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The UPS Store Small Business Blog
  • 28 April 2023
  • Public Relations

4 Steps to Take When Looking for the Best Bank for Your Small Business

Starting a small business can be an exciting and fulfilling experience.

However, it can also be a stressful and overwhelming process.

One of the key steps in establishing a small business is finding the right bank, because choosing the right bank can have a significant impact on the success of your business.

A bank can offer financial services, such as loans, credit cards and checking accounts, which are essential for the daily operations of your business.

In this post, we’ll review the steps to take when looking to open a business bank account that fits your specific needs.


Step 1: Understand Your Small Business Banking Needs

You’ve made the big jump and started your business—congratulations! You’ve chosen your name, registered your business, and now it’s time to think about money. After registering your small business, you’ll need to apply for an Employer Identification Number (EIN).

An EIN is a unique nine-digit number issued by the Internal Revenue Service (IRS) that identifies your business and is required in order to pay federal taxes, apply for business licenses and permits, hire employees and open a bank account.

For tax purposes, it’s essential to open a business account that is separate from your personal bank account. For more information on small business taxes, read our ultimate guide on small business tax planning. Keep in mind, you may be able to use the same bank for your business and personal needs. However, it’s important to still conduct the entire investigation process.

Once you have obtained your EIN, the next step is to identify the right bank for your unique business needs. This is a crucial decision that requires careful consideration.

Different banks offer different services, fees and benefits. For example, what big banks can offer you may be very different from what online banks, regional banks, a credit union or local banks can offer. In fact, today’s community banks provide nearly fifty percent of small business loans.

It’s important to investigate, compare and weigh the pros and cons of both national and local providers. While doing so, keep your business’s financial needs in mind so you can compare how well they are met by the services offered by various banks.

When conducting your research, ask yourself, what kind of business checking account can they offer you? Can bank A offer you better rates on a business savings account than bank B? Do they limit fees on cash transactions, impose monthly transaction limits or do they offer unlimited transactions without any banking restrictions?

While exploring banks make sure to explore business bank account types, assess their business banking products, their credit and lending options, their cash management solutions and their additional services to see what works for you. After all, your business is unique and so is your management style.

That’s why it’s important to spend some time thinking about and writing down your business goals for growth, keeping in mind what you’ll need right now, as well as in the future.

Step 2: Compare Fees and Charges

When looking at differences between banks for your small business, it’s important to take stock of their offerings.

Things like fees and charges differ between banks, and even between accounts, so it’s important to understand what you may be charged for based on the account and bank you choose to work with.

Types of Fees

Every bank and every account has different fees and charges associated with it. Here are a few examples of fees to consider and inquire about when weighing your banking options.

Monthly Service Fees

Monthly service fees are charges levied by banks to maintain an account and offer certain services. As suggested by the name, these fees are typically charged on a monthly basis and can range from a few dollars to several hundred dollars per month, depending on the type of account and services offered by the bank.

The fees are intended to cover the costs incurred by the bank in providing services such as maintaining your account, providing customer support, and processing transactions.

In most cases, banks will charge monthly service fees on checking and savings accounts. These fees may be waived if certain conditions are met, such as maintaining a minimum balance, conducting a certain number of transactions per month or having a certain amount of money on deposit with the bank.

It is essential to review the terms and conditions of the account carefully to understand the requirements for avoiding monthly service fees.

The amount of monthly service fees can vary widely between banks and account types. In general, business bank accounts tend to have higher monthly service fees than personal banking accounts due to the higher level of services offered to businesses.

However, some banks may also offer fee waivers or discounts for small businesses, nonprofits or other special groups, so it’s worth exploring these options as well.

Ultimately, understanding the monthly service fees and the associated account requirements is crucial in selecting the right bank and account for your business.

Transaction Fees

Transaction fees are charges that are incurred by businesses when they use banking services to conduct financial transactions. These fees can vary depending on the type of transaction and the banking institution used.

For example, banks may charge fees for each deposit or withdrawal, ATM usage, wire transfers or for processing credit card payments. These fees can add up quickly and impact the profitability of a small business.

