Choosing a bank that’s right for your business is no small task. No matter if your banking needs are straightforward (like opening up a business checking account) or more complex (like getting a line of credit), finding a bank that fits your needs is crucial.
But with 4,000+ FDIC-insured banks in the US as of 2019, how do you know which bank is the best option for your company?
In this guide, we dive into everything you need to know about choosing the right bank for your business.
Here are eight questions you should ask before choosing a bank:
1. Is the bank small business-friendly?
Many banks specialize in certain types of businesses. It is best to find a bank that’s known for managing the banking needs of companies in your industry.
You can evaluate if a bank is small business-friendly by keeping these questions in mind:
- What is the reputation of the bank in the market?
- How does the bank handle chargebacks and other business problems?
- Has the bank handled a similar type of business account in the past?
- Do they offer solutions and financial advice tailored to your industry.
2. What is the fee structure offered by the bank?
All banks charge fees. Evaluating fee structure gets tricky because this information tends to be vague.
Some typical fees banks charge are:
- Service fees
- ATM fees
- Account fees
- Management fees
- Withdrawal/deposit fees
- Inactive account fees
- Overage fees
- Credit card processing fees
You need to know the amount of each fee and compare rates among different banks. Does your business use ATMs or credit cards frequently? Then you might want to look for a bank that doesn’t overcharge fees in these areas.
Lastly, you don’t want to get caught off guard by hidden fees that may add up over time. Do your due diligence and make sure you account for any potential fees.
3. Are there any perks or incentives offered by the bank?
Ideally, you’d want a bank that offers basic business banking products and services like debit cards, online business banking, cash management services, and more.
But many banks offer much more—like attractive introductory offers or low-interest rates to keep a certain minimum amount in your account always, payroll services, etc.—especially to small business owners as bait to lure the big customers in.
Some conditional perks may be suitable according to your business requirements. For example, the incentive to maintain a certain balance in your account always may be good if your goal is to keep some funds intact.
When choosing a bank, make sure you understand the incentives and the cost you’re paying in exchange for them. In other words, read the fine print.
4. Does the bank have a hassle-free loan process?
You may not need a business loan right now. But you might need one in the future as your business grows.
If you’re looking to fund your business, it helps if one bank can offer you the loans you’d need since you already have an existing relationship and understand their regulations.
Many banks also specialize in small business administration (SBA) loans with some of the lowest interest rates and longest-term loans. If you plan on applying for a loan, it’s best to search for those specializing in SBA.
Shopify store owners can benefit from merchant cash advances and loans through Shopify Capital. This funding is repaid as a percentage of your store's future sales, making it a simple and hassle-free loan option for many small businesses.
Read more: How to Get a Loan for Your Small Business
5. What is the bank’s customer service like?
It’s important to choose a bank with a customer service team that is friendly, accommodating, and helpful as you’ll be interacting with them often.
Some questions that can help you evaluate the customer service of a bank:
- Is there a 1:1 relationship manager?
- What is the turnaround time to receive a reply on queries?
- Is there 24/7 support?
- What are the hours of operation of the bank?
Remember that customer service also includes things like ATM locations. If there are only a few ATMs in your area, you might end up paying a fee for using another bank’s machine.
6. Does the bank meet your cash flow requirements?
Your bank must meet your cash flow requirements because it can be more important than profit in some cases.
Some banks have a cap on maximum and minimum withdrawal amounts, so it’s critical to evaluate whether that number is sufficient for your business needs. Find the daily, weekly, and monthly transaction limits. You’ll end up paying a hefty fee if you cross them.
For example, if you do 200+ transactions per month, a bank with a limit of 50 transactions per month is not a good fit.
Remember to evaluate this for the future when your business grows; will your bank upgrade its limits?
Ideally, you should find a bank that allows unlimited transactions and has no cap on how much money you can transfer or receive each month.
7. Does the bank integrate with your existing bookkeeping software?
Saving time where you can as a business owner is always a good thing. In fact,
Clutch found that for 72% of small businesses with ten or fewer employees, one person handles both HR and accounting responsibilities.
Thus, the bank you choose should mesh with your regular bookkeeping and accounting tasks without adding stress. It’s crucial that the bank you choose integrates with your accounting software to make your life easier.
8. Does the bank you’re considering have convenient and secure online banking?
Online banking is a necessity in today’s economy. But with the rise of online banking, there’s a rise in cybercrimes, too, especially for small businesses. A whopping 43% of cyber attacks are aimed at small businesses.
When evaluating banks for safety, check what security measures they have in place to prevent cyberattacks and other security risks. Things like two-factor authentication are an excellent way to add another protection layer.
Apart from security, there is the convenience factor. Read app reviews of the bank on App Store and Play Store. But since both platforms aren’t free from false or paid reviews, make sure to do a thorough check.
Frequently asked questions about business banking
Here are a few common questions that might pop up as you start to look for a bank.
Can I use my personal bank account for my business?
There are two reasons why you shouldn’t combine your personal and business bank accounts:
1) Your personal bank may not be small business-friendly. It may lack features like low-interest loan options, payroll services, etc. you may need to run your business.
2) Keeping business and personal expenses separate makes filing for taxes easier. When claiming business expenses as deductions, it’s simpler to have a different account to work from instead of combing through a combined account.
Should I choose a small or large bank?
The short answer: It depends on your needs.
Big banks may have more funds to provide and more business-friendly services. But they also have a large pool of customers, meaning things like getting personalized service and hassle-free loans can be difficult.
Small banks offer a more customized service to suit your business needs. You might be able to leverage being one of their bigger customers and get better support.
Do I need to choose only one bank?
If different banks meet different needs of your business, it makes more sense to choose multiple banks. For example, one bank might offer better loan options while another might have an ideal savings account interest rate.
Keeping your businesses’ funds in different locations can also aid in establishing multiple track records and providing additional security (since all your funds aren’t in one place.)
However, working with different banks means juggling different accounts. It’s convenient to have one account that suits all your needs, but you may find banking with multiple institutions suits you better.
Take your time (but start early)
Choosing the right bank for your business is a lengthy process. Nobody knows your business goals like you do, which makes choosing the right bank all the more challenging.
But the right bank has a considerable effect on your business. It impacts how smooth your business runs, how easily you can expand, and how convenient it is to manage complicated finances.