Choosing a bank for your small business is a process that needs careful thought and planning. When you do your research, the goal is to find an option that does more than offer a basic checking or savings account with online banking and mobile banking services.
These features are the bare minimum that your company needs—at best. With the right strategic planning, the right financial institution will be a key partner as your company evolves.
“I always advise my clients that they should approach the search for a small business bank like they would a business partner,” explains Edith Muthoni, a professional investment writer, stock trader and personal finance coach.
“One of the biggest mistakes that small business owners make is settling for any bank on the promise of affordable charges today.”
One day, your business will hit a growth catalyst. At that point, you’ll need an advisor and partner that can offer financial guidance, as well as resources to support merchant services, business credit cards and other business lending options.
Muthoni elaborates that entrepreneurs should seek business banking options with the following features:
- The ability to sustain a lasting relationship with a small business.
- Deep experience catering to similar business banking needs.
- Flexible arrangements, such as repayment plans on business credit cards.
- Basic services, such as business checking account, savings accounts, business credit cards, wealth management and favorable business loans.
The bank should also demonstrate an ability—and interest—in helping your business grow. That means ensuring that you aren’t just another account number.
“Make sure you can physically visit your bank,” says Muthoni. “Physically visit your bank so you can get to know the manager, loan officers and staff. Don’t be a stranger, but let them know you, your business and your business plans.”
When interviewing partners, ask the following questions to find the best small business banking option for your needs.
What level of support does the bank provide?
Businesses have needs beyond basic consumer banking options. Unlike with personal accounts, for instance, the stakes of a problem have the potential to be higher for business owners.
In running a company, you’re responsible for moving large sums of money, funding a payroll, paying vendors, and ensuring that operations move forward without glitches or hiccups. With cash flow being the focal point of your company, your bank account is central to your operations. The best banks for small business needs will always be on standby to help navigate the unexpected—if your accounts get frozen, for instance.
“When I first launched my business, I had my business bank account frozen without explanation by a large national bank,” explains Colloway Cook, founder of a dietary supplement startup called Illuminate Labs.
“They did so under the guise of fraud, but refused to give me any sort of timeline for availability of funds. It was only when we had our lawyer contact their corporate office with threat of a lawsuit that they released the funds. That experience made me realize the importance of a good banking relationship to business success.”
A bank or credit union that is friendly to the needs of small business owners will always be reachable.
“Most online businesses like mine operate seven days a week, so it’s important to be able to reach someone if a problem arises,” says Cook. “Ideally, you have a representative assigned to your account who understands your business needs.”
Hiccups can arise—the right business banking partner will help you navigate unknowns.
What type of bank will be the right partner?
When choosing banking solutions, you have options ranging from national banks like Wells Fargo, U.S. Bank, Bank of America, Capital One and Chase, to credit unions that are member owned. Another option to consider? Take a look at community banks.
“Your community bank will get to know you and your business”
says Holly Wolf, current director of customer engagement at SOLO Laboratories and former chief marketing officer for a community bank.
“The community bank lending officers will talk to you,” she elaborates. “It’s not just paperwork. They will help process the paperwork and will be your advocates for commercial loans—for instance, if you one day decide to apply for lines of credit or SBA loans.”
A community bank may also be more lenient—for instance, with your credit score—if you run into an unexpected hurdle or financial problem.
One rule of thumb for entrepreneurs is to build relationships with multiple types of banks. This financial setup is especially valuable if you run into a hiccup or have accounts with a high average balance that isn’t FDIC insured.
While a community bank will get to know you on a personal level, a national credit union or bank will have a presence—and banking relationships—all over the world.
“A national bank makes it possible to make deposits anywhere, at your convenience,” explains Brent Walker, an attorney in Atlanta, Ga., who serves small businesses and entrepreneurs. “Compare national, regional, and local banks and credit unions. Make sure that you’re able to obtain funds as you need them. Keep in mind that interbank transfer rules can affect the availability of funds in accounts.”
Depending on your company’s growth objectives and future needs, the right banking partners may be multiple banking partners. Keep your eyes open, and limit your potential for liability.
What types of fees should I expect?
When you put money in a business bank account, funds don’t remain stagnant. Banks pool their customers’ accounts into investable assets. It’s customary for a business account with higher revenues and average balance rates to have lower costs associated with them. Ideally, small business owners should partner with banks that offer no-fee services.
“Failure to do your research can mean that your funds are in unsafe hands”
says Reuben Yonatan, founder and CEO at GetVOIP, who maintains a business banking account with Bank of America.
“You need a frictionless and fee-free financial institution backing you. If you’re not careful, you could run into hundreds to thousands of dollars a year in unnecessary fees—or even worse, your data misappropriated to predatory lenders.”
When choosing a business bank account, you’ll want to check on the following to avoid hidden fees and headaches:
- Pay attention to minimum balance requirements. Will you need transaction fees if your account falls below that minimum balance?
- Does your bank offer free cash deposits, or will you need to pay for this service?
- Do you need to pay for payment processing when you disperse funds to vendors?
- Is there a cost to withdraw funds from your business savings account?
- What will be the cost for bill pay service, should you choose to automate this part of your business?
- Will you receive cash back on your credit or debit card to compensate for the interest rate that you’re given?
- Should you expect a monthly fee, such as a monthly maintenance fee?
- Are free transactions part of your contract for your small business checking account, or will your bank issue charges?
- Can you waive potential fees with a certain opening deposit threshold?
- Will your bank limit your monthly transactions?
- Should you need to apply for small business loans in the future, what will be your process?
Over time, you are going to need more than a basic business checking account to meet your needs. Pay attention to the types of incentives that your bank offers to small business customers. Understanding these banking services will help make sure that your banking operations don’t eat into your cash flow.
Bank with your business in mind
Every business is different. The best small business banks will get to know your company, your goals and your challenges. Honest, transparent dialogue is a must—you need to feel comfortable being open and entrust that your money is in responsible hands.
Working with multiple banks will help you avoid the likelihood of a potential problem—and work with you to make sure you remain on good terms. Remember, you’re more than just a simple account number. Seek excellence in your partner, and strive to build a relationship that’s successful for all parties.