I thought I’d write a little piece to help you choose the best bank for your small business. Turns out so did a heap of other people. There are actually a LOT of recent articles covering this topic.
So, rather than clutter the internet with yet another blog on this very same subject, I decided I’d curate some of those articles I liked best and present them below.
There are a large number of account options these days and that means you can find just the right bank for your business. It also means you can spend a lot of time sorting through them too.
The types of financial institutions can range from the traditional brick-and-mortar with a lot of branch locations to those that only offer online banking, to your local credit unions.
So, let’s explore the exciting world of banks (admin work before I even get to the good stuff, aarrhh!)
Why You Need a Separate Bank Account for Your Business
First off, let’s run down the reasons WHY you need to open a business account.
Accounting and Taxes
Think about it, the first thing you will likely encounter when starting your business are expenses. Sure, you can use your personal account or charge card, but then you are mingling business and personal transactions. That could make separating the business activity quite a tangle come tax time. Plus, it makes it difficult to get a clear picture of your cash flow.
Having a separate business checking account apart from your personal bank account means you can download all your business activity from the bank website at the end of the year. Then you can sort them into categories and sum them up to create a very basic income statement. That way you can see if you are making or losing money and fill out your tax return.
The end result would be that you are actually spending less on admin work over the course of the year.
If you need a second opinion read this article from Bench.co, Do I Need a Business Bank Account? They also walk you through the steps of opening an account and managing it properly.
Legal Protection
It’s best to prepare for the worst-case scenario and one of those is getting served with a lawsuit. Therefore, it is imperative to maintain separate business and personal identities. That includes legal as well as financial. There is little sense in creating a legal entity (limited liability company, corporation, etc.) to protect yourself from liability if you continually comingle your business finances with your personal finances.
Loans and Lines of Credit
Setting up a corporate account signals your intention to run your business as a business. That can certainly be a benefit for securing small business loans or lines of credit.
Corporate Banking Services
Corporate accounts at most banks come with their own group of bankers who specialize in businesses. That includes cash, credit, and payroll management services, to name a few.
Sometimes it’s what you don’t know that can cause the biggest headaches. Or you might miss out on savings or loan opportunities. Hooking up with a knowledgeable corporate banker can be a big asset by helping you navigate the financial and administrative side of your business.
But What Type of Bank Do You Need?
Before you start shopping banks, though, you should ask yourself precisely what services you need from your financial institution. We all know to look for the standard perks, but it would help to make a list of specific needs and additional features that are unique to you and your business.
Balance Requirements
Sure, everyone wants no minimum opening deposit or minimum balance requirement. If you are opening your business on a shoestring your best choice would be finding a bank that doesn’t have balance requirements and won’t charge you a fee based on that.
Fees
No one likes to be “fee’ed” to death. So be sure to get out your magnifying glass and read the back of the brochure or bottom of their website to see for what and when you are charged. Look for the terms “monthly fees”, “monthly maintenance fees”, “monthly service fee”, and “additional fees”. Basically, anything with the word “fee” included, lol.
Transaction volume
Your business might offer monthly subscriptions or sell a ton of products (wouldn’t that be nice). This would result in a lot of credit and ACH (Automated Clearing House) deposits into your account. Or you might receive a high volume of cash deposits.
Perhaps you need to pay a long list of vendors every month. If so, be sure to verify that your potential bank offers unlimited transactions (or high transaction limits) for no or low fees.
Online bill pay
Related to the transaction volume, if you plan to pay your vendors through your bank, look for one that offers an unlimited number of monthly bank-initiated payments. Ease of use is also important.
Credit cards
There are a variety of options when it comes to the type of business credit cards offered. Or you might want a business debit card. Some banks offer reward cards, employee cards, international travel options, and no or low fees, to name a few.
The available balance offered might also be a consideration if you foresee using your card to purchase raw materials or finished goods inventory. Oftentimes it’s best to buy them in bulk to take advantage of the discounts offered by the vendor. If that’s your plan you would need a card with a hefty available balance. That way you can take advantage of those reward points!
Merchant Services
That’s just a fancy way of saying that your account is enabled so it can accept credit cards, debit cards, and other forms of electronic payment (see wire and ACH transfers below). This is done in conjunction with merchant service providers that will supply the tools to process the payments.
If you are opening a store, you need to become well acquainted with how this system works. There are a lot of moving parts and you want to be sure you are making a good choice among all the options for your business. Here’s a good introductory article to read from paymentdepot.com.
Wire and ACH Transfers
It might be that your business engages internationally. And if you pay and receive large balances you might be required to deal in wires and ACH transactions.
If so, having a robust, secure system is a must. Two-factor authentication should be required for verification at a minimum. This could entail entering a code the bank texts to your phone or requiring another person to co-authenticate.
It’s important to note how you can sometimes recall or re-direct a wire or ACH that was sent to the wrong account. We all make mistakes, but you should ask the bank if they can pull back that transfer.
Also, be sure to ask what fees they charge per wire (both sending and receiving) since they can be hefty.
Small business loans
Some banks specialize in providing loans to small business owners. These banks will also generally have more experience in walking you through a Small Business Administration (SBA) loan application.
