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Did you give much thought to the bank that will hold your business accounts? On the surface, it seems simple; use the bank that holds your personal accounts. You know how they operate; the tellers are friendly, they give your children suckers, and it’s close to home.
Those are all great qualities but for your business, especially as it grows, you need to do some more digging. The bank you chose or are planning to use may be the right choice but here’s how to know for sure.
Bank or Credit Union?
Both will gladly take your business and if you’ve read one of the many personal finance articles on the subject, you know that credit unions are definitely worth a look. They can sometimes offer lower interest rate loans, higher interest rate deposit accounts, and friendly, personalized service since they’re often community based.
That doesn’t mean they’re automatically your first choice. While they’re rapidly improving, credit unions might not offer all of the technology you get at one of the big banks. Online check deposit, a mobile app, and advanced bill pay features might be lacking.
Second, a credit union can only lend 12.25 percent of its total assets to businesses. Because so many banks tightened their lending standards after the financial crisis, credit unions took advantage of the opportunity to lend to customers who were turned down by other banks.
As a result, some are close to that 12.25 percent level. You might find it difficult to get a loan at a credit union. If you think you will need a business loan, ask a lot of questions of your credit union before making it your “bank” of choice.
Whether it’s a bank or credit union, the process of evaluating a potential bank (we’ll use the term loosely going forward) is the same. Keep these thoughts in mind.
1) The size of the bank- Especially for startups or truly small businesses, forming a relationship with your bank has advantages. When you need cash fast, the smaller community bank can make that happen quickly and they won’t just look at your balance sheet. The value of your good name might carry more weight in a smaller bank.
But a larger bank may offer better interest rates, more flexibility in loan terms and a larger offering of products to fit your needs.
Just because the bank is small doesn’t mean it’s friendly and interest rates vary. If the interest rates are your primary focus, look at all banks and remember that fees and rates can be negotiated. Just like you would when purchasing a large product, it never hurts to ask for a better deal. Nobody is going to refuse your business because you asked.
What about Internet banks? It’s probably best to say no to Internet banks for your business. Regardless of the bank you choose, building relationships and networking can pay dividends later and there will be plenty of times when physically entering the bank is required. If, however, your business is 100 percent online, an online bank might be appropriate.
Related: Bank Loans vs. Private Lender Loans
2) Technology- If you’re looking to deposit checks with your phone, take advantage of 21st century bill pay features as well as advanced reports that come with the newest banking interfaces, ask to see their platform before making a decision. Some banks embrace technology more than others. If you love everything tech, you’ll want a bank that shares your passion.
3) Are they an SBA lender? The United States Small Business Administration issues government-subsidized loans to qualified business owners but they do it through local banks. It’s not essential that you bank at an SBA sponsored bank to get the loan but that relationship you formed may help you in the approval process if you’re applying for an SBA loan.
4) Do they understand your business? Before you choose a bank, prepare a list of questions to ask the person you meet with. Ask for a fee schedule, minimum balances, and other bank-specific rules. Make sure their business hours fit with your schedule, and any other questions important to you.
As you’re asking those questions, you’ll get a sense of how well they understand your business. If you do a lot of business outside of the United States and they clearly don’t work with many businesses like yours, look elsewhere.
Once you decide on a bank, don’t be so quick to set up all of those direct deposits and online bill pay features. Take six months to see if you’re happy with your choice. Once you set up automatic deposits and payments, it’s much more time-consuming to switch banks. Set up one or two to see how you like the interface.
For the first six months, pay all of your bills with those old-school paper checks. Once you find that they’re meeting your expectations, take that giant leap into the 21st century and fully embrace all they have to offer.
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