Your business needs a bank. Even if you don’t need a loan, you have bills to pay, receivables to collect, and cash to manage. You know you need a bank, but how do you choose one?
When choosing a bank for your business, the most important consideration will be whether you’ll want to borrow money or not. You’ll also want to consider a bank’s fees, convenience, service, reputation, and credit culture.
If you live in the U.S., it seems like there’s a different bank on every corner. Though the number of banks in the country has been steadily decreasing, there were still 4,561 commercial banks in the U.S. as of the third quarter of 2019.
Every one of these banks has different fee schedules, branch networks, and lending appetites.
To make sure that you don’t have issues with your banking relationship down the road, you’ll want to make sure that the bank you choose operates in a way that will help you meet both your current and future needs.
Choosing a Bank if You Don’t Plan on Borrowing Money
So, you’re flush with cash, and you don’t need to borrow money. Great! No interest expense, annual reporting requirements, or nosy loan officers.
So, if you don’t need money, what should you look for in a bank? Cost, convenience, and customer service should be your primary concerns.
Cost
Fees will, unfortunately, be a part of any banking relationship. What should concern you most about fees is which fees you’re paying and what they add up to.
Every bank will have different fee schedules for the same services. To compare different banks, you need to know which services you’ll use.
If you already have an account with a bank, you can use your account analysis statement. Otherwise, work with a bank representative to determine which services you will need.
Once you know what services you need, it’s time to shop around.
Your fees will be different at every bank. Some will nickel and dime you on everything, while others will provide some services for free, but have high fees for others.
Be sure to compare the fees of the services you’ll use, based on your anticipated account activity, across multiple banks.
Convenience
Convenience is also an essential factor to consider.
If you have a cash business, you’ll be going to a branch often. Proximity to your business, late operating hours, and a night depository will be vital to you.
If you’re mostly collecting checks and using remote check deposit services, or if you’re receiving payment electronically, location probably won’t be as significant.
Online banking is another convenience factor that should be on your radar.
Almost all banks have some online banking functionality. Unfortunately, some user interfaces, mobile platforms, and online tools are frustrating and not very user-friendly.
Customer Service
The last of the three aspects you should look for in a bank is excellent customer service.
This can mean different things to different people, but for me, it means being able to talk to someone when I need to. I hate looking through online help guides or navigating 1-800 number menus.
When you need help with your account, you want to talk to someone. Preferably, someone you know and who is familiar with your business.
Not only that, if you have an issue, you want it resolved as quickly as possible.
The best way to compare customer service between banks is to talk to other business owners in your network. They’ll be happy to tell you if they worked with a bank that had poor customer service, dropped the ball on an issue, or weren’t flexible in resolving a problem.
If you do open an account with a bank and find that the customer service is not up to snuff, don’t continue building a relationship with them.
Find a bank that values your business.
Choosing a Bank if You Want to Borrow
If you know that you’ll need to borrow money from a bank, you’re going to want to consider reputation and lending appetite.
A Bank’s Reputation
As I always say, every bank is different. Some really turn the screws on clients when the going gets tough, and others allow a little flexibility.
Of course, you don’t anticipate your business falling on bad times. Still, it’s best to try to learn how a bank treats companies when their performance slides a bit.
To get an idea of a bank’s reputation, you’ll have to talk with other business owners in your market. Ask them if they’ve ever borrowed from a bank you’re considering and what their experience has been.
Try to get an idea of what their credit culture is and how they deal with companies that have a couple of down years.
A bank’s credit culture will determine how conservative their underwriting will be. This will include whether they’ll want a guarantor, what kind of covenants they’ll require, and what how often they’ll want your financial information.
Generally, large banks with strict credit cultures will be less flexible when a company’s performance struggles.
With a little asking around, you’ll hear some stories, either good or bad, about most of the lenders in your market.
Be sure to remember, though, that you won’t be seeing the full financial picture of the people you talk to. There may have been a good reason for a bank to end their lending relationship with them.
