Every small business needs a bank account. At a bare minimum, it can help you keep your personal and business finances separate.
But there’s more to choosing a bank than meets the eye. These days, banks vary a lot in terms of service offering, technology, and pricing.
We’ll walk you through how to choose the right bank for your small business, starting with how to figure out what you actually need.
Start with what you need, not which bank you know
Before you start comparing sign-up bonuses, it’s important to sit down and consider what you need your bank account to do for your business, day in and day out.
Deposits, withdrawals, and transfers
How often is money moving into and out of your small business checking account? And how is it moving?
For instance, if your clients often pay you by check, you’ll want a bank that allows you to make deposits with a smartphone app. Nobody has time to drive to the bank every few days.
On the other hand, if you’re a freelancer who is typically paid by direct deposit or electronic transfer, you’ll need to be able to easily accept electronic transfers, and confirm when direct deposits are made.
If you run a brick-and-mortar business with a lot of daily sales, it could make more sense to use a brick-and-mortar bank. Physical bank locations offer services such as overnight deposits that may be more important to your business needs than any online features.
Small business banking fees
If you’re just starting out and cash is tight, banking fees matter. Even if your small business checking account is “free,” you could be charged extra depending on how you use it. The fees you’re charged, and how they’re incurred, can differ significantly from bank to bank.
For instance, you may be charged fees for:
- Failing to maintain a minimum balance
- Making too many deposits and withdrawals
- Not using your account frequently enough
NerdWallet offers a comprehensive, state-by-state guide to free business checking accounts.
Loans and line of credit
If you have big expansion plans for your business, you’ll want to find out up-front whether your bank of choice is going to support that, through their loans and line of credit products.
If this is important to you, here are some key questions to ask your potential bank:
- What are your loan interest rates like?
- How do you qualify small businesses for loans?
- If my loan needs change, are you flexible?
- What are your line of credit terms like?
If you know your personal credit score (and these other four business loan factors), you can discuss with a potential bank whether they’d be willing to loan to you. If their credit standards are too high for you, and lending is a deal-breaker for your business, no need to waste time filling out forms to become a customer.
To help narrow your search, check out The Nine Best Banks for Business Loans.
Pro tip: Credit unions offer some of most competitive loan rates, but you need to be a member to apply for a loan.
When choosing a bank, size matters
There are benefits and drawbacks to working with different banks, depending on their size. Here’s a general comparison of small, medium, and large banks.
Small local banks
Your local community bank is a good fit if your top priority is personalized service.
|They’re more likely to determine your eligibility for a loan depending on your overall profile and character, rather purely based on your credit score.||Fees for small, local banks are typically higher than any others.|
|Their customer service means you’ll usually be able to speak to a human.||Lagging technology offerings, such as online banking and smartphone apps.|
|They offer a sense of continuity. Once you’ve established a relationship with a local bank, you could be working with the same bank representative for years.||-|
Medium-sized regional banks
Banks that serve your state or region are a better fit for medium-sized businesses, or small businesses with aggressive growth strategies.
|Regional banks still put a focus on personalized service. Often, regional banks are made up of multiple smaller, local branches.||Banking fees are higher than national banks.|
|When considering loans, regional banks are more likely to focus on your local market conditions than national banks are.||Lagging technology options, compared to national banks.|
Large, national banks
If you need low fees and the latest online banking tech, you’ll probably want to sign with a big bank. Plus, they usually have the best signing offers.
|They offer the lowest fees.||Larger banks rarely offer the same level of “personal touch” service as local or even regional banks.|
|They provide the most comprehensive, feature-rich online banking options available.||Your eligibility for loans is determined by “hard numbers,” not your personal character or history as an entrepreneur.|
|If you have international clients or vendors, you may benefit from national banks’ expertise in international services.||-|
Consider the perks
Banks want your business. Sometimes they’ll offer you a significant cash bonus for opening a business bank account.
One of the best offers in 2018 is Bank of America’s $350 bonus for signing up for their business checking and credit card (full disclosure: Bank of America is one of our partners).
But no matter how appealing a cash bonus may seem, keep in mind your day-to-day banking needs. In the long term, these will have a bigger impact on the health of your business than any immediate cash benefit.
Once you’ve outlined your banking needs and narrowed down to your top choices, check out our article on How to Open a Small Business Bank Account.