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Finance

How to Choose the Right Bank for Your Business

Businesses need a good bank to look after its financial needs. Here’s how to choose the most suitable bank for your business.

  • Your instincts might tell you to just use your personal account, go with your current bank, or even not think about the future. Don’t make these mistakes
  • Whether it’s online banking features or an extensive ATM location, your required features will point you in the right direction
  • Working with smaller banks, especially regional ones within your area, increases your chances of being a big fish in a small pond
  • If your business has a strong sense of being socially and ethically responsible, then choosing a bank that is in line with your business values is crucial

After you have turned your business idea into a fully-fledged business venture, it is time to think about your business’s finances. A bank most commonly handles the financial needs and requirements of a business. It is crucial to consider your potential financial needs and your current financial requirements before selecting a bank since every bank has a unique proposition to offer.

1. Understand Your Business Needs and Goals

The first step in selecting a good bank for your business is to determine your business’s needs and goals, both long-term and short-term. 

Your instincts might tell you to just use your personal account, go with your current bank, or even not think about the future. Don’t make these mistakes. Most banks have different offers and options based on the size of your business, and some have business accounts that are scalable. You might want to consider:

  • Do you need specialized help with cash flow or investments?
  • How much profit does your business make?
  • Does your business have to adhere to certain financial regulations or accounting practices?
  • Do you make international payments?
  • How many staff do you have on payroll? Will they need business cards for expenses? How many of them will need direct access to and control of the account?
  • What financial and bookkeeping systems does your business use? Can these sync with the bank’s systems?

Just like with personal accounts that have restrictions on how much money you can withdraw, or savings accounts having restrictions on how much money you need to open a bank. Most banks have restrictions on how much money you need to open an account, how much and who can withdraw money, how many workers you have, and how many transactions an account can have per day, month, and year.

Your registered business will have a business bank account with incentives provided by the bank. Most common incentives include savings from deposited amounts and cash flow management. Even if your current financial needs do not require you to handle investments and a large cash flow, think about your business in the long term and plan for your financial needs accordingly.

As your business grows, your financial needs will evolve. That’s why it is important to always re-evaluate your banking requirements every year and talk to your current or potential banks to see how they can meet them. Whether it’s additional services you require or keeping up with intense internal accounting systems, you can always start multiple accounts to meet your growing needs. 

2. Shop for the Best Features

Before dealing with a single bank, it is wise to search for other banks and compare their various features. 

Basic Services – this will determine whether or not you can get loans, earn interest and do the minimum financial tasks. Look out for basic services for business accounts including:

  • Checking accounts
  • Savings accounts
  • Cheques
  • Deposits
  • Credit cards and debit cards
  • Online banking
  • Employee chequing accounts

Other Features to look for include:

  • Fees – read on to find out more
  • Loan Policy – read on to find out more
  • Location and branches – If you have in-person needs such as to make regular deposits, withdrawals, or speak to bank managers, then a bank that’s close to your business location is ideal
  • Online banking – the biggest factor to consider with online banking is security. Your chosen bank should have comprehensive features to tackle online banking cybercrime 
  • Perks and incentives – Most banks offer new customer bonuses or gift cards and discounts of their other partner businesses such as restaurants or bars. You can also get perks for maintaining a certain account balance which can help your cash flow and management
  • Digital systems – at the very minimum the bank’s digital system has to integrate with your bookkeeping. The more tech savvy your business the better digital tech you need from your bank
  • Payroll services – if your business is growing fast and hiring, having a bank that offers great payroll services can make it much easier to employ and pay staff

Whether it’s online banking features or an extensive ATM location, your required features will point you in the right direction of the most suitable bank. Don’t make the mistake of thinking that these features are free. It would be best to ask the bank to fulfill your requirements by talking to the bank manager up front.

A quick note on fees

When closing on your choice, the most important part is to evaluate the fee structure since they are generally higher for businesses. Do your due diligence to uncover hidden fees or accumulating fees that might add up and eventually cost your business money. Look out for:

  • Service fees
  • ATM fees
  • Account fees
  • Management Fees
  • Credit card fees
  • Withdrawal and deposit fees
  • Inactive account fees
  • Overage fees
  • Hidden fees
  • Other fees

A quick note on loans

Another mistake many entrepreneurs make, especially when times are good and their businesses are very profitable, is not think about potentially borrowing bank loans. You might need a loan now or in the future. This can happen even where the business is profitable, for example where you want to help boost available funds to expand your business location, products, or marketing.

