A bank’s convenient location, number of branches or even a koozie giveaway are a few of the reasons why some small businesses take the easy road when selecting a bank.
But you shouldn’t go down that road.
A banking relationship can determine if and how your business grows. Eight out of 10 new businesses fail within the first three years because of lack of capital and poor financial management, according to the Central Economic Development Center, a Manatee County not-for-profit that works with business owners and entrepreneurs. With those odds, it’s important to interview bankers, learn about financial services and products geared toward your company, and to evaluate the bank’s stability and experience working with businesses like yours.
Then make sure you’re comfortable with the people in the bank or financial institution you’re considering. If you face financial difficulties—and most companies do—you already will have a relationship with a banker who has a vested interest in helping you succeed, says Joe May, a volunteer with the nonprofit small business mentoring organization Manasota SCORE, who has a 40-plus-year career in banking and business lending.
Start-ups, particularly those self-financing their venture, often don’t recognize the value of a banking relationship. “Usually it’s not too high up their list,” concedes Anne V. Lee, retail banking president for First Bank.
Carolyn Griffin, director of the Small Business Development Center at State College of Florida, Manatee-Sarasota, agrees. She says folks taking money out of savings or their 401(k) don’t think they need a bank. “Typically what they do is choose a bank where their personal account is, just because it’s easier, or base it on the number of branches,” she says. “Even if you don’t need financing now, you want to build a relationship with your banker.”
Check It Out Before Depositing Your Business
A business needs to look for a bank that is small-business friendly and can help it grow.
Review the financial institution’s services and products, from online bill pay to credit and debit cards to merchant services. Check out rates and fees for these services and the minimum balance requirements, all of which should be online, or pick up brochures at a branch office. But don’t end there.
Bankers should find ways to save their clients money and time, improve their cash flow and reduce risk, Lee says.
“By just selecting any bank, you may not get the support and advice that are available,” she says.
You want to trust your banker, and that doesn’t happen when a business owner feels a financial institution is just trying to sell services without treating them as an individual.
Bankers should be able to provide those products or services that make banking easy for that specific business, says Dennis Murphy, group vice president and commercial banking manager for Gateway Bank of Southwest Florida.
Financial institutions should analyze the clients’ situation and their portfolio, by asking pertinent questions about their business, says Susan Lacey, vice president of operations for Achieva Credit Union. “Is it important to have merchant services, or is that not important?” she says. “Is it important to have a Magic Wrighter [for accepting electronic payments] in your office?”
While you don’t want to base your decision purely on the number of branches, SCORE’s May thinks size is important. Small businesses generally are better suited to small community banks that understand the market, have local business banking specialists and can answer questions about the community.
“I try to match the size of the company to the size of the bank,” he says. “That will just give them a little more clout. A smaller business with a smaller bank will be more important to that bank.”
Although deposits are FDIC insured, businesses still should choose a financial institution that is stable, because of the potential for employee turnover or limited lending among troubled banks. And if the bank is acquired, a new lending philosophy could be introduced, which could impact your ability to land a loan, May says.
“I would like to do business with a bank that is sound now, so I don’t have to deal extensively with the concern of them being acquired … and having my banking relationship turned possibly topsy turvy,” he says.
Ratings such as those by Bauer Financial, which has been reporting on and analyzing the performance of U.S. banks and credit unions since 1983, are a great way to evaluate the stability of financial institutions, Lacey says.
Bauer’s star ratings generally measure such factors as the soundness of a bank’s loan portfolio and lending programs, profitability and capital levels, Murphy says. Look for those with a 4- or 5-star rating. Lacey notes that few Florida financial institutions have a 5-star rating because of the state’s difficult economic environment and high unemployment rate.
Meet the right players.
Speak to the “business banker” or someone responsible for small business lending. Not all banks focus on or have expertise in banking with small businesses, Murphy says.
Banks have walk-in policies, so if you arrive and no one appears to have time to talk with you, that’s an indicator you should not bank there. Your time is valuable, too, so consider calling ahead to schedule a meeting with someone in business banking.
Don’t ignore the L-word (lending).
Ask whether the institution is certified with the U.S. Small Business Administration to lend to businesses. About 60 lenders locally are SBA-certified, but because of economic conditions, only a third of those are making loans, May says.
Get the requirements for non-SBA loans, which are different from SBA loans, where the government reimburses the lender for a portion if the borrower defaults on the loan. That should help you prepare to provide appropriate information and position you to get a loan approved, says Rita Lowman, executive vice president/chief accounting officer with American Momentum Bank.
Ask about the lending opportunities overall. Some banks don’t like to lend to start-ups, says Griffin of the Small Business Development Center. “You can still start building that relationship. Find out, ‘OK, what are your rules for lending?’ If the client understands what the bank’s procedures are, then they can prepare before they ever need the money.”
Know what they offer, and when.
Make a list of which products and services you need from a financial institution, Lacey says. Ask about the fees for each product and service, such as checking accounts, money market investments, online banking, remote deposits, debit cards, credit card processing and payroll services.
Ask for direct contacts.
Look for a bank that will give you a direct number for a banking representative, not just an 800-number or generic email address. “We are proponents of not handing you off to a call center. They can call directly those people at any time and get help or just ask questions or for advice,” Lee says.
Review their hours. Choose a financial institution with hours that work with your schedule.
Gauge their knowledge of your industry.
“Literally ask the bank, ‘Who else in my line of business do you provide banking services for?’” May advises. Those banks will be better able to accommodate your needs because they will know how your business operates and also will not panic during down cycles in your industry. He adds that some banks prefer to work with or lend to businesses in certain industries.
Ask fellow business owners about their experience with the bank.
Be prepared to answer the bankers’ questions.
Banking representatives may ask you about your business and its mission. Be willing to share information.
If anticipating a loan, businesses need to show they have what Lowman of American Momentum Bank calls the 5 Cs to securing a business loan—cash flow, collateral, capital, conditions and character.
“Bankers should be able to provide products or services that make banking easy for that specific business.”
Group vice president and commercial banking manager Gateway Bank of Southwest Florida
“Start-ups, particularly those self-financing their venture, often don’t recognize the value of a banking relationship.”
ANNE V. LEE
Retail banking president First Bank
“Financial institutions should analyze the clients’ situation and their portfolio, by asking pertinent questions about their business.”
Vice president of operations Achieva Credit Union
“Even if you don’t need financing now, you want to build a relationship with your banker.”
Director of the Small Business Development Center
State College of Florida, Manatee-Sarasota
“Provide appropriate information [to] position you to get a loan approved.”
Executive vice president/chief accounting officer
American Momentum Bank
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