SBA Preferred Bank

Choosing the right bank is crucial for your business. You need to take into account not only your current requirements, but also your future needs such as obtaining a loan as your business grows. As with your attorney and accountant, building a long-term relationship with a bank and a banker who understands you and your business is important.

There are several factors to consider in selecting a bank:

01

Do you require a small regional bank or a large national bank? Smaller banks provide more personalized service and are more knowledgeable about the local market you operate in. Larger banks generally charge lower fees and rates. In addition, larger banks are more likely to give businesses a credit card, which can be used to charge expenses and is a method of financing.

02

What services do you require for your business (i.e. checking account, business credit card, loans, etc.) and does your bank offer these services?

What does the bank charge for their services (i.e. fees for maintaining a checking account and credit cards, interest they charge for giving loans, etc.)?

03

Does your bank work closely with the U.S. Small Business Administration ("SBA")? Generally, SBA loans are given to small businesses that may not qualify under the traditional guidelines (i.e. those whose credit history, cash flows or collateral, such as accounts receivable and inventory, may be insufficient). The loans given by the bank are substantially guaranteed by the government, which protects the bank in the case your business is unable to repay the loan.

Long-term Relationship

The bank and your banker should be thought of as a long-term relationship - it is important to not only take into account your current business needs but the services you may require in 2 to 3 years as your business matures. In addition, having a strong relationship will be beneficial in times of financial hardship. It is critical, therefore, that the bank and the banker have an in-depth understanding of your business, industry, lending needs and long-term strategy.

In order to make the bank and your banker more comfortable with you and your business, there are certain things that you also need to do:

01

Meet with the banker on regular intervals (i.e. every quarter) to provide them with an update on how your business is performing.

02

Make sure you have a good business plan that you can share with your bank. As your business and industry develop, this plan should be updated to reflect this.

03

Ensure you and your company have a high credit score. If you intend to apply for a loan with your bank, your bank will review these scores when deciding whether to extend you a loan.

04

Re-evaluate your relationship every few years. In today's economic environment where the number of new businesses is shrinking, banks have become extremely competitive with their fees and rates. Keeping a close eye on what your bank’s competitors are charging is an important step in ensuring that you are getting the best deal.

05

Manage your cash flow well as banks are very much interested in your cash flow (i.e. how much cash your business is generating after collecting the revenue and paying all expenses). The bank also wants to make sure you have sufficient cash reserve in case your business shrinks due to unforeseen circumstances. As a rule of thumb, it is advisable to keep cash flow sufficient to run your business for two to three months.