Transaction fees can also vary based on the account type and the volume of transactions conducted. Banks may offer different fee structures based on the number of transactions or the account balance.

To manage transaction fees, small businesses should compare fees across different banks and payment processors, negotiate with their current banking institution and look for ways to minimize the number of transactions conducted.

For example, using electronic payment methods, such as online bill pay or ACH transfers, can often be less expensive than paper checks.

Additionally, using a bank or payment processor that offers lower transaction fees can help to reduce costs and improve profitability.

By carefully managing transaction fees, small businesses can maximize their financial resources and grow their business effectively.

Overdraft and Returned Item Fees

Overdraft and returned item fees are additional charges that your business may incur when using banking services.

An overdraft fee is charged when a business spends more money than is available in its account, resulting in a negative balance.

Returned item fees are charged when a check or other payment is returned due to insufficient funds. These fees can be costly and can add up quickly, especially for small businesses with limited financial resources.

To avoid these fees, small businesses should monitor their account balances carefully and ensure that they have sufficient funds to cover all transactions.

Many banks offer overdraft protection services, which can help prevent overdraft fees by automatically transferring funds from another account or line of credit to cover any negative balance. Business owners can also consider setting up alerts or notifications to receive updates on account balances and transaction activity.

To minimize the risk of returned item fees, small businesses should ensure that they have accurate and up-to-date financial records, including tracking of outstanding checks and invoices.

Additionally, small businesses can consider using electronic payment methods, such as ACH transfers or online bill pay, to reduce the risk of returned checks.

Any Additional Fees

In addition to the fees above, depending on the bank you choose, your business may face additional fees.

These could include:

  • Stop payment fees
  • Check printing fees
  • Merchant processing fees

So, when thinking about what to look for in a bank for small business, keep a list of the fees the banks you’re looking at may charge to compare to other banks later in your search process.

Step 3: Assess Credit and Lending Opportunities Available for Your Small Business

Assessing your business credit and lending opportunities is an important part of successfully managing your finances for growth and maintenance.

Banks can provide small businesses with a range of credit and lending products, such as loans, lines of credit and credit cards. However, it is important for you to carefully assess these opportunities to determine the best fit for your business’s financial needs.

Assessing credit and lending opportunities for small businesses requires careful consideration of several factors, including:

  • Interest rates
  • Repayment terms
  • Fees
  • Eligibility requirements for each type of credit or lending product

Because of the myriad of consideration factors, it is essential to understand the financial risks and rewards associated with each option, as well as the impact on your business’s cash flow.

As a small business owner, you should also consider alternative lending options, such as online lenders or community development financial institutions, which may offer different interest rates, repayment terms or eligibility requirements compared to traditional banks.

However, it is important to carefully review the terms and conditions of these lending products to ensure that they are a good fit for your business’s unique financial situation.

Step 4: Evaluate Customer Service and Accessibility

Customer service and accessibility are critical factors for small businesses when choosing a banking partner. Just like your customers depend on you for service, you need a banking partner that is responsive, knowledgeable and supportive.

Good customer service can provide small businesses with the support and guidance needed to manage business finances effectively and keep track of business expenses while making informed decisions.Good customer service can help small businesses resolve issues quickly and efficiently, and can even provide valuable advice and support to help your business grow and succeed.

Accessibility is also essential, as small businesses may need to access their banking services quickly and easily to manage cash flow, make deposits or process transactions no matter the time of day or location. To ensure you have access to the services and business tools you need, look for a bank that offers in-person banking, a mobile app and online banking options that can provide you access to your account features and funds 24/7.

To assess both customer service and accessibility, business owners should explore online reviews and ratings, while also looking for banks that offer dedicated customer service support and a variety of online and mobile banking tools.

Small businesses should also consider the bank’s location and hours of operation, as well as the availability of ATMs and other banking services.

Every business is different, with different goals and different needs, and so is every bank.

When you are looking to choose a bank, look for a bank that focuses on small business, that can help you as your business grows and that prioritizes your business as much as theirs.

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