The better your relationship with the bank the more likely they are to offer you loans that are repayable and have lower interest rates. Many banks offer Small Business Administration (SBA) loans or have Preferred Lender Programmes for loans that usually have lower interest rates or longer repayment terms, making it easier for you to repay them.

Really look into the features the bank has before making your choice.

Once you have an account, never be afraid to switch banks or open another account elsewhere if your bank features change or no longer meet your needs. Most banks will not want to lose your business so might then improve their offerings or customize their features to keep you. Thinking about leaving or complaining about features, generally gives you greater negotiation power and means the bank will work harder to meet your needs.

3. Choose between Large Institutions and Small Banks

The biggest dilemma is choosing between a large bank and a small local bank for your business. There may come a time when you need a loan from your bank, so you need to look for a bank with low loan rates and good customer service. Small businesses are more likely to grow with small banks as they are more likely to issue loans to small community businesses.

Another option is to open a business account with a Credit Union instead of a bank. Credit Unions are nonprofit organizations whereas banks are for profit organizations. This means banks concentrate on maximizing profit and issuing dividends to their stockholders, not their customers. Since a credit union is a non-for-profit institution, they put their profits back into their members through lower fees, better rates, added locations, equipment, more ATMs, etc.

Advantages of a small bank and credit unions

- More likely to issue loans to local or community businesses
- More niche and better suited to the local market conditions
- Easier to negotiate better credit scores and fees 
- More eager to win your business
- Easier to build stronger business relationships
- More customer-centric
Advantages of a big bank

- Many locations and branches including ATMs
- Bigger range of services and offerings including credit and loans options
- Greater financial resources
- More people resources to support you
- Usually have better reputations or have more experience
Disadvantages of small bank and credit unions

- Less branches and in-person services
- Lower financial resources
- May have less experience in the industry
Disadvantages of a big bank

- Can often be less small-business friendly
- Harder to build personal relationships with local bankers

Note: These advantages and disadvantages are generalized from all the research taken to write this article. Most banks will have a mix of these. 

Consider all the benefits and drawbacks of your chosen small or big bank to see if the bank suits your business needs. Generally speaking, working with smaller banks, especially regional ones within your area, increases your chances of being a big fish in a small pond. This gives you more negotiation power and can mean the bank gives you better support.

4. Consider Other Important Factors

Customer Support

How good is the bank’s customer service? Pay close attention to the service provided from the branch bank manager or your bank relationship manager as they will be the ones handling your features or complaints.

It’s also important the bank has 24/7 support if your business is open outside the normal Monday to Friday 9am to 5pm working hours. Customer service includes everything from:

  • What is the bank’s operating hours and does this suit your business hours 
  • How quickly does the bank responds to your questions – the quicker and more informed the better
  • What different lines of communications such as teams, emails, numbers, or webpages – does the bank have for their services. Look at communication lines for fraud and financial crime, online banking, deposits and withdrawals in particular 
  • Who are the Relationship Managers handling customers – if this is a 1 manager to 1 business customer relationship it could be easier as your business only has to go to one person
  • Are there staff on hand to handle different business needs – finance system emergencies, helping with taxes or payroll, discussing new financial regulations or technologies. Most banks will have specialist who your business can turn to for additional support

A bank that is willing to go the extra mile in providing your business excellent customer service, is a keeper. This is often the key reason why businesses choose to stay with some banks for a long period of time.

Corporate Social Responsibility (CSR) and Ethical Needs

If your business has a strong sense of being socially and ethically responsible, then choosing a bank that is in line with your business values is crucial. This can be important for brand image. 

Research how the bank behaves ethically now and plans to in future.

  • Do they sponsor community projects?
  • Is the bank working towards solving key worldwide issues such as climate change?
  • Have they carried out any bad practices in the past?

Often a lot of banks will carry out ethically or socially responsible activities for a short time to maintain their brand image but long-term go back to bad practices. So check local media to see if the bank was involved in a recent scandal and how it solved this.

Finally, Choose Your Bank

Choosing a good bank for your business is a long process so start early as it’s important for the growth of your business. Some businesses choose to have more than one bank to take advantage of different features but this does mean having to maintain multiple accounts and records.

Once you’ve chosen a bank, the most important thing is to build a strong relationship with them. Good relationships will often lead to your bank working harder to support your business to grow financially.

Amin Bilal is a business consultant, founder of CompanyHand.com, and content creator. He specialises in advising SMEs and large multinational corporations solve finance, operational, and technological problems.

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