Tips: How to Choose a Bank for Your Small Business

Banking is one of the first things you’ll need to make a decision about as you get your business up and running. From business security systems to online marketing, everything about your business relates directly to your company’s financial sector. You’ll want to make sure things are efficient and glitch-free. As a small business, choosing a bank can sometimes be daunting. Here are three things to consider when choosing your banking company.

Location, Location, Location

As they say in the real estate world, the most important thing is location. Depending on the size and nature of your business, you may need a bank with numerous locations or a small bank in your immediate area. Location plays an important role when choosing a bank.

  • Does operating your business entail numerous runs to a bank in one day? If so, you’ll want to make sure you choose a bank with a branch local to you to cut down on time and gas accrued from running back and forth.
  • If your business transactions occur mostly online, location isn’t as important and you can focus on other features each bank has to offer.
  • Are you going to need lending? In today’s market, small banks are more likely to take chances on small businesses. If the bank is in your community, they may be more flexible and provide greater customer support.

Online Banking Selections

Regardless of whether you choose a banking corporation or a small business, you may want to choose a bank that provides online banking. Online banking has its perks, but there can be drawbacks if you choose a company that is only online.

  • Making the most of online banking can help your company reduce its environmental impact. If your company wants to be as green as possible, online banking can help you do just that.
  • Strictly online banking accounts typically pay a higher rate of interest than you can get from a brick and mortar competitor.
  • Online banking accounts may save time with the constant use of direct deposit, but because there are no ATMs, depositing checks and withdrawing cash become more difficult.
  • Open 24/7, accounts that offer online banking are convenient and allow for constant monitoring of payment and spending. You can catch fraudulent actions quicker than if you wait for a monthly statement.

Figuring Out Fee Structures

As you come closer to choosing a bank for your business, you’ll need to look at the fee structure of each bank. Some charge fees after a certain amount of transactions or for various financial services. Determining what you need and the fees associated will benefit your business in the long run.

  • If you’re going to need financial advice and the bank you are considering offers such services, look into the related costs, if there are any. See what extras are associated with your account and which aren’t.
  • Larger banking corporations are more likely to issue corporate credit cards to small businesses, which can be used for financing. Rates are also usually less with larger banks.
  • Some banks will also charge small businesses for online banking services, even though they do not charge individuals.
  • If you will need a loan, what are the rates? You’ll want to figure out what kind of loan you’ll need and the rates associated. Banks often limit loan amounts so asking what each bank’s limit is might be a good idea.

Always ask questions about fees and services associated with your account. Pin down what you need and make sure the bank you choose has those options available. Don’t forget to occasionally shop around. Your business changes and so do the banks’ rates and available options. As your business expands and shifts around, you may have different needs that your current bank doesn’t provide.

Contributed content by: Erica Bell: Erica is a small business writer who focuses on topics such as business plans and social media trends. She is a web content writer for Business.com.

Small Business, Big Lending

After such a prolonged period of doom and gloom in the global economy, any uptick in lending from financial organizations is cause for celebration. Now maybe, just maybe, we’re headed that way.

First, the good news: Flush with deposits, banks around the world have money in their coffers. Next, the better news: They’re more inclined to make loans in 2012 than they have been for a while (as in, the recession). Finally, the best news: Small businesses, often seen as the true engine of growth, are likely to benefit the most.

That’s the word in a new report from Omega Performance Corp., based on a survey of 409 respondents around the world, and it offers an interesting snapshot of how bankers see the near future. And by all accounts, what they see is good. In fact, 69 percent of global bankers reported a positive outlook for the global economy over the course of the year. For the record, no one’s looking through rose-colored glasses just yet: Only 12 percent predict “drastic” improvement on a global scale, while 57.2 percent see it improving “slowly.”

It’s in the area of lending practices that we see the greatest changes. Well over half the banks surveyed forecast greater lending on the consumer front, and the numbers are even higher for EMEA. It’s an even better story on the commercial side, but this time, the outlook is rosier in the North America, particularly the U.S., with a whopping 72.5 percent.

Going one level deeper, there’s an even brighter spot. Nearly three-quarters of the respondents said that their financial institutions will increase small business lending. Of those, 61.1 percent will do it slowly, while 12.7 percent see a drastic jump. The corresponding numbers for the U.S. are even higher, collectively clocking in at 77 percent. In fact, this sector dominates the target markets for banks—76 percent globally, and 78 percent in the U.S. On a related note, more than two-thirds of respondents in the U.S. plan to actively pursue leading to mid-sized and larger business as well.

It’s not all good news: For example, construction and multi-family homes (considered bellwethers of the industry) still rate below credit cards and auto loans around the globe. As for individual housing, the number for Canada is significantly higher than the U.S.: 57.8 percent over 42 percent.

Again, like all surveys, this is just a snapshot in time. But considering the cascade of gloomy reports and dire forecasts that we’ve almost become accustomed to, any positive signs are welcome. Here’s hoping there are many more, and soon.

Are Office Depot, Google and Wal-Mart Disrupting Small Business Lending?

In recent weeks Office Depot and Google announced credit programs aimed at small businesses. Office Depot is partnering with Superior Financial Group, a non-bank SBA lending company, to offer small business loans up to $25,000.

Google is offering small businesses a credit card that can only be used to pay for AdWords, Google’s keyword advertising program. Google’s credit card offers a very competitive interest rate and no annual fees.

These companies join another corporate giant – Wal-Mart – in providing credit services to small businesses. Wal-Mart, also in partnership with Superior Financial Group, started offering small business loans last year.

These firms illustrate a broader trend of nontraditional competitors targeting the financial services industry. These new competitors include some the world’s largest corporations and best-funded, venture-backed startups. They are hoping to use disruptive innovation based on both new technology and the shift to online banking to attract customers and gain share in the financial services industry.

Disruptive innovation is a term coined by Harvard Business School professor Clayton Christensen. It describes a process by which a product or service creates a new market or reshapes an existing market by delivering simple, low-cost innovations to a set of customers who are ignored or underserved by industry leaders.

Industry leaders ignore these customers because they aren’t viewed as important enough, or profitable enough, to pursue. After a disruptive competitor establishes themselves with this group, these firms often move up-market, eventually challenging traditional competitors for their best and most profitable customers.

The classic example of disruptive innovation is Southwest Airlines. Southwest initially targeted price sensitive vacation travelers, a segment considered unattractive by the airline industry. Ignored by larger rivals, Southwest moved up-market and over time firmly established itself with business travelers, the airline industry’s most coveted customers.

We think something similar may be happening in the small business credit space.

The customers targeted by Wal-Mart, Office Depot, Google and others are very small businesses, most with less than $1 million in revenue -  a segment seen as unattractive by many financial institutions. But by ignoring this segment, financial institutions are providing an entry point for new competitors who may leverage this beachhead to become significant players in the financial services industry.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.