A Bank’s Lending Appetite
Lending appetite means a bank’s willingness to loan money.
A bank may not be interested in specific sectors, such as hospitality, speculative real-estate, or cannabis sales.
Maybe the bank is small and is’t in a position to make as many loans as a larger institution. Fears of a recession or economic downturn can also lead banks to turn off the lending spigot.
Nevertheless, if a bank doesn’t have a big lending appetite, you may want to look elsewhere.
One good way to determine which banks are lending in your state is to look at the Community Reinvestment Act reports published by the Office of Advocacy of the U.S. Small Business Administration.
I’ve compiled a list of the top three lenders in each state from the CRA reports. These lenders are actively lending loans of $1 million or less to small businesses.
Top Three Small Business Lending Institutions in Each State
The top three lending institutions in each state by small business lending of $1 million or less according to the U.S. Small Business Administration, Office of Advocacy, from Community Reinvestment Act reports.| State | Name of the Lending Institution |
|---|---|
| Alabama | Regions Financial Corporation |
| Synovus Financial Corp. | |
| ServisFirst Bancshares, Inc. | |
| Alaska | Wells Fargo & Company |
| First National Bank Alaska | |
| Northrim Bancorp, Inc. | |
| Arizona | Wells Fargo & Company |
| Citi group Inc. | |
| JPMorgan Chase & Co. | |
| Arkansas | Arvest Bank Group, Inc. |
| Simmons First National Corporation | |
| BancorpSouth, Inc. | |
| California | Citi group Inc. |
| Wells Fargo & Company | |
| American Express Company | |
| Colorado | Wells Fargo & Company |
| Citi group Inc. | |
| JPMorgan Chase & Co. | |
| Connecticut | Webster Financial Corporation |
| Bank of America Corporation | |
| American Express Company | |
| Delaware | M&T Bank Corporation |
| Wilmington Savings Fund Society | |
| PNC Financial Services Group, Inc. | |
| District of Columbia | American Express Company |
| PNC Financial Services Group, Inc. | |
| Bank of America Corporation | |
| Florida | American Express Company |
| Bank of America Corporation | |
| Wells Fargo & Company | |
| Georgia | Synovus Financial Corp. |
| Wells Fargo & Company | |
| American Express Company | |
| Hawaii | Citi group Inc. |
| First Hawaiian Bank | |
| Bank of Hawaii Corporation | |
| Idaho | Citi group Inc. |
| Wells Fargo & Company | |
| Zions Bancorporation | |
| Illionois | Wintrust Financial Corporation |
| JPMorgan Chase & Co. | |
| First Midwest Bancorp, Inc. | |
| Indiana | Old National Bancorp |
| PNC Financial Services Group, Inc. | |
| First Merchants Corporation | |
| Iowa | U.S. Bancorp |
| Hills Bancorporation | |
| Wells Fargo & Company | |
| Kansas | Intrust Financial Corporation |
| Commerce Bancshares, Inc. | |
| UMB Financial Corporation | |
| Kentucky | PNC Financial Services Group, Inc. |
| BB&T Corporation | |
| Stock Yards Bancorp, Inc. | |
| Louisiana | Hancock Holding Company |
| IberiaBank Corporation | |
| JPMorgan Chase & Co. | |
| Maine | Camden National Corporation |
| Bangor Bancorp, MHC | |
| TD Bank, National Association | |
| Maryland | PNC Financial Services Group, Inc. |
| M&T Bank Corporation | |
| BB&T Corporation | |
| Massachusetts | Bank of America Corporation |
| American Express Company | |
| Eastern Bank Corporation | |
| Michigan | Chemical Financial Corporation |
| Comerica Incorporated | |
| PNC Financial Services Group, Inc. | |
| Minnesota | Wells Fargo & Company |
| Otto Bremer Foundation | |
| U.S. Bancorp | |
| Mississippi | BancorpSouth, Inc. |
