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How to Choose the Best Bank for Your Small Business

Photo Credit (Flickr: Tax Credits)

Choose Best Bank for Small Business | Social Capitale

Photo Credit (Flickr: Tax Credits)

Whether you are just starting a new business, looking to expand an existing one, or perhaps reassessing your current small business banking needs, the process and criteria of choosing the right bank is the same regardless of the stage of your business.  Absorbing the concept that the process of determining the answer to a problem is fundamentally the same, irrespective of the issue, is a core principle that should be strengthened and reinforced constantly.  Outlined is the process to identify the financial institution to meet your banking needs however they are defined by you.

Step 1. Identify Absolutely Mandatory Bank Offerings

Five critical banks offerings are Online Banking, Industry Knowledge, Perks and Incentives, Customer Service and Competitive Yet Reasonable Fees.

No matter the type of banking institution, they must at a minimum offer Online Banking, Industry Knowledge, Perks and Incentives, Customer Service and Competitive Yet Reasonable Fees.  The challenge every small business must meet is to determine how to qualify and measure the value of each offering.  Let’s examine the first critical offering – Online Banking.

Best Bank for Small Business Mandatory Offering – Online Banking

There is mandatory online banking functionality that one expects from major banks.  Smaller community banks may not have the robust online platform as the major banks.  Remember however, that local banks and unions should be strongly investigated as well as they are typically the major lenders of small businesses such as yourself in your community.  Certain core online banking functionality includes actions such as account viewing, transaction reporting, online payment processing, transfers and self-service.  For others, additional core functionality is required such as quicken / quickbooks integration and invoicing.  Elaborating further into account viewing, I have outlined five basic actions that I would expect to be able to perform.  They are as follows:

Best Bank for Small Business Mandatory Offering – Online Banking: Account Viewing

A. Online Banking
A.Account Viewing
1 View business and personal accounts together
2 View accounts for multiple business entities together
3 Allow Account Delegation
4 View accounts held at other financial institutions1
5 Account Nickname/Friendly Name Sorting

In fact, outlined below are the core actions expected for Online Banking in 7 areas.  They are listing below:

Best Bank for Small Business – Online Banking Criteria

A. Online Banking
A.Account Viewing
1 View business and personal accounts together
2 View accounts for multiple business entities together
3 Allow Account Delegation
4 View accounts held at other financial institutions1
5 Account Nickname/Friendly Name Sorting
B. Transaction Reporting
1 See posted balance and transactions
2 See pending balance and transactions
3 Access past 18 months of account statements online
4 View transaction history for the past 12 months
5 View images of checks and deposit slips
6 View transaction history for the past 12 months
7 Set up alerts to automatically notify you of specified account activity
C. Online Payments
1 Make bill payments online
2 Pay federal and state taxes online
3 Schedule three-day or next-day payments
4 Send same-day wire transfers inside or outside the U.S.
5 Discounted rates on three-day payments and same-day wire transfers
6 Use Easy Online Payroll® to file and pay employees electronically
7 Send electronic payments to vendors
8 Pay employees via direct deposit
9 Discounted rates on three-day payments and same-day wire transfers
10 Overdraft protection setup
D. Transfers
1 Move funds between Bank Managed accounts
2 Schedule one-time and recurring transfers
3 Transfer funds from a Bank managed account to a checking or brokerage account at another institution
4 Move funds between accounts for separate businesses
E. Quicken / Quickbooks Integration
1 Download account and transaction information to software
2 Pay bills and make transfers directly from software
3 Transmit information from Quicken/QuickBooks to the bank in 1 click
F. Invoicing
Create custom invoices online
Send electronic invoices to your customers
Enable customers to pay invoices online
G. Self Service
Checking services (stop payment, reorder checks, request an optional debit card, etc.)
Credit card services (activate new card, inquire about a payment, request a balance transfer or credit line increase, etc.)
Personal profile changes (update personal info, change online ID or passcode, change SiteKey information, etc.)
A. Online Banking Sub-Total

