Small business banking is a topic that sometimes gets short shrift. With interest rates beginning to rise and business services at big banks closely resembling one another, small business media coverage tends to focus on more interesting topics such as technology, operations and company culture.
Because the banking news is static, it's easy to forget how critical banks really are in the day-to-day life of a small business. However, trying to differentiate competing banks is a difficult task. National banks tend to match one another too closely in the pricing and structure of their small business products, while local banks vary too widely based on local conditions. Still, there are a number of basic qualities that make a bank the ideal choice for a small business:
1. Active Small Business Lending
Banks are the main source of funding for many entrepreneurs, providing loans and credit products that are suited to many different needs. A bank that is serious about pursuing relationships with small businesses will offer financing options—such as small business loans, capital loans, and business credit cards, for every stage of a business's development. Though such variety is no guarantee of quality, it often means that the bank is committed to small business banking and lending.
The easiest way to determine which local banks are active supporters of small businesses is to speak with their bankers in person. Brick-and-mortar banks have a significant advantage over online banks or lenders in this respect. If you're interested in banks that participate in government-backed financing, the Small Business Administration also provides information on the most active SBA 7(a) lenders through its online resources. One example of a highly active small business lender is Wells Fargo, which has $459 million in outstanding SBA loans as of January 2017.
However, smaller banks tend to offer better service than national banks like Wells Fargo because they're able to concentrate more of their attention and resources in their immediate neighborhoods. Though they may not have as much capital available, you'll find that local banks tend to be more flexible and accommodating towards your business's specific circumstances. While online lending has made great strides in recent years, your best chances of getting a competitive loan rate are still with your local banks.
It can help to think of local banks as small businesses themselves: banks vie for small business borrowers by providing competitive loan rates and services in the same way you compete for customers with attractive prices or excellent service. Devoting time to speak with multiple banks will give you a sense of which banks will be the most effective partners for your business.
2. Reliable Online Merchant Services
With online access becoming the expectation in banking, a business-friendly bank should also provide the same level of connectivity for its small business users as for regular consumers. It's now possible to manage most of your business finances via online banking, including processing payments, invoicing, doing payroll and paying bills. Combining these services at one bank makes managing your finances easier, and online banking means you won't need to spend time visiting the local branch in person.
However, large banks generally have more resources to develop online functionality than do small banks, meaning your local bank’s online services are more likely to fall short. If you're a retail-oriented business with a lot of transactions, the best bank might be the one that provides a robust platform for handling your daily cash flow. Online banking is also ideal if your business has a lot of foot traffic, since it may be difficult for you to step away during the day to visit your bank branch.
3. Affordable Checking Accounts
Business checking accounts are the easiest area of small business banking to overlook. National banks offer very similar fees, rates and features on their checking accounts, and with so little to differentiate what’s available, checking account details tend to be a low priority for most business owners when shopping for a bank. Even so, you should make sure the account you choose is cost-effective for your monthly transactions and deposits.
Start by determining whether your business receives more revenue in cash or in credit and debit cards. Business checking usually comes with two monthly limits: a number of free debit and credit transactions and a dollar amount for free cash deposits. The cheapest accounts usually allow 150 to 200 free transactions and around $10,000 in free cash deposits per month. After that, you typically pay $0.30 to $0.50 per additional transaction and about $0.25 for every $100 in cash you deposit. If your business exceeds those limits, you should consider premium accounts, which have higher fees but also have more free transactions and larger deposits.
Wherever you end up taking your money, you should reassess the state of your banking relationships from time to time. As your business grows and adapts, your financial needs may change — and so may your ideal bank.