Business owners used to be dependent on their local bank. These days, entrepreneurs have a ton of options, from large nationwide chains, to community credit unions, to online-only banks. The right small business bank can streamline your finances and help you acquire loans and other credit options.
At a minimum, business owners need a dedicated business checking account for fund deposits and to manage your day-to-day spending. A bank may also offer other products, like credit cards, business loans, or merchant services.
Here are things to consider if you want to choose an initial business bank or change the one you’re currently with:
Reasons to explore a new business bank
Are you happy with the service you’re getting from your bank? If it’s been a while since you’ve explored options, you might be surprised at the variety of services offered.
- Easier tax preparation
When your income and expenses flow through a bank account, you, your accountant, or your bookkeeper can link your transactions with tax preparation software. This can save lots of time and effort. Additionally, if you face an IRS audit, you’ll have organized records.
- Automated bookkeeping
Bookkeeping software can help you manage bill paying, accounting, budgeting, and invoicing, simplifying your finances and automating most bookkeeping tasks.
- Protection from business debt liability
One advantage of establishing your business as a corporation or a limited liability company (LLC) is to protect your personal assets. If you mix your business and personal assets by not keeping a separate business bank account, then your liability protection is essentially gone. This means you could be found to be personally liable for business debts incurred.
- Show the IRS that your business isn’t a hobby
To legitimize your business, the IRS must be able to determine that you are trying to become profitable. One way to do this is to keep all business income and expenses separate by having a business bank account.
- Establish business credit
A strong business credit history is key if you’re seeking funding. By having a business account at a local bank, you can establish a relationship for credit purposes. High business credit scores are key if you want to get the best rates for a loan. Read more about how to establish business credit in this SmartBiz® Loans blog post: Understanding Business Credit Scores.
- Help applying for a business loan or government support
Applying for a bank term loan or a government-backed SBA loan can be complex. Working with the right bank can help you keep documents in order. Application requirements might include a cash flow statement, a profit and loss statement and your three most recent business bank account statements.
- Your business is growing
Business growth is one reason why you should consider changing your business bank accounts. Once you decide that your current bank account does not meet your businesses needs anymore, it's time to start looking for other options.
Before you look for a new business bank
Don’t jump into the process. Consider the following details when you’re researching banks:
- Examine your banking history
If you have an established business, review the last 6-12 months of your financial history. If your business is new, look at 6-12 months of financial projections. This can help determine the amount of surplus cash you need per month and your outside capital needs.
- Choose online or in-branch banking
Businesses who deal with cash transactions may want a physical branch location. On the other hand, many online banks offer features like electronic transfers, online bill paying, and mobile check deposit.
- Compare costs
Nearly every bank charges fees of some kind for their services. Review the costs you’ll be responsible for and determine if they make sense for your financial needs.
- Consider earning potential
If a bank has favorable interest rates, you could earn money if you keep a large balance in your account. Make sure you get a clear understanding of the requirements.
- Visit the branch if possible
Meeting with a banking representative at a bank branch may help you make the decision if it’s a good fit for your unique small business. You’ll also be able to ask questions and establish a good rapport with the staff.
- Talk to other small business owners
Personal recommendations are invaluable when making the important decision to work with a bank. Look for another entrepreneur in your industry that you trust and try to get their input and suggestions.
What to consider when changing business banks
List the features that are important to you when working for a bank. Some of these might include:
- Customer service
Check the customer service options available and determine how fast a response you can expect. Are all customer services free or do some require an additional fee? Will you be assigned an account manager you can contact directly?
- Problem solving
Problems may be inevitable, but the way the bank handles them can be the deciding factor when considering a switch. If you’ve had issues, talk to your current bank representative about what the bank and your business can do to avoid this problem in the future.
Mobile banking, online expense tracking, and online financial management tools are a few services that big banks offer. Ask which financial apps the bank uses, then read reviews to see which products fit your needs.
- Access to credit and advice
Many small businesses require additional capital to stabilize and grow. Ask what loan products the bank offers and the application process. Additionally, look for a bank with advisors who can offer expert advice on your small business finances.
Are you considering more than one bank? Note that business owners can open multiple business bank accounts. In fact, you can open as many as you like, so long as your bank approves your application. However, juggling several business bank accounts can not only make bookkeeping more challenging, but it can also make managing the accounts themselves tricky.
WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.