitive business, and it rarely takes more than a year for a new product or service to be copied by banks across the country. So trust and being comfortable with a bank can sometimes be more important than a seemingly new product.
Some common small-business banking needs:
• Checking account
• Business savings account
• Credit card
• Deposit-only card
• Discounted employee checking accounts
• Online banking
• Lines of credit
• Commercial real estate
• Equipment leasing
• SBA loans
• Wire transfers
• Wholesale lockbox
• Merchant services
• Retirement accounts
• Discounts on hotels, shipping, office supplies
Be sure to pin down fees for various services. Some may be bundled, so comparison shopping is a must. They may be negotiable, depending upon your company’s history and size.
– View your banking arrangements as a long-term relationship. Consider not just what you need immediately, but services you may require in 18 to 24 months. You want to find a banker who understands your business and industry, including your creditworthiness and your seasonal borrowing needs. Ideally, your banker will see a customer’s growing business as an opportunity to provide more useful services and will listen if you run into a financial emergency.
Once you’ve established a relationship with a banker, meet with him or her at least once a year and offer an update on your company’s finances. Even so, it’s a good idea to interview branch employees and managers at competing lenders every few years and gauge their willingness to devote time to a single businessperson. Although switching banks can be a hassle, you can let your banker know you’re shopping around.
Posted in: Funding