Module 5: Banking Services
Banking services have changed dramatically over the last decade. Most activities that used to require a trip to the bank can now be done through a bank website, on your phone or at an ATM. Many others can be accomplished through digital transfers of funds between two parties with an app such as PayPal or Venmo.
Still, there are times when you will need to work directly with the people in the bank. They can help you set up a business account, apply for a loan, transfer larger sums of money between you and suppliers, and get a business line of credit or credit card.
Building your banking relationship
Building a relationship with a bank and is a lot like building any other relationship. It doesn’t begin in one day, and it certainly doesn’t start the moment you determine you need a loan. It takes time to select the right bank for you, and it takes more time to develop a relationship with the various staff at the bank, from the branch manager and relationship manager to the loan officer and account manager. Each has a unique role to play in your banking needs and the services they can offer you. They can also provide you with advice about how to build your creditworthiness and obtain credit, how to get the most out of their services and products, and how to leverage the banker’s extensive knowledge and community contacts.
Trust is essential to any relationship, and it’s the foundation of any lasting bank relationship. As a customer, you want to demonstrate to the bank that you can be trusted with their money if you need a line of credit, credit card or loan. You want to connect with your bank at least quarterly or when something major happens, such as winning a significant account or having a huge jump in revenue.
If you’re just starting your business, you want to spend time educating bankers about it. If you’re in a smaller community, invite your personal banker or the bank manager for a tour of your business. The same can be said if you’re having a grand opening or an anniversary celebration. These are excellent times to speak with them about your business and your plans for the future.
Myths about bankers and banks
The products and services banks offer can help you manage your day-to-day finances and improve your long-term financial health. However, common myths prevent some small businesses from working more closely with their local bank or with any financial institution.
Here are some of the more common myths.
My company is too small to be of interest to a bank. The amount of money you currently have is not important. Banks know that they can help you use your existing funds to help your business grow through their expertise and services. As soon as you get your Employer Identification Number (EIN) from the Internal Revenue Service, you can open a business bank account with a small opening balance. Smaller banks tend to be more flexible with small businesses, so you may want to look at a community bank and the larger national banks and compare fees and services.
My loan is too small to be considered by a bank. First, you don’t need a customer at a bank to apply for a loan there. That’s not to say it doesn’t help to have an account since that will create a relationship between you and the bank. The thresholds for lending differ by bank, including the minimum amount they will lend, the type of business they will lend to, and the number of years the company needed to be in operation. Resist the temptation to make assumptions about your bank’s interest in offering you financing. And if one bank isn’t interested, another one surely will be.
Banks want a perfect credit history. Banks do want to have a high level of confidence that you will pay back a loan or line of credit, but a personal credit history is just one aspect of a loan review. Lenders will also want to see your business plan, history, cash flow projections and sufficient revenue. If your credit history isn’t as strong as you want it to be, you may want to visit Module 4: Strong Business Credit to review your options for improving it.
A loan application takes months to process. A bank will want to review your loan application materials thoroughly, and it takes time for the bank to assess the risk and underwrite the loan. In most cases, credit approval and funding are relatively quick, considering what is at stake. When you apply for a loan or a line of credit, ask about the timeline upfront so you can manage your expectations and know when to contact the bank if you haven’t yet received an answer.
The fees are too high. Fees vary widely for financial products, and some can either be waived or lowered, especially if you already have an established relationship with the bank. If terms seem a bit high, feel free to ask for better terms, such as lower fees and collateral inclusion to lower the rate or changes in payment schedules. Some banks will roll the fees back into the loan, reducing the amount of capital needed upfront. Just remember, those fees will accrue interest over time. In the end, only take on a loan or line of credit if you are comfortable with the terms and know you can pay the loan back as offered. If not, you may want to look elsewhere.