Knowing When to Find a New Bank
Posted on March 27, 2014 in Banking Issues
Small business owners and banks endure a love-hate relationship since one needs the other to thrive. Small businesses not only need access to capital financing, but they also need a secure place to keep their earnings. Banks need small business customers who maintain accounts with strong financial assets.
Even as many traditional financial institutions have cut back on the amount of financing small businesses can receive, it might be too early them to bypass banks entirely. Yet, a 2012 survey by the National Small Business Association showed that one in four small businesses decided to change banks over a four year period. If the need to use banking services has not changed, what are the reasons-small business owners decide to change their banking relationship?
Two of the most common reasons are the need to find better financing options and feeling underappreciated by a bank. Furthermore, many small business owners are least impressed with large banks. Only a small percentage of small businesses that use large banks report excellent service offerings. At the same time, community banks and credit unions are ranked higher than large banks.
Can you relate to other small business owners regarding your current banking relationship? Ideally, you want a bank – and banker – that takes the time to help you solve any problems that may hinder running your business. Choosing a good bank for your small business involves more than opening new accounts or finding one closest to the business.
You want to understand how the services offered through the bank will benefit your company as you give the bank your business. Therefore, finding a good bank should take just as much time – if not more – than shopping for a new piece of office equipment.
Signs That a Change is Necessary
Switching banks can be a hassle, especially when doing so takes away valuable time that you need to grow your business. Just as your customers expect stability, you want to know that the place handling your financial transactions is reliable and available to meet your needs. Here are a few things that may indicate it is time to find a new bank.
You Were Not Notified of Financing Term Changes
Uncertainty remains a key challenge for businesses even before the Great Recession. It is difficult to thrive when you do not know what to expect. An abrupt change in financing terms is usually a serious indication that your bank is not looking out for your business's best interest. Whether it is a reduction in your business credit line or rising interest rates, you might need to look for a new bank.
Generally, there is no reason to cut your business credit line if you have managed the account properly. If suddenly your business is too risky and the bank raises your loan rate, they should explain why standards were raised.
Personal Communications are Limited
Communication is essential for the survival of any relationship. The level of interaction between you and your bank speaks volumes. Even though you are an expert in your industry, you might have the financial savvy that is needed the first day your doors open. For this reason, you want a bank that communicates and a banker who will listen.
You deserve to have a banker who is willing to speak with you and listen to your concerns. She should really be interested in learning about your business and how her banking services can match your business needs. Spending time re-educating your banker about how your business operates suggests that it is time to find a new bank.
Online banking plays a valuable role in personal and commercial finances. However, the convenience should not outweigh the importance of direct contact. Having a bank that only wants to communicate via the Internet can ruin customer relationships. Many small business owners still prefer to do some banking by phone or in person and banks should accommodate this preference.
Your Business Has Outgrown the Bank
Even if your bank communicates with you on a regular basis, its services might not match the current needs of your company. If your current bank lacks what your business needs for its next stage of growth, you need to find one that does. For example, all banks have a cap on the amount of money it can lend in a single transaction. Typically, they are also limited on how much they can lend businesses within specific industries.
What is the lending authority of your current bank? In some cases, relationship managers at a community-based bank may have more discretion than a local unit of a larger institution. Lending to small businesses is their bread and butter. Mergers of many community banks have expanded the range of services that they can offer.
If you need more money than your current banker is comfortable lending, you have outgrown your bank. You do not want to limit future growth because additional financial services are unavailable when needed most.
When You are Ready to Make the Switch
Take a methodical approach if you have already made up your mind that it is time to find a new bank. Avoid closing accounts at your current bank on the same day that accounts are opened at the new bank. Never sever the relationship instantly. Rather, maintain the accounts for at least two months.
This will give you enough time to notify vendors who are making automatic debits from that account. Additionally, you want to make sure that any outstanding checks clear through the old bank. Once updates to all automatic transactions and checks have cleared the old bank and are functioning properly at the new bank, you can close the old accounts.
Look at the service offering at a different bank compared to what you are getting from your current bank. Despite stricter lending guidelines, some large banks may offer benefits such as tax and accounting services. These can save time and money that can be reinvested in your business.
Some of these banks tie additional services to employees using direct deposit. Keep in mind, however, that competition in the banking industry means that other banks will copy the same services. Therefore, trust and being comfortable with the banking relationship is more important than any new product.
You will also want to understand all fees connected with various services. Some services are bundled and may cost more over time than paying for individual services. Many services might be negotiable based on the history and size of your business.
Banking arrangements for your small business should be viewed as a long-term relationship. Not only should you consider the immediate needs of your business, but also services that might be important in 24 months. The new banker should understand your business and industry, which can influence your seasonal borrowing needs. An ideal situation is to connect with a banker who sees the potential growth of your business as an opportunity to provide services that are more useful.
Once you have established a relationship with the new bank, meet with the banker periodically to offer updates on your business's financial situation. Of course, your banker should be in touch with you even before you make a call by anticipating your needs. Your banker should inform you when a new product becomes available or there are changes that can affect your business.