Choosing a bank or even making a decision to leave your financial institution involves more than deciding where to open a new account.
Bankers and analysts interviewed by the Las Vegas Business Press say before making that decision you need to understand what services you require and how much they cost.
Investigating the services you’ll need to rely on every day also will give you a foundation for online research and in-person conversations.
Mark Hamrick, senior economic analyst with Bankrate.com, says any business owner needs to find a banker who will take the time to explain the services they offer so you can go back and run your business.
“First thing to think about is that banking can be a lot like a marriage,” Hamrick said. “You are commingling your finances with a partner, hopefully in a long-term relationship.”
Hamrick also said before reaching any decision, a business owner would benefit from weighing the pros and cons of what a credit union, community bank or large financial institution could offer them in terms of loans, rates and other services.
“You need to ask what level of service are you asking for and what are the fees associated with those services,” he said.
Bruce Ford, senior vice president and Nevada regional banking manager with City National Bank, said before switching financial institutions, business owners should ask themselves, “How well do I know my banker and do they add value to my business?”
Hamrick said here are a few issues to keep in mind when looking for a new financial institution: ATM fees; location of branches; what technology do they offer, especially the ability to do business online; lending services; cash management; and even payroll.
Ford agreed, saying, the biggest mistake is “choosing a bank that does not have the capability to meet all of their needs.”
There are other questions to ask before choosing a new financial institution. Do you just want a checking account for your business? Or maybe lines of credit?
Do you want to use one bank or credit union for all of your business needs, including commercial real estate, term loans, merchant services and other products?
Are there discounts if you use the same bank for multiple services? Or are you willing to spread out your business between a community bank and larger financial institution or credit union?
Consider not just what you need immediately but services you may require in 18 to 24 months as your business grows. Hamrick said you want to find a banker who understands your business and industry, including your borrowing needs.
Once you find a bank or credit union, Hamrick suggests you visit a branch and simply introduce yourself while asking “Who is the best person to speak with?” about your financial needs.
“What you are doing is saying I’m a potential customer and I need some information,” he said.
So how do you take the first step in finding a new financial institution?
Hamrick urged business owners to do their due diligence even understanding that one bank might not be enough to meet all your needs.
“There are all kinds of formal and informal networks to help you,” he said. “It might come in handy to develop relationships with colleagues or similar-sized businesses. Ask them, what was their experience like going through the effort to find a bank?”
Hamrick said ask them if there was a financial institution they could recommend.
He said a business owner’s need for finding a new bank might change over time, especially as your revenues and needs change as you grow.
“There is no preset graduation rate,” Hamrick said. “But a business that reaches $1 million in revenue might want to go shopping for a new bank.”
So how do you identify your needs? In terms of basic checking, you might want to know the number of transactions you make each month and the lowest balance you keep in the account.
Also, you’ll need to budget for banking costs, especially if you open a low-cost account with high penalties for surpassing transaction limits or falling below minimum balances.
“Fees is part of due diligence that’s about negotiating risk,” Hamrick said. “It is worth a modest amount of time to find out about the fees. Overdraft and transaction fees can be detrimental to the viability of your business.”
Does the bank focus on lending to small- and medium-sized businesses? What percentage of their business is geared to this market?
The easiest way to find banks with a business division is online. Just look up a bank’s website and locate the information or call a local branch.
“Often, small business owners overlook asking their banker about additional resources available to help them succeed financially,” said Lester Romero, Nevada small business manager with Wells Fargo Bank.
Romero said Wells Fargo even offers a small business website “with tips and tools, including our free business plan creator.”
Companies in Las Vegas might benefit from choosing a bank that offers Small Business Administration loans or that lends to your type of business.
Analysts say when contacting a loan officer, business owners should ask what industries the bank specializes in.
“The biggest mistake small business owner often make is not including their banker in strategic conversation around the business,” Romero said. “In fact, I have heard that often the banker is consulted after the accountant, lawyer and even Google.”
Romero urged business owner to consider their banker “a key member of a small business strategic team.”
Here are a couple of tips on choosing a bank for your small business from Accion, a small business lender in Nevada.
• Size matters. — When it comes to banking, size matters. However, that doesn’t mean that bigger is always better. You’ll need to evaluate your business’s needs and your comfort level to decide whether you’d rather work with a small community bank or a large national bank. Big banks have lots of branches, lots of different offerings, and lots of resources. Smaller community banks may be more attuned to local market conditions and more willing to work with you based on your character and overall profile, rather than the hard numbers of a credit score.
• Check your credit. — Larger banks can take their pick of what businesses they want to work with. That means it may be hard to get into a large bank if your business is very new or has a low credit score. Small, local banks may be more forgiving of new local businesses and may have less stringent credit requirements for opening accounts and lines of credit. Check out the credit requirements for the banks you’re considering to see if you’ll be able to get what you need out of your business accounts.
• What services do you need? — Certain services should be expected from all banks. At a minimum, you should look for your bank to provide the following business products:
• Basic business account services:
• Checking account
• Savings account
• Credit card/debit card
• Checks and a checkbook
• Deposit-only card
• Online business banking
• Employee checking accounts
• What are your digital needs?
•How often do you use technology for your banking needs? — Do you automate your accounts online? Do you want to be able make deposits with only your cellphone? If your work requires travel or if your company is tech-centric, you may want to have more digital options when dealing with your bank. If that’s important to you, then look for a bank that uses the latest tech and has the platforms to support your particular needs.
For more information, visit us.accion.org/business-resources.