July 07, 2008
“How To Choose A Bank For Your Small Business”
By Melanie Lindner
Your bank should be more than a repository of cash. It should make life easier, offer guidance and support, and not charge whole body parts for the privilege.
While banks aren't exactly playing fast and loose with their capital these days (for more check out The Real Scoop On The Credit Crunch), small businesses still remain an attractive market. Courting a relatively small number of large companies can leave scars; meanwhile, there are more than 21 million U.S. companies with fewer than 20 employees looking for attention.
As information-technology systems continue to improve, serving smaller customers has become an imperative for giants like Bank of America, JPMorgan Chase, Wells Fargo and Citigroup. Large banks (those with assets of more than $10 billion) now dominate the micro-business lending market (defined as loans under $100,000), accounting for two-thirds of the total number of loans written as of June 2007, estimates the Small Business Administration's Office Of Advocacy.
How to choose your financial guardian? This is a daunting question for two reasons. First, it's hard to do any kind of apples-to-apples comparison of products and services. Second, banking at its core is all about relationships−and it's hard to know with whom you might truly connect until you make the effort.
Still, you don't have to make this decision in the dark. There are a handful of traits that any serious entrepreneur's bank better boast.
The first: online services. In today's hyper-competitive environment, dashing to the bank during daylight hours is a quaint notion for many busy entrepreneurs. “The Internet is having a huge impact on small businesses,” says Sanjeev Dheer, chief executive of Cash Edge, a Manhattan-based software developer for more than 600 banks around the globe. “It allows them to be more accurate and efficient than ever before.”
Look for online cash-management (which eases the sending of invoices, collecting of payments and cutting of payroll checks) and loan-application services--often free for small-business depositors. Bank of America and JPMorgan Chase have gone a step further, charging as much as $15 per month for additional online services, such as transferring money among different banks and creating custom-logo invoices.
Next on the menu: specific industry expertise. Not all banks are comfortable financing companies in certain industries or in certain stages of their growth cycles, notes Bob Siewert, director of the Center for Commercial Lending and Business Banking and senior vice president of the American Banking Association.
The good news is, in recent years, large national banks have brought on advisers specifically to serve small-business clients. Determine up front if you and the bank are a good fit. Example: If yours is a relatively young company, find out if the lender has an established Small Business Administration loan-guarantee department.
Some banks have branches that cater to specific industries. Citibank recently opened a branch in Napa, Calif., to serve wine-industry entrepreneurs. Says Siewart: “The advice a bank can provide is equally important to the product or service.”
How will you know if you're getting ripped off? To be honest, you probably won't. Banks use different names for essentially the same services; they also bundle services in different ways, making direct price comparisons very difficult. While Bank of America lumps checking, credit-card and bill-payment services into one basket with an annual fee, for example, Wells Fargo offers them a la carte and charges every month.
Then come all the choices within each service. Take business credit cards. JPMorgan Chase offers 10 different flavors; Bank Of America has eight.
Muddying the waters further, many published fees are open to negotiation, says Eric Zarnikow, director of the SBA's Capital Access Department. Keep a sizable enough balance and some fees just go away. Wells Fargo, for instance, typically charges $50 a month to maintain a money market account but waives that fee for customers who maintain $50,000 in their accounts.
Sadly, when it comes to fees, there is no remarkably efficient way to comparison shop. Your best bet: Talk to as many people--bankers and entrepreneurs included--as possible.
Some parting advice about working with banks: Make sure to get to know your banker before you need the dough. Lenders like doing business with people they know, so take steps to establish those relationships long before you go looking for a loan. Start by setting up an appointment with a lending officer to have a general chat about your business; you'll make a good impression and establish yourself as a potential long-term customer.
Finally, says Siewert: Get to know at least two people at the bank (say, the credit manager and the local branch manager). It never hurts to hedge your bets--especially in a credit crunch.
Five Things Your Bank Better Offer
Your bank should be more than a repository of cash. It should make life easier, offer guidance and support, and not charge whole body parts for the privilege. With the help of Cash Edge, developer of software and online services for more than 600 banks around the globe, we've compiled a menu of traits that any serious entrepreneur's bank better boast.
Online Banking
What busy entrepreneur has the time to dash to the bank during daylight hours? Look for online cash-management (which eases the sending of invoices, collecting of payments and cutting of payroll checks) and loan-application services--often free for small-business depositors. Bank of America and JPMorgan Chase have gone a step further, charging as much as $15 per month for additional online services, such as transferring money among different banks and creating custom-logo invoices.
Industry Expertise
Not all banks are comfortable financing companies in certain industries or in certain stages of their growth cycles, notes Bob Siewert, director of the Center for Commercial Lending and Business Banking. The good news is, in recent years, large national banks have brought on advisers specifically to serve small-business clients. Determine up front if you and the bank are a good fit. Example: If yours is a relatively young company, find out if the lender has an established Small Business Administration loan-guarantee department. Some banks have branches that cater to specific industries; Citibank recently opened a branch in Napa, Calif., to serve wine-industry entrepreneurs. Ask a lot of questions and don't be tantalized by low rates--cheap is nice, but not at the expense of valuable expertise.
Incentives
To win market share in the massive but disaggregated small-business market, banks have started offering incentives. For instance, Bank of America's business checking customers receive discounts to more than 2,500 retailers, including Barnes & Noble, Dell and Office Depot. Citibank's Business Card holders can call a personal business assistant 24 hours a day to make travel, hotel and dining arrangements; they also can receive discounts (up to 60%) on prescription drugs at 56,000 pharmacies in the U.S. And PNC Bank now offers to shave a half percentage point off interest rates and 50% off standard loan origination fees to borrowers who agree to go green by doing things like installing Energy Star-rated appliances and energy-efficient roofs.
Customer Service
How hard is your lender willing to work for you? To figure that out, ask for testimonials from other small-business customers, suggests Paul Merski, chief economist at the Independent Community Bankers of America, a trade group. (Citibank, for one, has kiosks in every branch to gather customer feedback; the responses are downloaded to the branch managers at the end of each day.) But customer service is about more than fielding complaints; it's about investing in the resources needed to do the job well. TD Banknorth in Portland, Maine, (a unit of TD Bank Financial Group) goes so far as to assign a relationship manager to each small-business customer. Whatever its methods, make your bank demonstrate--up front and throughout the relationship--that it has the will and resources to meet your needs.
Reasonable Fees
How will you know if you're getting ripped off? To be honest, you probably won't. Banks use different names for essentially the same services; they also bundle services in different ways, making direct price comparisons tricky. Muddying the waters further, many published fees are open to negotiation, says Eric Zarnikow, director of the SBA's Capital Access Department. Your best bet: Talk to as many people--bankers and entrepreneurs included--as possible.