|
TODAY’S BANKS OFFER SMALL BUSINESSES MORE SERVICES THAN EVER. HOW CAN YOU CHOOSE THE RIGHT ONE?
IN THE OLD DAYS THERE WASN’T A LOT to know about banking for small businesses. Banks offered deposit accounts, loans, and not much else, and small business owners probably knew the
handful of bankers in town personally. Times have changed. Cutthroat competition, the rise of giant, nationwide banks and the emergence of the Internet as a reliable financial medium have led to a new era in business banking. Banks today offer a wide array of products and services to lure small business customers, from new kinds of loans to credit card and payroll processing to insurance and Web-based “branchless” banking. The selection of banking services can be empowering—but it also can be downright overwhelming. What’s more, the complexity of the new services allows some banks to pad profits by tacking on hidden fees. “Small business owners and managers don’t have PhDs in finance,” says Mark Drewes, a manager in the Indianapolis, Indiana, office of Fiducial, which provides integrated financial services to small businesses. “It can be difficult for them to figure out how much they’ll get charged—and whether those charges are justified.”
|
Get Personal
The first step toward deciding which bank
and bank services are right for your business
is to seek expert advice. Bob Siewart, senior
vice president of America’s Community
Bankers in Washington, D.C., recommends
building a financial team consisting of a
banker, an accountant and an attorney, all of
whom you can trust to help you monitor and
manage your firm’s financial affairs.
Such intimate financial relationships are less common than they once were. Banking has become increasingly impersonal in recent years, as banks have expanded and technology has replaced good old-fashioned customer service. (Just try to navigate a large bank’s automated telephone system.) But the increasing complexity of banks’ offerings makes a personal relationship with your banker more important than ever. “Customer service is the most important thing to consider when choosing a bank,” says Drewes. “It’s more important than the services the bank offers, or even its fees.”
Indianapolis, Indiana, RE/MAX realtor Chris Schulhof knows first-hand the importance of a bank’s customer service. Schulhof, who sells $25 million a year in residential real estate, has worked successfully with the same banker for ten years. “It’s critical for me to have a banker who is flexible and understands my business,” he says. “I need a bank that can both tailor loans to my customers and help me manage my business finances.
I’ve stuck with my banker all these years because he meets those needs at a competitive price.”
The other members of your financial team probably can recommend a good personal banker. If they can’t—or if you don’t have the other team members in place— ask for references from peers with businesses similar to yours. Networking within community and business organizations also can help you find the right banker. For example, Schulhof met his banker, Doug Talley of the National Bank of Indianapolis, while they were both volunteering for a local charitable organization.
Small, community-oriented banks often provide the best fit with small businesses. “Big banks want to do multi-million- dollar deals—not $100,000 deals,” says Bryan E. Milling, a former banker with NationsBank in Albuquerque, New Mexico, and author of How to Get a Small Business Loan.
“The big banks sometimes lend to small businesses, but they won’t give them the time and attention that independent banks will.”
Your firm probably can use all the attention it can get. “My banking needs are unique to my business,” says Schulhof. “I don’t have the same needs as, say, a bakery. I don’t want a banker to offer a onesize- fits-all solution.” For example, Schulhof needs a banker who will help him manage the cash-flow swings that are part and parcel of the real estate business—and who won’t tighten lending requirements when cash flow slows.
with small businesses, and a banker who is excited about helping your firm grow. Ask how the bank decides whether to approve loans: Does it simply go by the firm’s credit score, or will your business plan and prior experience improve your chance of approval? Also, consider whether the bank offers competitive rates on its interest-bearing accounts, and reasonable fees for other services your business may need, such as lines of credit. You may want to recruit your accountant to parse the cost of loans and other services that carry complex fee structures.
 |
|
|
Consider whether the bank will be able to meet your business’s future needs. For example, if you plan to expand into a neighboring state, you’ll want a bank that does business there. Likewise, businesses planning to sell to foreign markets might need a bank that can handle currency conversions.
Once you’ve chosen a bank, forge relationships with as many people at the bank as possible, including the bank manager. Those relationships will keep your service from stumbling if your banker gets promoted or leaves the firm. And, as with any relationship, communication is essential. “Always keep your financial team informed—especially when things are going wrong,” says Bob Siewart. “The sooner you communicate, the more options your team will have to help you.”
When you have the right banker in place, he or she can work with you, your accountant and your attorney to help you< decide which products and services are right for your business. Your options are likely to include:
Loans
Banks now offer a wide variety of
loans to small businesses. They include
lines of credit that help pay the bills and
your employees when cash flow hits a
snag, as well as government-backed Small
Business Administration (SBA) loans and
traditional business loans. The right loan
for your business will depend on a number
of factors, including the amount you
wish to borrow and your business’ credit
strength.
 |
|
|
Most banks are very cautious about
lending to small businesses. That’s the
reason for the SBA’s 7(a) loans: The government
guarantees a portion of the loan,
reducing banks’ risk and making them
more willing to lend to small firms. SBA
7(a) loans max out at $2 million; typical
term lengths are seven years for working
capital or 25 years for real estate or equipment.
Expect to pay an interest rate
between 2.75 and 4.75 percentage points
higher than the Prime Rate, depending
on the size and the term of the loan.
Businesses that want to borrow relatively
small amounts might look into SBA
MicroLoans, which allow small companies
to borrow up to $35,000 with terms as long
as six years. SBA loans carry additional fees
on top of bank fees (again, your firm’s
accountant can help you sort through loan
costs), and they also require hefty paperwork— so for small cash infusions entrepreneurs
might consider home equity loans,
which carry smaller interest rates, or even
credit cards.
Payroll services:
Tax laws and employment regulations can make payroll a headache for small businesses. Many banks will take the job off your hands for a fee. That one-stop shopping can be convenient, but the banking industry is new to the payroll arena and many banks are still working out the kinks—so the quality and cost of banks’ payroll offerings vary widely. At the very least, talk to other customers about your bank’s payroll services before you enlist.
Merchant services, cash management and deposit accounts:
Banks can help your firm process credit cards and sell online, typically for a per-transaction fee. They can then route that cash to checking, savings, money market or investment accounts. Fee and interest rate structures on such accounts vary widely, so an accountant’s help can be useful in determining actual costs and benefits. Keeping track of the cash coming and going from those accounts can be a complex task. Most banks provide 24/7 online account access and cash management tools. That way you’ll know which checks have cleared, which wires have come in, which payments are pending, and whether you’ll have enough cash on hand to meet payroll.
Insurance: Banks increasingly are entering the insurance arena, providingemployee health and life insurance for small businesses as well as commercial insurance that protects equipment and covers liability. There’s no particular advantage to buying insurance through your bank rather than an insurance company, so shop around for the best prices on policies.
Branchless Banking
Internet-only banks, such as NetBank, typically offer more attractive rates on deposit accounts and loans than their bricks-andmortar competitors. They also can provide many of the services listed above, including payroll and credit card processing, insurance, and investments—all conveniently managed and tracked online. Since there is no physical branch you can visit, be sure to evaluate how much personal service is provided—NetBank for example, offers a personal relationship manager to consult with you—because the level of such contact varies widely.
