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Column: What is the best bank account for your business?

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Marilee Falco, principal and financial strategist at Agili
Marilee Falco, principal and financial strategist at Agili - (Photo / )

Since small businesses are not “one size fits all,” it makes sense that the banking solutions available to them are not either. Therefore, it is important that business owners carefully assess all banking options before choosing a business bank.

Banks differ in the financial products and services they offer to businesses in terms of fees, lending options and added perks. Additionally, there are often significant differences in the offerings of larger, national banks versus smaller, community banks. Business owners are advised to determine what their biggest banking need is – be it access to capital, availability of multiple products, personal banking relationship, low transaction fees, low interest rates, 24-hour customer service or credit card perks – to decide which institution and account type is right for them.

Before delving into a discussion of the different banking options available to businesses, a cautionary word for business owners: When a business is new and in need of capital, banks will require a personal guarantee for loans or lines of credit. By signing a personal guarantee, a business owner (guarantor) agrees that if the business is unable to repay the debt, the lender can seize and liquidate his or her personal assets. And remember, if business owners have no personal assets, they will most likely need to have a cosigner in order to apply for a loan.

National or local?

An important decision that must be made when choosing a business bank is whether to go national or local. Larger, national banks have the bandwidth to deliver a broad array of loan products, ranging from medium-term loans, short-term loans, lines of credit, SBA loans, and even equipment finance, but they often have formulaic requirements and do not have the latitude to veer from established rules. A regional or local bank, on the other hand, will probably offer fewer products, but is more likely to build a personal relationship with the business owner. Because they get to know their businesses better than a national bank would, they might be more flexible with guidelines and fees.

Of course, in this day and age, small-business owners also have the option of forgoing a brick-and-mortar bank altogether and establishing accounts in online banks. This is especially good news for businesses in rural and remote areas. Designed for small businesses in all forms, from LLCs to sole proprietorships, these banks offer the lowest rates, fee-free checking and business-expense tracking tools. They also offer 24-hour customer service.

A business owner would be wise to decide which bank best suits their needs and open an account with their chosen institution before applying for a business loan. Banking institutions often offer lower rates on business loans to those borrowers with whom they have an existing relationship.

Balancing act

Turning now to a discussion of business credit cards. Certain banks offer lower interest and fees on revolving credit. But small businesses should be aware that keeping large balances on credit cards negatively affects a business’s credit rating.

Perks and incentives, such as bonus rewards and cash back, differ significantly among credit cards. Some perks are so valuable that businesses use the cards for the majority of their expenses, so as to earn the most rewards.

Businesses that receive credit card payments (such as retail stores and restaurants) should seek out a bank that offers accounts with unlimited transactions and a high number of cash deposits. Also, it is beneficial that many banks offer small businesses better rates and clearing with more transactions.

Finally, small-business owners should be aware that business credit cards may not enjoy the same consumer protections as personal credit cards. Banks issuing business credit cards are permitted to change APR and grace periods with very little notice to their business customers. As a perk, some national card issuers choose to offer the same protections to personal and business credit cards. It is imperative to read the cardholder agreement carefully before applying for a business credit card to fully understand what card protections apply.

Suffice it to say, the banking choices available to small business are numerous indeed. By identifying a business’ greatest banking need and focusing there, business owners can best make the decision about which bank to choose.

Marilee Falco is a principal and financial strategist at Agili in Bethlehem and Richmond, Virginia. She can be reached at mfalco@agilipersonalcfo.com.

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