The Right Way To Choose A Bank For Your Small Business
Small Business

The Right Way To Choose A Bank For Your Small Business

Irene Kalesi
Irene Kalesi

Being in business means that you need to have full control of your financial affairs. That is the reason you should have a bank account (or multiple ones) suitable for your business state. Of course, there are different types of banks that offer different accounts, products, and banking services. The right bank will help you grow and tend to your financial business needs. It will even help you stabilize your financial health and guide you through further investments. Choosing a bank for your small business is essential. So, try making the right choice to avoid any negative effects on your financial organization and subsequent growth.

Regardless if you are building your start-up now or seeking to change things, it is highly significant to keep in mind your existing business needs when selecting a bank. In this post, we will answer all the necessary questions before your final decision while exploring the basic types of banks with some specific names that are worth mentioning.

5 questions to ask and then choose a bank for your small business

What kind of financial services do you require?

In order to narrow down your choices, you have to know what you are looking for in a bank. Are you in search of favorable loans or a line of credit? Do you need financial counseling around investments? Or do you need specific services like automation and financial planning?

So, the first step is to put to the test the banks that seem to fit your business needs. Check how structured is their customer service and how well they handle communication in person or via email. This way, you will be able to check how devoted are the respective banks in addressing questions, reviewing applications, and maintaining good customer relations.

How tech-focused should a bank be for you?

Nowadays, professionals require digital services from their banks for the sake of easier financial management at any time and from any place. If your business is technologically literate, your business-related needs have a digital dimension. For example, a bank app will help you check balances, and make deposits from the comforts of your own phone.

At the same time, if you travel a lot or your company is in the fintech industry, then account automation is also indispensable. The bottom line is that your digital requirements will lead you to banks that have adopted the latest digital technologies.

Small or big banks?

This question is always a hard one since each size has its perks. As you can imagine, larger bank institutions spread nationwide or even worldwide with multiple divisions, offering a variety of financial services and credit alternatives. At the same time, having good credit, as a business, matters a lot because big banks can reject you based on a low credit score.

On the other hand, smaller local banks offer more market-adjusted services and can have a more personalized approach to client businesses. They may give loans with better interest or offer account openings with better rates and smaller fees. Of course, no matter how big or small a bank is, review their rates and beware of their fees. In the financial world, nothing comes for free.

Should you gather info from industry peers?

The answer is a loud yes! Having no experience with the bank system is not really helpful when searching for the best one for you. Fellow business people or professionals in your industry can lend you a helping hand.

They can point you in the right direction by sharing insights on the banks they know and also suggest financial institutions that match your business needs and the industry you are in. Your industry connections can also provide information on how certain banks handle loans, the value of their financial advice as well as their credibility.

What about the novelty of online banks?

The online AKA digital banks are the new players, different from the traditional banking system. They do not have physical locations or branches around the world. Thus, they have minimized direct and indirect costs. They offer higher rates on savings/checking accounts, and most of them have lower fees compared to traditional ones.

Digital banks offer fast, easy, and convenient transactions without being constrained by typical banking standards. If interested in learning all about online banks, the best ones in the market as well as possible benefits and drawbacks, a whole new article dedicated to them is coming soon.

5 Types of banks

In the business world, there are different types of banks that serve different financial purposes. How will you choose the right bank for your small business without knowing the basic types? By learning about them, you can choose the one that works for them. Here is an introduction to the basic types of banks and the financial services they offer.

Central Banks

These financial institutions work on a governmental level. They are the ones assisting countries to reach yearly economic targets. Thus, they tend to offer a helping hand in times of crisis, work on avoiding inflation, or lower unemployment rates. Last but not least, they are in charge of the currency supply as well as monitoring financial policies.

They are mostly national banks such as the International Monetary Fund in Washington, USA, and the European Central Bank in Germany.

Commercial banks

This type of bank mostly targets individual professionals and businesses. Of course, they may assist consumers, but they are not the bank’s main focus. They offer savings and checking accounts, offer loans, and credit cards, or send funds to other companies.

These banks sustain themselves by charging a % of interest on loans. However, they do not always have satisfactory interest rates on accounts. The Bank of America and HSBC Holdings belong to this type of bank.

Retail Banks

In this case, consumers are the ones that turn to retail banks. This type of bank focuses on helping individuals with their financial affairs and does not have loan programs for large-scale businesses. They have multiple branches that consumers visit for everyday deposits, transactions, and transfers of funds.

Apart from the common banking services, banks like JPMorgan provide financial counseling, personal loans, and mortgage plans.

Investment banks

This type of bank assumes the role of a mediator and consultant for a variety of entities such as corporations and governmental departments. The greater the business, the more convoluted the financial control becomes.  Thus, investment banks help these businesses or institutions oversee their finances by saving money, helping out with mergers, and offering strategic advice.

Naturally, they charge fees for all those services, and bank employees deal with long working hours, anxiety, and big responsibilities. Representational examples are the investment banks of Morgan Stanley and Goldman Sachs.

Cooperative banks

This is not a totally different type of bank. It is quite similar to retail and commercial banks regarding their financial services. However, there is a big difference. The bank’s clients are also their shareholders, each owning a small part of it.

Some examples are Rabobank in the Netherlands, Banco Popolare di Milano in Italy, and credit unions in the USA.

In a nutshell, choosing a bank for your small business takes time and research. You need to know what to look for in a bank and which banking services you require. Of course, after the initial search, you need to contact the ones that look at the part and find out if accounts, fees, and interest rates amongst other things work for your business needs.

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