Step 2. Assess Each Core Function

Once the core functionality to evaluate the various banks and unions has been defined, one must then determine out important that functionality is to her business.  Since not all functionality is equally important, there is a simple method to adjust the importance of each function.  For each function evaluated, assign a weight to it.  Use the weight scale below:

Best Bank for Small Business Weight Scale

Weight
1 Optional
2 Important
3 Mandatory

For example, looking at the Account Viewing function – View business and personal accounts together may not be important to your business.  As such, you would assign a 1 to that function since having it isn’t critical to your business.  However, when assessing the ability to transfer funds between various accounts held at the same institution or other institution holding your funds, may be critical.  If this were true, you would assign a value of 3 for Mandatory to the Online Banking – D. Transfers: Transfer funds from a Bank managed account to a checking or brokerage account at another institution.  Assessing and assigning the significance of each function is extremely important before you move to the next step.  This step is important because it forms the basis of what your business banking needs are and will have a bottom line impact on helping you to choose the best bank to meet the needs of your small business.

Step 3. Score Each Core Function

The next step now involves grabbing the financial institutions you want to evaluate and giving them a grade on how well they perform each core function.  Outlined below is a four (4) point grading scale.  The grading scale is as follows:

Best Bank for Small Business Score Scale

Score
1 Does not meet criteria
2 Partially meets or planned to meet criteria
3 Meets criteria
4 Exceeds criteria

It is somewhat self explanatory; one function at a time, assess how well the banking institution you are evaluating performs the task.  For example, downloading bank statements may be a task that an assistant can perform.  Ideally, it would be welcomed if the ability to delegate this task to other(s) can be performed.  One fear you may have as a business owner is giving access to an employee who may jeopardize this privilege – not only downloading the statement but worst, withdrawing all of the monies in the account.  Some banks may provide all or nothing access to the account (Bank A Delegation Function) while some other bank may provide more granular user capability such as the ability to allow an employee to download statements only and not transfer funds (Bank B Delegation Function).   In this instance, Bank A warrants a score of 1 – Does not meet criteria while Bank B should be awarded a score of 3 – meets criteria.  You would award Bank B a score of 4 – exceeds criteria if there are bells and whistles that no other bank offers that is being evaluated.

Evaluating each function should involve speaking with a representative of the bank in addition to vet the information you have gathered from the internet.  Complete this step for each core function.

Step 4.  Compute Weighted Score for Each For Function

The weighted score formula is simple.  The weighted score for each core function is below:

Core Function Weighted Score = Weight (1, 2 or 3) x Score (1, 2, 3 or 4)

Using the Bank Delegation Function as described above for Bank A and Bank B, the weighted score for Bank A would be computed as 3 = 3 (Mandatory) x 1 (Does Not Meet Criteria).  Bank B wins with a score of 9 = 3 (Mandatory) x 3 (Meets Criteria).  Compute the weighted score for each core function evaluated.  A spreadsheet is ideal for this evaluation and socialcapitale.com has provided a core template from which you can begin your analysis.

  SMALL BUSINESS BANKING ASSESSMENT WORKSHEET Bank of America
  SOCIALCAPITALE.COM Social Capitale
      Comments Weight Score Weighted Score
A. Online Banking
A.Account Viewing
1 View business and personal accounts together 1 3 3.0
2 View accounts for multiple business entities together 1 3 3.0
3 Allow Account Delegation 3 3 1.0
4 View accounts held at other financial institutions1 1 3 3.0
5 Account Nickname/Friendly Name Sorting 3 2 0.7

Step 5.  Tally and Determine the Best Bank for Your Small Business!

Once you have tallied the weighted scores for each bank by the core functionality evaluated, the winner is that bank or institution with the highest score!

While this has only examined Online Banking, the same process is applied to the remaining four.  Be specific – Be critical!  Changing banks is a burdensome task.  Choose Wisely and Gook Luck!

We always welcome your comments and insight!

Small Business Banks – Large Banks

Bank of America Small Business
Chase Business Banking
CitiBank Small Business Banking
PNC BankSmall Business Banking
Wells Fargo Small Business

 

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