- Questions to ask to better understand a bank before starting a business relationship with them
- Gauging lending authority as well as the extras available with an account
- Inquiring about basic, lending, and services available
By Kempton Coady and Denis Jakuc
Selecting the right bank is one of the most important decisions a small business makes. Before making your choice, you’ll need to understand the services your business requires and how much they will cost.
Your banker should be willing to walk you through your financial options so you can make an informed decision and get back to running your business. Start by compiling a list of local, regional, and national banks that cater to small businesses your area. Then ask these questions to get the information you need.
Note: This Expert Summary is an expansion of topics covered in an earlier publication, “Selecting a Bank For Your Business.”
How much lending authority does the local banker have?
What’s the largest loan the banker can approve without checking with higher ups? Relationship managers at community-based banks often have more discretion than those at the local branch office of a big institution, and they may consider small business lending their bread-and-butter business.
Lately, however, the distinctions between large and small banks have blurred with the industry’s consolidation. Many community banks have undergone mergers that now allow them to offer a wider range of services. Banks of all sizes are emphasizing improved customer service, having discovered that many customers still like face-to-face service at branches versus conducting all transactions online.
Small, regionally focused banks may have an advantage because they know local market conditions. They often provide more one-on-one access to a loan officer, and put more emphasis on a borrower’s character, rather than just applying a credit score model, when making their lending decisions. During tough times, they can also be more flexible with their policies, such as covering overdrawn accounts without imposing stiff penalties.
On the other hand, rates charged by larger national financial institutions “are systematically lower” than those charged by community banks, according to a study cowritten by the National Federation of Independent Business. Plus, larger banks are more likely to issue small businesses corporate credit cards, which can be used for financing.
Is your bank comfortable working with the U.S. Small Business Administration loan system?
Federally subsidized SBA loans help protect the bank against default, which makes it easier for them to lend money. SBA loans are available to businesses whose credit histories, cash flows or collateral would be inadequate for them to obtain traditional bank loans, and the SBA typically offers more flexible repayment terms.
Whether going with a large or a small bank, it is wise choose one that is an SBA Preferred Lender. With “Preferred Lender” status, the bank can make final credit decisions on SBA loans, which makes the process much quicker than it is with a non-preferred lender.
What extras are available with my account?
Despite stiffer lending procedures, larger banks may offer added benefits, such as online services that help save time and money. These services may include sending invoices, collecting payments, handling payroll, processing loan applications, and tax and accounting assistance. Some banks may tie such services to additional requirements, such as handling payroll only if your employees all use direct deposit channels.
But keep in mind that banking is a competitive business, and it rarely takes more than a year for a new product or service to be copied by banks across the country. So, being comfortable with a bank can be more important than the appeal of a new product.
What services do you have for small businesses, and what are their fees?
Ask about the bank’s loan rates for various loan types, such as working capital loans, asset purchase loans, and other types. Create a one-page information sheet for each bank, covering the following services with their fees.
- Checking account
- Business savings account
- Credit card
- Deposit-only card
- Discounted employee checking accounts
- Online banking
- Lines of credit
- Working capital, term loans
- Commercial real estate
- Equipment leasing
- SBA loans
- Cash management
- Wire transfers
- Wholesale lockbox
- Merchant services
- Retirement accounts
- Discounts on hotels, car rentals, and other services
- Rewards programs
Who do we contact about these services? How rapid is their response?
These final questions should tell you how easy it will be to work with the bank and how much time it will take, both important considerations.
If you’d like more help with finding the right solution for housing your startup, InnovatorsLINK offers a detailed Bootcamp course where you’ll learn the details about all your options. Register here.
Review the Executive Summaries associated with each course prior to attending the courses.
About the authors
InnovatorsLINK General Manager and Chief Financial Officer
A senior level executive with over 30 years of successful, results-oriented domestic and international experience in the medical device business. A business leader who created significant increases in profits and cash flow and/or raised money to expand enterprises. A leader, who attracts and motivates the best talent to achieve the desired results. Board member for AMEX, NASDAQ, and London Stock Exchange companies. Significant international experience in Europe, Latin America, and Japan. Experience the last seven years has included professorships at Goldman Sachs 10KSB program and University of Connecticut Graduate School of Business. Earned BS Bates College, MBA and MPS Cornell University.
InnovatorsLINK Business Writer and Brand Strategist
A business writer his entire career and a successful businessman. He was a partner in a top-10 Boston ad agency, a senior level executive at Young & Rubicam NY and Interpublic Group, and, since 2003, an independent consultant for companies, from startups to global leaders, positioning their brands, and writing all forms of content to promote their growth.