Understanding Business Banking for Startups and Small Businesses

Discover the significance of banking concerning your business.

As an entrepreneur or small business owner, you're likely focused on developing your product, building your team, and acquiring customers. However, one crucial aspect that often gets overlooked is establishing a solid business banking relationship. This foundation is significant in your company's growth and success. We will explore the importance of business banking, its key products and services, and how to choose the right banking partner for your venture.

Drive up banking sign

The Role of Business Banking in Early-Stage Companies

When you're just starting, it's tempting to use your personal bank account for business transactions. However, separating your personal and business finances is crucial for several reasons:

• Legal Protection: Keeping business finances separate can help protect your assets in case of legal issues.

• Tax Simplification: Separate accounts make it easier to track business expenses and income, simplifying tax preparation.

• Professionalism: A dedicated business account lends credibility to your company when dealing with clients and vendors.

Moreover, a business bank account is often the first step in establishing your company's financial credibility. It creates a financial history for your business, which can be valuable when seeking loans or investments in the future. Why is it important to build a relationship with your banker?

Building Relationships with Your Banker

One of the most underrated aspects of business banking is the potential for building strong relationships with your banker. Unlike personal banking, which is increasingly automated, business banking still relies heavily on relationship-based interactions. Here's why this matters:

• Personalized Service: A good relationship with your banker can lead to more attentive service and tailored financial advice.

• Access to Opportunities: Bankers often have insights into local business trends and can connect you with potential clients or partners.

• Flexibility: In times of financial stress, a strong relationship may give you more leeway in negotiations or access to better terms.

  
  

To cultivate a good relationship with your banker:

• Schedule regular check-ins to discuss your business's financial health and goals.

• Be transparent about your business's challenges and successes.

• Treat your banker as a trusted advisor, not just a service provider. When considering banking options, know the top institutions in your area and beyond.

Here's a look at some of the leading banks across different geographic scales:

1. First National Bank of Omaha

2. U.S. Bank

3. Wells Fargo

4. Mutual of Omaha Bank

5. American National Bank

The benefit: These local banks offer a mix of community focus and tailored services for Omaha-area businesses. Who are the regional banks?  What are the pros and cons of these options?

Local Banks vs. Regional Banks

Choosing between a local bank and a larger regional or national institution is an important decision. Here's a breakdown of the pros and cons:

Pros:

• Personalized service and deeper community connections

• More flexibility in lending decisions

• Understanding of local market conditions

  
  

Cons:

• Limited resources and technology offerings

• Fewer specialized products for complex business needs

• Potentially higher fees due to smaller scale

  
  

Regional/National Banks

Pros:

• Extensive resources and advanced technological solutions

• Wide range of specialized business products and services

• Potential for lower fees due to economies of scale

  
  

Cons:

• Less personalized attention, especially for smaller accounts

• Stricter lending criteria based on standardized metrics

• Potential for being "just a number" in a large system

This is a list of the top five regional banks in the Midwest:

1. U.S. Bancorp

2. Fifth Third Bank

3. KeyBank

4. Huntington National Bank

5. BMO Harris Bank

The benefit: These regional banks often strike a balance between the personalized service of local banks and the resources of national institutions. What key services would benefit your business?

Key Services to Look for in a Business Bank

Understanding the products and services offered is crucial in making an informed decision. Here are some key offerings to consider:

• Business Checking and Savings Accounts.  Look for accounts with low or no monthly fees, a reasonable number of free transactions, and competitive interest rates for savings.

• Merchant Services and Payment Processing. Consider the fees associated with these services, the speed of deposits, and the range of payment types accepted.

• Business Loans and Lines of Credit. Pay attention to interest rates, repayment terms, and any collateral requirements. Some banks offer specialized products like SBA loans.

• Cash Management Services. Look for user-friendly interfaces and robust security features. 

Here is a short list of the major national players who provide these services:

1. JPMorgan Chase

2. Bank of America

3. Wells Fargo

4. Citibank

5. U.S. Bank

These national banks typically offer the widest range of services and most advanced technological solutions, however; they may lack the local focus of smaller institutions.

How do I select the right bank?

How to Choose the Right Bank for Your Business

Selecting the right banking partner is a critical decision. Here's how to approach it:

a) Assess Your Business Needs

• Consider your current financial situation and projected growth.

• Identify the services and products that are most important to your business.

• Think about your preference for digital vs. in-person banking.

  
  

b) Evaluate Bank Offerings and Fees

• Compare account types, minimum balance requirements, and transaction limits.

• Look at the cost of essential services like wire transfers or stop payments.

• Consider any introductory offers or bonuses for new business accounts.

  
  

c) Consider Location and Accessibility

Customer Service Representative

• If you handle cash regularly, branch and ATM locations will be important.

• For digital-first businesses, robust online and mobile banking features may be the priority.

  
  

d) Research Customer Service and Support

• Look for banks with dedicated business banking support.

• Read reviews and ask for recommendations from other business owners. 

Need some ideas for good, financial practices?

Ongoing Financial Management

Once you've established your business banking relationship, it's crucial to maintain good financial practices:

• Regular Monitoring: Keep a close eye on your accounts and transactions.

• Financial Planning: Work with your banker to set financial goals and strategies.

• Utilize Tools: Take advantage of budgeting and forecasting tools offered by your bank.

• Stay Informed: Keep up with changes in banking regulations and new product offerings.

Remember, as your business evolves, so, too, will your banking needs. In this article, we have reviewed the importance of understanding business banking for startups and small businesses. Regular reassessment of your banking relationship ensures you always get the support and services that best fit your current situation. With the right banking partner by your side, you'll be well-equipped to navigate the financial aspects of entrepreneurship and focus on what you do best – growing your business.