How should a small business owner choose a bank or financial institution? The answer to this question is very similar to the steps for selecting an accountant or a lawyer.
Many business owners don't thoroughly consider their needs when selecting a financial institution. Although there are laws and regulations that govern the activities of banks, savings and loans, credit unions and investment firms, not all financial institutions are the same. Each institution establishes its own policies for:
- types of products and services that are offered,
- criteria for qualifying for a loan,
- minimum balances for accounts,
- interest rates and
- charges for account services.
While one bank may specialize in home loans, or auto loans another may focus on commercial loans for businesses. Some banks may only offer basic deposit accounts while others have lock box services, sweep accounts, and even online banking. That is why it is important to evaluate your business needs before you select your banker. Consider some of the things your banker will help you with. They can:
Assist you with the cash management needs of your business.
Offer investment products of varying maturities - overnight to long-term certificates of deposit.
Offer investment products of varying risks (and thus returns).
Provide advice about qualifying for the loan that best meets your needs.
Provide special loan programs for small businesses, including SBA loan programs and other government-guaranteed or agency loans.
Assist you with finding financial information on your industry.
Compare financial institutions in order to find the one that will serve your business's needs and will also provide support and assistance during each stage of your business. Selecting an institution that you can work with will be especially important as your business grows. Start gathering information to help you make this important selection.
- Approach the decision as a long-term investment.
- Ask your accountant or lawyer to introduce you to bankers who they are familiar with.
- Check with your local chamber of commerce to find out which banks are active in the community. Attend their meetings or other service organizations to meet bankers who are involved and have interests similar to your own.
- Look for a complementary personality - someone you can relate to and are comfortable with.
- Introduce yourself to the banking center manager. If you are looking for a loan, ask to meet the loan officer who will be assigned to you.
- Find out how long they have been in their current position (bank managers and officers change locations and get promoted).
- Tell them about your business and the form of organization so they can tell you what special products and services or restrictions might apply.
- You should not make a decision on pricing alone, but do compare interest rates on deposit accounts and basic consumer loans (most business loans are negotiated, so the rates won't be posted at the banking center). Also, look carefully at the charges for services.
It is a good idea to establish a relationship with a banker before you need money. The right banker will be someone that understands the needs of emerging and growing businesses.
