It is amazing how many people choose wrong banking institutions for their businesses for the wrong reasons such as the location and many other factors. I may be wrong, but I get a feeling that many entrepreneurs today choose to open bank accounts for their businesses with the wrong banks.
So, how do we really know which banks are best suitable for our business?
There are over 5,200 banks in the United States. With that number, it can be very challenging for us to make the right choice and select the correct financial institution. Although it is not easy to find a specific bank that meets the criteria for your business, there are things you should consider before pulling the trigger. We hope these pointers will help your business make a better decision about selecting the best suitable bank.
Each of the businesses that I own needs a bank. I can only speak from my experience related to my previous and existing businesses. Please note that I am NOT a financial advisor and the information provided below is solely related to my personal experience. It is important to mention that most of our legal entities are in financial and real-estate sectors.
What we have learned over the last several years is the following:
Large banks such as Bank of America, Chase, Citigroup, Wells Fargo are designed for large businesses with a revenue of at least 300, 400 million or more and will not usually focus on small businesses. It is my belief that someone with a small business has a better chance of achieving more favorable loan rates and receiving better help from a smaller community bank especially after developing good relationships with local managers. In my opinion, small community banks place more focus to learn about smaller businesses, they have better knowledge about your business model and your needs as opposed to larger banks. It is strongly recommended to personally know the manager at your branch because they are the decision-makers. For example, if you bank with BOA and you need a business loan, your application will end up on the desk of someone you never met, has no idea of who you are, and what your business is all about. That person will also most likely be in a different state. My point? If you need a business loan, it is always best to personally know a banker who has the power to either approve or decline your business loan. Why? Simply because they know your business and what your company needs. Most importantly, they can advise you in-advance on what is needed for your loan to be approved. Personal relationships in banking have always been extremely important.
To summarize our findings:
- Small business owners should bank with smaller community banks.
- Large businesses with revenue of 300-400 million and more should bank with large regional banks.
I read many articles about people whose business accounts have been closed by their banks in the past for various reasons. I did not believe it at first until Wells Fargo shut down one of our business accounts. This specific account was related to a business that was in the financial sector. Our daily average balance in that account was significantly high YET Wells Fargo decided not to do business with us. I took the time to learn why a bank would close the account for businesses that generate decent revenue. The truth is, no matter how much time you will put into searching for an answer, you will not find one. Primarily because they do it for many different reasons. Reasons they will not disclose with the business owners.
It is my personal belief that Wells Fargo decided to close our account due to frequent cash withdrawals between 15,000 to 20,000 dollars. I simply refused to pay significant banking fees for wire transfers and cashier’s checks. We should always look out for our money and the money of our clients. The bank fees will keep adding up at the end of the year if you do not watch over it.
I believe it is wise for smaller businesses to choose smaller Community Banks over larger banking institutions. You can develop personal relationships directly with managers that will help you and your business to grow. Large banks will NEVER place so much effort learning about your business and helping you UNLESS your company is earning millions of dollars. Local managers may often provide valuable tips such as when is the best time to apply for a loan. You may have great credit and yet your application can be declined for a business loan simply because the bank does not have enough money at this particular time. Yes, it does happen. By submitting your application two weeks earlier or later may greatly increase your chance of being approved for a loan. These are the things bankers will never tell applicants. Your experience may differ from mine, however, based on my knowledge and experience this is my best suggestion I can give to small business owners. Avoid larger banking institutions, seek smaller community banks, and continue to develop your relations with them.
Please give us your feedback and share your experience with us. We want to know if your experience is any different from ours and if so how.