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How to choose the right bank for your small business?

There are a few crucial factors to consider to narrow down your bank account options

how to choose bank account

How to choose the right bank for your small business? Source: depositphotos.com

When entrepreneurs start a small business, they have a lot on their minds. From the business idea to choosing an office venue, there are hundreds of tiny details to make a choice about. Choosing the right bank for your business purposes is one of the most important aspects of the new venture. It can make your daily operations cheaper and easier.

Every business type has peculiar banking needs and legal obligations

Some businesses are legally required to open a separate business bank account, while others are not obliged to separate personal and business-related funds. Different countries may have different regulations regarding the matter.

  • US – you must open a business bank account if your company is a separate legal entity (limited liability company or a corporation) or it operates under a DBA name/trade name (fictitious name that’s different from your business’s legal name).
  • UK – sole traders and freelancers can theoretically use a personal current account for business transactions, while limited companies are required to have a business bank account.

Depending on the business type and daily operations, business owners may have various specific requirements for their bank account such as unlimited daily transactions, bulk payments, access to credit, additional cards attached to the account, zero-fee cash withdrawals, or low-cost international transfers. Thus, you should consider which cash-flow details are important for your particular business and pay attention to them while comparing bank accounts.

Moreover, some banks offer customised business accounts for various enterprise types and related industries. For example, Barclays has separate offers for start-ups, real-estate businesses, farmers, and not-for-profit organisations.

Low annual/monthly fees don’t always mean the most cost-efficient option

Typically, current business bank accounts incur a regular fee that’s paid either monthly or annually. This upfront fee is the most obvious banking expense and often becomes the primary criterion when comparing account pricing. However, there’s a number of additional fees that may turn otherwise “cheap” variants into a spending trap.

For instance, some banks charge a fee per transaction over a set limit, usually around 200 or more for a basic account. The limit may be even lower for some products targeted to startups and sole proprietorships. Other institutions charge a fee for cash deposits beyond a set dollar amount. Most banks will also charge you a fee for managing or maintaining your account. You should always read the whole pricing information and check if the set limits work well for your daily operations.

Moreover, business owners that move funds between bank accounts on a regular basis need to pay attention to the price of ACH transfers. If you or your business partners/managers travel a lot, carefully check the fees for payments and withdrawals made overseas. Besides the fees, pay attention to the bonuses of business trips such as travel rewards and frequent flyer programs available.

Transfer fees are charged by banks for outgoing transactions (salaries, subscriptions, expenses etc.). This commission may be a percentage of the amount transferred or a fixed price. It would be wise to estimate your average outgoing payments and clarify which option is more convenient for you. Besides, some banks apply a minimum fee charged to you regardless of the amount of the outgoing payment.

Despite the increasing virtualisation of banking services, some banks still charge a remote banking fee for online access to the business bank account such as checking your balance on your smartphone or transferring money via your mobile app.

Among the most unexpected but recurring bank fees are intervention commissions (overdraft payments) and charges for direct debits and cheque payments that are rejected due to lack of funds. Other irregular but significant charges include card replacement fees, card seizure fees, card limit modification fees, etc. Please, read all the fine print in the bank’s tariff grid before committing to the account therein.

Consider multiple accounts at the same bank

Sometimes, having your personal and business accounts all in the same place pays out. If you have multiple accounts with the same bank, you may be able to qualify for a monthly fee waiver by linking them together, which will give your business a higher combined balance. Other qualifying accounts may include savings, money markets and certificates of deposit (CDs). Adding additional features to your accounts such as debit or credit cards and payroll services may allow your business to avoid monthly fees as well.

Another benefit is that transfers between your business current and your personal current accounts will be immediate. It would be easier to manage and transfer money within the same web-interface or mobile app. You might also avail premium services, get the fees on premium accounts waived or get lower interest rates. If you’re hoping to get a loan from your bank in the near future, keeping multiple accounts at the bank can help you raise your odds.

Nevertheless, these advantages may not be enough if the business banking services at the bank you use for personal finances are expensive and lack basic features.

Look for extra features offered with the account

Although most banks offer standard business account variations, some of the financial institutions go the extra mile to please their corporate customers. Extra features add value to the common business account and facilitate your daily operations. Those may include:

  • mobile invoicing
  • online group payments
  • cashback on business expenses/deposits or loyalty rewards
  • expert advice and business support
  • credit card and savings account attached
  • budget insights
  • scanning and depositing your cheques in-app
  • syncing with the popular accounting software
  • overdraft
  • fast and cheap international payments
  • mentoring and accelerator programs for startups
  • free software/POS tools or partner discounts on financial products and services
  • all-in-one dashboard for multiple users
  • business cash advance option
  • automated bookkeeping and tax management
  • interest-earning

Think about the banking mode you prefer

Some business owners are interested only in digital offerings and some are still going to their local branch. According to a recent PwC survey, 27% of respondents have shifted toward digital since the onset of COVID-19, while a surprising 6% have shifted toward branch banking despite global trends. When you choose a bank account for your business, numbers and features aren’t everything you should consider. Business banking should be convenient. Think what that means for you. Whether you need more human communication and traditional banking services, or prefer cutting-edge technologies from the neobanks, your comfort is a crucial aspect to consider.

Customer support is an important factor of your convenience. Unexpected situations occur and questions arise, so think about the ways you prefer getting support. Some people may be comfortable with chatbots, while others require a personal consultant. Check support working hours. Do they coincide with your business mode? As some small businesses operate on the standard 9-5 schedule, others may require 24/7 live support. Anyway, it all gets down to your personal business needs and priorities.

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