How should a small business owner choose a bank or financial institution? Here are some important things to consider when selecting a bank.
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What do you need a bank for?
Unfortunately most business owners don't thoroughly consider their needs when selecting a bank. Consider some of the things your banker will help you with. They can:
- Establishing a basic checking account that will let you pay your suppliers and deposit revenues from your customers
- Provide special loan programs for small businesses, including SBA loan programs and other government-guaranteed or agency loans.
- Provide advice regarding what it will take to qualify for the loan that best meets your needs.
- Assist you with the cash management needs of your business.
- Offer investment products of varying maturities: overnight to long-term certificates of deposit.
- Offer investment products of varying risks (and thus returns): treasury securities and insured deposits to other stocks and mutual funds.
- Assist you with finding financial information on your industry (such as RMA Annual Statement Studies, Dun and Bradstreet reports, etc.)
Build a Relationship for the Future
It's a good idea to establish a close relationship with a banker before you need money. The right banker will be someone that understands the needs of emerging and growing businesses. They will be interested in your business dreams and will help you achieve them.
All Banks Are Different
Although there are laws and regulations that govern the activities of banks, savings and loans, credit unions and investment firms - not all financial institutions are the same!
Each institution establishes its own policies for:
- types of products and services that are offered,
- criteria for qualifying for a loan,
- minimum balances for accounts,
- interest rates and
- charges for account services.
So while one bank may specialize in home loans, or auto loans another may focus on commercial loans for businesses. Some banks may only offer basic deposit accounts while others have lock box services, sweep accounts, and even online banking! That's why we stress the importance of evaluating your business needs before you select your banker.
How to Find a Good Bank
Here's some advice that will be helpful towards your finding a good bank:
- Approach the decision as a long-term investment.
- Ask your accountant or lawyer to introduce you to bankers that they are familiar with.
- Check with your local chamber of commerce to find out what banks are active in the community. Attend their meetings or other service organizations to meet bankers that are involved and have interests similar to your own.
- Look for a complementary personality, someone you can relate to.
- Introduce yourself to the banking center manager. If you are looking for a loan, ask to meet the loan officer that will be assigned to you.
- Find out how long they have been in their current position (bank managers and officers change locations and get promoted).
- Tell them about your business and the form of organization so they can tell you what special products and services or restrictions might apply.
- It is not likely that you will make a decision on pricing alone, but do compare interest rates on deposit accounts and basic consumer loans (most business loans are negotiated, so the rates won't be posted at the banking center). Also, look carefully at the charges for services if your commercial deposit account will billed on analysis.
Banks are desperate these days to attract small business accounts, so it's worthwhile to shop around.
These days, you can usually get free checking and no account fees. If you are paying $20 or so per month for things like account analysis, it's time to switch banks. There are better deals available, and there's no sense throwing away money.
Make sure you compare financial institutions in order to find the one that will serve your business's needs and will also provide support and assistance during the infancy stage of your business. Selecting an institution that you can work with will be especially important as your business grows. Start gathering information as soon as possible to help you make this important selection.
Please share your comments regarding choosing banks. Do you have a good small business banker? A bad small business banker? What should entrepreneurs look for when choosing a bank? We welcome all comments, tips, advice and suggestions.
|Personal Training NYC
Thanks for the advice. I'm curious whether small banks are generally better for entrepreneurs than large banks? Maybe you could address that question in another article.
|Oasis Virtual Solutions, LLC
I enjoyed your article. It was very thought provoking and caused me to look at issues I had not paid attention too before, while considering which banking institute to choose. However, I am in NYC and we literally have thousands of banks to choose from; which makes the decision all the more confusing and that much more important. Do you have any specific recommendations of Banks based on their know business practices in the area of small biz?
As far as the best NYC small business banks go, I'm not up to speed on New York small business banks. If you were asking about Chicago small biz banks, that'd be a different story. Your best bet is to ask some local New York City entrepreneurs for referrals. Good luck!
Do you have a perspective on good Chicago banks or good online banks for small start-ups? I am interested in banks offering free business checking that don't get you with other hidden banking fees.
CKWimberly, as far as good Chicago banks for small businesses and startups, I've been happy with Chase Bank. A TCF small business banker once showed me a matrix that he thought showed TCF Bank was the best banking choice for small businesses, but I'm not a fan of having to go to a grocery store to do my business banking. I'm also not a fan of Bank of America or Citibank, due to fees. Hope this helps you find a good bank for your Chicago small business. Anybody else have any input?