| Trustmark Corporation | |
| Renasant Corporation | |
| Missouri | Central Bancompany, Inc |
| Commerce Bancshares, Inc. | |
| U.S. Bancorp | |
| Montana | Citi group Inc. |
| Glacier Bancorp, Inc. | |
| First Interstate Bancsystem, Inc. | |
| Nebraska | Pinnacle Bancorp, Inc. |
| Lauritzen Corporation | |
| Farmers & Merchants Investment, Inc. | |
| Nevada | Wells Fargo & Company |
| Citi group Inc. | |
| Zions Bancorporation | |
| New Hampshire | Td Bank, National Association |
| Eastern Bank Corporation | |
| Bank of America Corporation | |
| New Jersey | PNC Financial Services Group, Inc. |
| American Express Company | |
| Bank of America Corporation | |
| New Mexico | Wells Fargo & Company |
| Citi group Inc. | |
| American Express Company | |
| New York | American Express Company |
| JPMorgan Chase & Co. | |
| M&T Bank Corporation | |
| North Carolina | BB&T Corporation |
| First Citizens Bancshares, Inc. | |
| Wells Fargo & Company | |
| North Dakota | State Bankshares, Inc. |
| Watford City Bancshares, Inc. | |
| Otto Bremer Foundation | |
| Ohio | PNC Financial Services Group, Inc. |
| Huntington Bancshares Incorporated | |
| Fifth Third Bancorp | |
| Oklahoma | Bancfirst Corporation |
| Arvest Bank Group, Inc. | |
| MidFirst Bank | |
| Oregon | Citi group Inc. |
| Wells Fargo & Company | |
| U.S. Bancorp | |
| Pennsylvania | PNC Financial Services Group, Inc. |
| Wells Fargo & Company | |
| M&T Bank Corporation | |
| Rhode Island | Bank of America Corporation |
| Brookline Bancorp, Inc. | |
| Coastway Bancorp, Inc | |
| South Carolina | South State Corporation |
| First Citizens Bancshares, Inc. | |
| BB&T Corporation | |
| South Dakota | Dacotah Banks, Inc. |
| Wells Fargo & Company | |
| Minnehaha Banshares, Inc. | |
| Tennessee | Pinnacle Financial Partners, Inc. |
| First Horizon National Corporation | |
| Regions Financial Corporation | |
| Texas | Wells Fargo & Company |
| JPMorgan Chase & Co. | |
| American Express Company | |
| Utah | Zions Bancorporation |
| Wells Fargo & Company | |
| Citi group Inc. | |
| Vermont | South Plains Financial, Inc. |
| Citi group Inc. | |
| Community Bank System, Inc. | |
| Virginia | BB&T Corporation |
| Wells Fargo & Company | |
| Citi group Inc. | |
| Washington | Citi group Inc. |
| U.S. Bancorp | |
| Wells Fargo & Company | |
| West Virginia | BB&T Corporation |
| United Bankshares, Inc. | |
| First Community Bancshares, Inc. | |
| Wisconsin | BMO Harris Central NA |
| U.S. Bancorp | |
| Johnson Financial Group, Inc. | |
| Wyoming | First Interstate Bancsystem, Inc. |
| Wells Fargo & Company |
Final Considerations When Choosing a Bank for Your Business
Okay, so now you’ve seen the criteria you should look for in a bank, whether you want a lending relationship or not.
One thing to remember, though, is a bank’s reputation may be different for each banking segment. For example, when talking to your network in the community, you may hear a lot about experiences with personal loans.
It’s important to differentiate between a bank’s retail banking or private banking reputations and its business banking reputation. These segments of a bank are entirely different. To be sure you know the difference, read this post.
It may be much easier to get a personal loan than it will be to get a business loan at the same bank.
Finally, No matter what you decide are the most important criteria for your specific business, remember to shop around.
One of the biggest benefits of having so many banks is that there’s healthy competition for your business. Know your value and get the best deal possible.