If that is a service you will need, ask to speak with the loan officer you will be dealing with at your chosen institution. In these matters, having someone with whom you have a good rapport and believe will work hard for you is imperative.
Be aware that your best bet is to clean up your credit score and show at least two years of business activity and strong revenue performance. If you fall short on any of those items, having collateral (think real estate or expensive equipment) could get you a secured loan.
There are also alternatives to the traditional route. Nerdwallet.com has a list of them for you to consider.
Line of credit
If you foresee needing a perennial line of credit, for purchasing inventory, for instance, be sure to interview your potential banker for how they manage that process.
And ask a lot of questions, like how quickly they can fund your account, or how they structure repayments.
Read the fine print for items that might trip you up. You don’t want to borrow thousands of dollars for a short-term loan just to discover that your bank can call it all in for payment at the drop of a hat.
If you don’t mind answering some questions, bestmoney.com can filter funding sources suited exactly to your circumstances.
Mobile banking
If your business is going to have you constantly on the go, then finding a bank with a strong mobile app would be a good option.
The ability to easily make mobile check deposits and pay bills from your phone or tablet can be a real time saver.
Interest earning
Perhaps you have plenty of ready cash saved up prior to launching your business. If so, you would want a bank that offers higher interest rates on checking or business saving accounts.
Introductory offers
If you are like me, you are always looking for ways to save and make money. If your banking needs are simple then by all means look for one with the best introductory offers for new accounts.
Lots of articles cover this subject, just be sure to find the most current one, because those offers come and go fairly frequently.
Customer support
You might need a lot of hand-holding. I get that, you’re a newbie. And nothing is more irritating than wasting your precious time sitting on hold. Then find a bank that offers robust customer service.
I see chat bubbles pop up on all sorts of websites these days and have found them to be much quicker than the phone route. You might website hop and see how many offer that feature and how quick they are to answer.
But, if you like face-to-face interaction, go with one of the big banks with a lot of branch offices.
Integration with accounting program
Linking your bank transactions to your accounting program can potentially spare you time and headaches. If you use an electronic accounting system, a payroll processor, or another provider the ability to integrate the bank’s data will allow you to initiate payments and record deposits directly through your program.
If you receive payments using Paypal or Square, you may find it helpful to have those transactions show up in your checking account, too. That way they can also find their way to your accounting program.
Some banks are better than others at accommodating this need. Before you create that link, though, make sure you have a stringent firewall on your computer. Or better yet use a cloud-managed program.
Shopping for Your Bank
Below are four articles I found that will help you narrow your search, depending on your needs. Be aware that some of these articles might have affiliate marketing links. If that bugs you, then just go directly to the bank’s website.
Fundera.com, Best Banks for Small Business in 2021. Wells Fargo, Chase, Capital One, NBKC, Axos, BlueVine, and First Tech Credit Union. This article provides an in-depth look at the different services offered by each institution, plus a handy link to their sign-up page (make note of their Advertiser Disclosure at the top of the page).
MillennialMoney.com, 8 Best Banks for Small Business. Chase, Bank Novo, Axos Bank, Capital One, Wells Fargo, NorthOne, BBVA Compass, and U.S. Bank. Much like Fundera they also list the various options provided and a link.
Bench.co, Top 7 Noteworthy Banks for Your Small Business in 2021. Chase, Consumers Credit Union, Axos, Simple, First Home, Capital One, Bank of America. They provide a handy table that makes comparison easy. Another thing they provide is a list of the “not-so-good” features.
Investopedia.com, Best Business Bank Accounts. Chase, U.S. Bank, Radius, Axos, Wells Fargo. Their most helpful contribution is the FAQs section at the bottom of the article. It should answer a lot of your questions having to do with setting up and managing a business bank account.
The 14 best banks for small businesses in 2021, according to the above websites:
- Large Banks – Chase, Bank of America, Wells Fargo, Capital One, U.S. Bank
- Mid-Sized Banks – BBVA
- Small Banks – First Home
- Online and Digital Banks – Blue Vine, Axos, NBKC, Bank Novo, NorthOne, Simple, Radius
My takeaway is, if you need a long list of features, additional services, and physical locations, your best bet is the big banks. Currently, Chase is the largest bank in the United States and their Chase business accounts give you lots of options.
Bank of America and Wells Fargo are running second and third and might be worth visiting. Capital One is my last mention in this category as their Spark Business Basic Checking Accounts are giving the others a run for their money.
Beyond that choose one that offers you the best of the financial products and features you need.
BBVA (formerly BBVA Compass) is a growing mid-sized bank that offers a lot of the same features as a big bank and might be worth checking out.
First Home is the only regional bank, but they made the list because they are SBA loan expeditors.
All the others are online or digital banks (find out the difference between the two here). They compete with the physical presence banks by charging fewer and lower fees and paying a higher rate of return on your balances.
Choosing the best bank for small business bank accounts should be an intentional and thoughtful decision. After all, you want to build a relationship with your bank (and banker), so look to be in one for the long haul. Having a solid, long-term relationship with your banker could reap big benefits.
