What to consider when picking a local bank for business
In an economy that has gone global, sometimes it's still best to stay local. For entrepreneurs and midsize businesses, choosing a local bank over a national or global institution offers many surprising benefits. While large banks have numerous branches and many products, it's generally off-the-rack shopping. If your needs consistently fit into a standard box, that approach is OK, but most small to medium-sized, growing businesses need customized options.
The No. 1 benefit in selecting a local bank is the relationship you build with that institution. At a local bank, you have a relationship manager who acts as your quarterback, within the bank. They know you and your business, inside and out. By knowing your corporate goals, understanding your business and trusting in you as a person, the relationship manager is empowered to offer the right solutions for your business and develop a creative solution when your business needs one. Lastly, smaller banks offer access to executive leadership, which is key when you need to be certain a problem will be solved.
The most important factor to consider when choosing a bank is determining if they will be a reliable long-term partner for your company. Not all local banks are created equal. To find a community bank that works for your business, keep these four areas in mind.
For a bank to be a strong partner, it must be on a stable financial footing. You want to make sure the bank is well capitalized with a strong balance sheet. This is paramount, because a struggling bank isn't in a position to offer your company the products and services your growing business requires. Every bank in the country completes a quarterly call report, which is published on the Federal Deposit Insurance Corp website. The key details to look for are high capital ratios, high loan loss reserves (over 1%), low nonperforming assets and strong earnings.
Local banks vary in size, so important to know your needs in it's this regard. Banks normally have a house lending limit and a legal lending limit based on their capital. You need to choose a bank that will not only meet your lending needs today, but can also lend more as you grow. For example, if you're currently borrowing $10 million from a bank with a house limit of $15 million and your company plans to double in size within three years, you will need to find a larger bank to accommodate your growth.
A major benefit of choosing a local bank is creating a relationship based on more than transactions. The bank you select should have relationship managers that serve as your go-to contacts. You must have a good rapport with your relationship manager. A strong relationship with your banker allows them to get to know and understand your business in a way that creates an opportunity for them to become a strategic partner. This will allow them to advise you on how forecasted changes in the financial landscape will impact your business. This knowledge can be invaluable to protect against economic downturns and recognize opportunities to grow more quickly.
With so many financial transactions done digitally, any bank you consider must have a robust online and mobile banking platform. At a bare minimum, a bank should have remote deposit capture (allowing you to deposit checks from anywhere), automated clearing house capabilities and wire transfers.
While local banks offer many advantages over large banks, technology is an area where some community banks falter. Big banks have massive IT budgets, allowing them to create in-house platforms, while many local banks are reliant on the oligopoly of core processors to provide their mobile and online banking platforms. As banking increasingly becomes more electronic, you should look for a local bank that has a technology-first mentality. Inquire about the size of the bank's in-house IT team and how much proprietary software it uses versus off-the-shelf tools. Cybersecurity is also paramount. It is important to understand the bank's security practices to ensure your money is safe.