6 Priorities When Choosing the Right Bank for Your Small Business

Published by BradyRenner CPAs | April 25, 2018

For most of us, choosing a bank for our personal needs is a relatively straightforward proposition. Most banks offer similar or identical services to consumer customers, and often the real key to selection comes down to the bank with the most convenient branch or ATM networks near home and work. In addition, consumers often do business with multiple banks at once. They may have their checking account with one bank; a car loan with another; their home mortgage with a third; and retirement or investment accounts with a fourth.

In business banking, the selection process is more complex and the bank’s expectations of its business customers are different as well. Banks specifically aim to bring all of a commercial customer’s business in their door, and commercial clients often have far more complex and changing needs. That’s why selecting the best banking partner for your small business needs is essential to your long-term success. Here are six key priorities to consider when choosing the right bank for your small business:

1. Do they offer the services you need?

Banks are working feverishly to adapt to new ways that customers want to bank with them. From mobile apps and remote check deposit to instant loan approvals and advanced cash management tools, the banking industry is innovating at a breakneck speed. That’s why it’s more important than ever to make sure the banks you consider are well-positioned to meet your needs.

If yours is a retail or restaurant business that manages a lot of cash, make sure the banks you evaluate are well-positioned to make depository and cash management services easy to access. If you travel a lot and your team is highly distributed, it may be essential for your bank to offer remote check deposits — and do so with low or no fees and with fast turnaround.

If you need a merchant account, consider how your bank manages this service and whether it’s an in-house offering or outsourced to a third party. See if the bank is willing to offer additional small business services like discounts on other providers in its small business network as well.

2. Do they have a strong track record of serving businesses like yours?

This is an often under-appreciated element of selecting the right banking relationship, but it’s critical to know that your bank is a reliable partner to businesses in your industry or sector. Some banks have historically focused their commercial deposit strategies on attracting ‘paper businesses’ such as accountants, attorneys and medical and dental practices. Others have focused on government contractors or professional service firms, and so forth.

Knowing each bank’s objectives in this area is essential because if a bank’s growth strategy does not directly incorporate a business like yours, some day you could find yourself in an untenable situation. For example, during a financial downturn banks may quickly pull credit lines for capital-intensive businesses such as manufacturers. Or, if the real estate development sector is a source of overwhelming lending exposure, a bank may promptly sell your loans to another lender with less friendly terms.

Banks that are not accustomed to serving a business such as yours may be eager to break into your sector, but it also means that your banker is probably not experienced in how your industry works, and if the bank encounters headwinds you may be the first customer to go.

3. How are their loan decisions made?

Nearly every business will, at some point, require a line of credit and one or more loans to support growth and expansion. This means that from day one, you need to know how the bank makes and manages loan decisions.

Are decisions made locally by the bankers you know or their immediate supervisors (or a loan committee)? Or are decisions made by a central lending department in a far-away city? Of course, centralized loan operations are not necessarily bad for your business, as long as approval criteria are reasonable and the bank makes fast decisions. The key is how your bank manages the process and what terms and conditions they are generally willing to extend.

4. Do they work well with key small business financing partners?

I addition to how your bank manages its own lending decisions, it’s also important to ensure that any bank you choose to partner with also plays well with others. For example, many small businesses are eligible for economic development loans from agencies such as Community Development Financial Institutions (CDFIs), local economic development or government programs, state economic development funds, U.S. Department of Agriculture rural development loan pools, and of course, the U.S. Small Business Administration (SBA).

Some banks become authorized SBA lenders, and others partner with third-party agencies to access additional specialized SBA programs such as the SBA 504 loan program for real estate and capital asset financing. Make sure the banks you are considering have a strong track record of working with these institutions and partners, so that you’re in good shape to maximize the flexibility, cost-effectiveness and impact of your future financing needs.

5. Are they a local leader or a national network?

Different banks are chartered in different ways. Some are chartered at the state level and serve as true local banks, founded and led by local business owners and investors. Others are chartered as national banks and have operations typically in multiple states. Learn about the format and structure of the banks you are considering, and examine how those structures could impact your business.

Would you benefit more fully from the regional or national reach of a major player with deep pockets and a wide-ranging network, or would your business needs be better met by a bank with a strong local commitment and a loan portfolio and leadership team based in your community? You should also consider whether certain banks with unique charters could be a better fit for your business, such as those that are chartered to triple-bottom-line standards and follow B Corporation best practices, or those that focus on serving underserved populations or were founded to meet the needs of minority communities.

6. Should you consider a credit union?

In addition to the five key priorities we’ve discussed so far, it’s worth noting one additional consideration: should you consider a credit union for your small business banking needs? Unlike commercial banks, credit unions are formed as nonprofit corporations with a specific mission in mind.

Over time, many credit unions have successfully petitioned to expand or change their charters from common bond standards (which are based around meeting the needs of a given association membership or employee group), to community charters in which the credit union can widely serve the population and businesses across a given geography or region. In addition, credit unions often find it beneficial to their mission to aggressively support local small businesses with increasingly sophisticated business banking and lending solutions, often at highly competitive rates.

At the end of the day, your commercial banking relationship will serve as one of the true, long-term cornerstones essential to the success of your business. Take time to consider and evaluate your needs, meet with your CPA to discuss your requirements, examine all of the options (including both commercial banks and applicable credit unions), and prepare carefully to put your best foot forward as you prepare to begin a new banking relationship for the future of your growing business.

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