The most common mistake small business owners make in selecting a bank is to pick the one closest to their home or place of business. Instead, make a list of the banking services and qualities that are most important to you, then prioritize them and start comparing banks.
As a guide, here are five factors to investigate and consider:
- Size – match a bank with the size of your business. For example, small and mid-sized companies are more likely to get better support at small and mid-sized banks, while medium to large businesses benefit from banks with multi-state operations.
Does the bank have experience with your type of business, so it understands your needs and is willing to help you meet those needs?
- Service – in today’s marketplace, you want a bank that moves at the speed of your business. Small community banks are the most responsive because decisions are made by local staff, while larger banks are more bureaucratic.
You want to be able to call your banker to explain what you need and be confident that he or she can help quickly -- without having to consult a rigid bank policy and without waiting for some faceless group of decision-makers in a far-away city who aren’t familiar with you or the nuances of your business.
Remember that your bank service will only be as good as the banker you work with, so always deal with the most senior officers possible – they have more decision-making authority. You want the bank’s key executives to know you and your company as more than just an anonymous account number.
- Fees & Interest Rates – community banks are known for more favorable and flexible terms with their fees. For example, some smaller banks will analyze the kind of banking you do and prepare a customized banking plan for you at no charge.
The plan should recommend the right accounts for you – such as checking, savings, and cash management – along with the right services – such as remote deposit or credit card processing. You can then negotiate the lowest possible monthly fees and perhaps even get some services with no monthly fee at all.
Regarding interest rates, community banks can often offer very competitive rates on their loans – but the interest rate they pay to you on deposit accounts is limited by government regulations, so larger banks typically will offer a higher rate.
- Technology – you want the ability to conduct banking business without having to physically go to the bank, so be sure to select a bank that offers the most up-to-date IT services important to you, for example, online account management, electronic bill paying, remote deposit, and efficient credit card processing.
Usually smaller banks deliver all the sophisticated high-tech services of larger banks, but at less cost and with more old-fashioned down-home personal service.
- Ease of Credit – small community banks are themselves locally-owned small businesses, so they can relate to your needs and often they give more weight to intangibles such as your character and local market conditions. They are also more willing to arrange their lending programs to fit your needs, including refinancing your existing loans at attractive discount rates.
In contrast, larger banks typically grant loans or lines of credit strictly by the numbers, with little or no flexibility.
If you expect to need a loan, look for a bank that offers loans by the U.S. government’s Small Business Administration (SBA). These loans usually feature more favorable rates, down payments, and repayment terms.
Look for an “SBA Preferred Lender” and your application can often be approved plus your loan can close in weeks rather than in months, as tends to happen at larger banks.
In summary, you should select a bank that best meets your current needs. For a small business, that usually means a small bank. If and when you outgrow a small bank, you can then change to a larger bank.
However, even if most of your banking is with a smaller community bank, you should also maintain at least one account at a large bank because if you ever need the services of a larger bank, you want to have an established customer relationship. After all, it’s easier to make friends before you need them – rather than when you need them!
Work is hard; banking should be easy. So build your business with vision and with commitment – and with a great bank by your side!
Navin Shah is Chairman of Royal Hotel Investments, which owns and operates two hotels in Covington and one in Conyers. He is also Vice Chairman of Embassy National Bank, a community bank in Lawrenceville that he helped establish in 2007 and has become one of the leading SBA lenders in the southeast.