When starting a business, one of the important decisions that you will be making is choosing a bank for your business bank account. Yes, you should have a business bank account. It is not wise to commingle personal funds and business funds. The IRS frowns on individuals who do this, and if you are ever audited, you might have a hard time proving which funds are personal and which funds are business related.
I know, in your mind, you might be thinking that a bank is a bank. Sure, all banks perform the same general functions, but some banks offer more perks, especially when it comes to business accounts. Services offered, pricing, and technology are a few things to keep in mind when shopping for a bank.
Here, we’ll talk about a few ways to choose a bank for your small business account.
How Can the Bank Best Service Your Small Business Needs?
Your banking needs are more important than your wants. Before choosing a bank, ask the bank representative what the bank can do for your small business. What special offers/perks are available to you? How much are the bank fees relating to your business bank account transactions. Banks tend to have hidden fees and other charges; therefore, it is wise to ask questions up front and read the brochures that you receive from the bank, or at the very least, skim over the brochures and read the sections that are applicable to the type of business account that you are considering opening.
Don’t get sucked in by the promotions that the banks offer. While the offers may sound appealing, in order to get that promotional offer, you may have to sign up for a service that you don’t need. If you don’t need the service, don’t get it.
Be sure that the bank allows you to make deposits using a smartphone app. or some other electronic options. Using a smartphone app or another electronic option is so much more convenient than having to drive to the bank every time you need to make a deposit. You also want to check to see if there is a limit on the number of deposits that can be made to the account monthly. I know that it sounds strange that a bank may charge you a fee for making too many deposits, but trust me, some banks do.
- Withdrawals (electronic and manual)
Be sure to ask the bank representative if there is a limit on the number of withdrawals that you can make from the account monthly without incurring a fee. Since this is a business bank account, it is likely that you won’t be making regular withdrawals from the account. However, it is good to know this information.
Be sure that you can easily make and receive electronic transfers and receive direct deposits to the bank account. You also want to find out if there is a limit to the number of direct deposit or electronic transfers that can be made monthly without incurring a fee. Granted, most small businesses may not have the need for the direct deposit feature. However, as an independent contractor, freelancer, etc., you may have the need for the direct deposit feature. You’ll want to find out up front if there are fees associated with any of these services.
Now, let’s talk a bit about fees for small business bank accounts. Note that fees for business accounts are more than the fees for individual bank accounts. Even if the account is technically free, you can still end up paying some hefty monthly charges if you do not stay within the requirements of the account. Banking fees can differ significantly, therefore, you want to pay attention to the fine print regarding the type of account that you have, and what the requirements are for that account.
Some banking fees that you can be charged for are as follows:
- Not using the bank account enough;
- Failing to maintain the required minimum account balance;
- Exceeding the number of deposits or withdrawals allowed monthly;
- Non-Sufficient funds (NSF) fees. Some banks allow the account holder to incur the first one or two NSFs free of charge. After that, the fee is typically $35 per NSF incident. That $35 can add up rather quickly. You want to make sure that if you write checks from the business account, you have the funds available in the account the day that you write that check. These days, checks can generally clear in 24 hours. When you are just starting out in business, every dollar makes a difference.
As your business starts to grow, you might want to expand. However, to expand, you’ll need more capital. You can possibly take out a loan or a line of credit with the bank to get the capital that you need. Some key questions to ask the bank representative regarding loans and lines of credit, are as follows:
- What are the qualification requirements for a small business loan?
- What is the interest rate for a small business loan?
- What is the maximum amount that you can apply for as a small business?
- What are the terms for a line of credit?
- Is the bank flexible if your loan needs change?
Size Matters When Choosing A Bank
As with just about everything else, when choosing a bank, you have choices. There are small local community banks, which is a good choice if you are looking for personalized service. There are also the medium-size regional banks, which would be a good choice if your small business has aggressive growth strategies. There are also the large national banks, which is a good choice if you are looking for lower fees and online banking technology options. Typically, the larger banks will have the best promotional offers as well.
Each of the banking choices have pros and cons. Before deciding on whether you want to go with a small local community bank, a medium-size regional bank, or a large bank, you’ll want to weigh the pros and cons of each.
Some pros and cons for each bank choice mentioned is listed below.
Small local community bank
Better customer service; and
A sense of continuity
Fees are typically higher than larger banks;
Not as technologically advanced as larger banks
Medium-size regional banks
There is a focus on personalized service; and
Relating to loans, regional banks are more likely to focus on local market conditions.
Technology options may not be on the same level as a larger national bank;
Banking fees tend to be higher than a national bank.
Large national banks
Generally, offer a full line of online banking options;
Will have experience dealing with international services.
Customer service is usually lacking;
Relating to loans, larger banks go by the hard numbers, making it harder for a small business to obtain a loan.
Again, you have choices when selecting a bank to service your business account. You are the customer and banks want your business. Do your due diligence and choose wisely.