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How to Choose the Best Bank for Your Small Business

Choosing a bank for your organization is a critical decision that requires diligence and research. Here’s what you’ll want to know.

Blog Author - Justworks
Justworks
Apr 26, 20235 minutes
Blog Author - Justworks
Justworks

Justworks is a technology company that levels the playing field for all small businesses. Through our software and as a partner, we help our customers take care of their teams, streamline their operations, and navigate the complex aspects of managing a workforce with confidence.

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HowtoChoosetheBestBankforYourSmallBusiness

The collapse of the tech-focused Silicon Valley Bank (SVB) likely shocked most business owners, even if they didn’t have a business account with the financial institution. SVB’s collapse was the largest bank failure since the crisis of 2008, so if you’re worried about the state of your company's assets at any bank, you’re not alone.

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As a result of the unexpected news, you might be concerned about the health of your own business bank. Maybe you’re even tempted to withdraw your company's money and hide it under your mattress (despite knowing that might be a little ridiculous). But one thing is clear — now, more than ever, deciding on a bank for your organization is a critical decision that requires diligence and research. Choosing the right banking partner is vital to ensuring your orders get filled, your employees get paid, your operating costs are properly managed, and your business runs smoothly.

Here’s what you’ll want to know.

The Benefits of a Business Bank Account

American companies are multiplying every day. Based on the latest data from Census Bureau's Business Formation Statistics, over five million applications were filed to form new businesses in 2021.

One of the best things these startups can do is open a business bank account.

A business bank account provides many benefits, including:

  • Establishes a credit profile for your company, which can help with business loans, credit cards, or lines of credit

  • Tracks business transactions for your company's revenue and expenses

  • Helps during tax season when it’s time to file your returns

  • Presents your business to your customers in a professional way

  • Delivers resources for your small business that you won't get with a personal bank account

If those sound like good benefits to you, then read on for tips on how to pick the right bank, and how to minimize your risks when you do.

Considerations When Choosing a Bank for Your Business

As a small or medium-sized business owner, review and evaluate these features before committing to any financial institution to hold your funds:

1. FDIC Insured

Start by asking if the bank is insured by the Federal Deposit Insurance Corporation (FDIC). Deposits in eligible accounts are normally covered by the FDIC for up to $250,000 per depositor per ownership category. This means that, if needed, the FDIC will step in to reimburse you for your insured deposits up to this amount.

Unfortunately, a big concern at SVB was the money that businesses had over and above this amount. Silicon Valley Bank generally catered to venture capitalists and startups, and unfortunately, as of December 2022, about 97% of deposits at this bank were uninsured due to account balances over $250,000.

2. Credit Ratings

Research the banks' unbiased credit ranking. Credit ratings for financial institutions are the equivalent of a personal credit score, but business ratings utilize a scale of D to AAA. Bank credit rankings are executed by independent, third-party agencies such as Moody's Investors ServicesFitch Ratings, and S&P Global Ratings. These scores can be re-evaluated and upgraded (or downgraded) over time.

3. Diversify Your Accounts

Financial experts believe diversification is essential. And having money insured only up to $250,000 isn’t the only reason for placing business money in different institutions. Maintaining relationships with two or more banks, depending on the size of your cash balance, is a wise decision to help manage your risk. By spreading your deposits across multiple banks, you’re doing more to protect your organization.

4. Fees and Perks

Review and compare the fees, as well as bonus opportunities offered, for banking at the institutions you choose. Most business bank accounts charge for specific services. For example, there can be fees for features like:

  • Check writing costs can add up. However, some institutions will waive these fees if you maintain a specific minimum balance.

  • Transaction fees may apply if your company exceeds a maximum number of monthly transactions. You should clearly understand the transaction limit if you plan to make extensive cash deposits and withdrawals. Similarly, if you make your payments online, check that the business account restrictions meet your needs. If you are currently a small business with a low transaction volume, this may not apply. But keep in mind that as your business grows, these extra fees may come into play.

  • Deposit fees at some banks do cost extra if you exceed a set limit on the amount of money or the number of deposits you complete each day, week, or month.

  • Online and mobile banking are some things you may want to explore, too. Some business banks have better user experiences than others. It’s important to find an app and online banking experience that makes you and your coworkers feel comfortable. If the bank has glitches in its app or a confusing online portal, you may want to look for a better option. Ask if you can manage your account through the bank's mobile app before you sign on the dotted line.

  • Wire transfers are a nearly instant way to send money to another account. However, beware of different fees for international and domestic wire transfers. The costs can vary widely depending on your institution and the type of business account you maintain.

These additional expenses may seem minimal, but they’ll add up — and quickly. Take the time to understand what type of services your business needs and their associated fees before you commit to a bank for your business.

Other perks exist that might be helpful for your small business. For example, you may get a cash bonus for opening an account and making a fixed deposit, or you may receive a better interest rate for your business savings accounts for a limited time. Don't be afraid to ask for these introductory-type offers that can benefit your business. On the same note, don't choose a bank strictly for these short-term opportunities.

Remember, relationships matter. Seek out a bank that will treat your small or medium-sized business with the respect (and the perks) that larger companies receive.

5. Business Software Integrations

Now more than just a place to store money and receive funds, many business banks allow you to integrate popular business tools like Shopify and PayPal. There’s also a good chance you’ll use your business bank account in combination with your other business tools. For instance, you might use QuickBooks to send invoices and track your expenses. Look for a bank account that can integrate with the features you use daily so you can streamline your business finances.

6. The Small (But Important) Details

Details are essential when you are deciding on a business bank. Take time to evaluate these additional characteristics:

  • Type of institution. As online and mobile financial banking grows in popularity, determine if you actually need (or want) a bank with brick-and-motor locations for easy access. Although an online bank typically has low fees and mobile access, there are no physical buildings you can visit, and customer support will be given online or over the phone. If you're looking for more personal service, then in-person banking may be a better fit. Currently, many online-only banks offer limited products and services.

  • Customer service. Ask if 24/7 customer support is available, especially if your organization operates outside "normal" business hours. A reliable, human support team can help make you feel more at ease if you have an urgent financial situation.

  • Fine print. In every aspect of your business, take the time to carefully read the fine print. Check for hidden fees, business credit card costs, interest rate timelines, and other details that can impact your business bank account.

The Bottom Line

When choosing a bank account for your business, you must be thorough and do your research. Everything is important, from the service packages they provide, to their availability and prices. You’re trusting them with your finances, so you need to take your time in choosing the best business bank for your needs. After all, you want as many options for future growth as you become more successful.

Did you know Justworks can also help set your business up for future growth? As a Professional Employer Organization (PEO), we support your business with payrollaccess to benefitscompliance support, and so much more to help you run your business with confidence.

Ready to get started? Together, we can build a program that works for your business.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.
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Written By
Blog Author - Justworks
Justworks
Apr 26, 20235 minutes

Justworks is a technology company that levels the playing field for all small businesses. Through our software and as a partner, we help our customers take care of their teams, streamline their operations, and navigate the complex aspects of managing a workforce with confidence.

Learn more with Justworks’ Resources

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