BANKING & FINANCE: Selecting a better bank for your business
You got your local banks, you got your regional banks, you got your national banks, you got your credit unions, supermarket banks, ATMs and who knows what else. How can you figure out which financial institution is a good fit for when you have enough to do just running your own business on a day-to-day basis? Let’s go through a few of the basics.
Location, location, location
Many people simply pick the bank closest to their home or work. While this closeness does have a benefit, this should not be the only factor considered. Technologies have changed so much in the last 10 years that it is no longer necessary to go to the bank for most basic banking transactions. Some banks have even tried to discourage these “in person” visits by charging a fee to talk to a teller. Many banks offer courier services, where they will come to you to pick up your deposits, make deliveries or handle other routine matters.
One of the newest products offered is Internet banking. This type of service will allow you to check loan and deposit balances, and examine daily activity over the Internet, whenever and wherever it works best for you.
There are also features such as direct deposit capability for employee payroll, and automated payment options for certain regular bills. These types of services make location less important and put the focus on how hard the bank can work for you to earn your business.
Which bank is this?
Watching the changes in the financial institutions in the northern Michigan market has been great entertainment the last few years. A bank will be bought or sold, the name on the sign changes, a new bank opens their doors, bankers move from bank to bank and the customer sometimes gets lost in the shuffle.
A good banker will watch out for their good customers to make sure you do not get lost. A name change, merger or new opening should not impact the level of service you receive from your bank. If anything, you should hear from a new bank more often, as they try to introduce who they are, what they can do that is new and improved, and strengthen their relationship with you. Keep this in mind and ask yourself, “When was the last time I heard from my current banker?”
Service is the key
Large or small, banking is really a customer-focused service industry. A good sign of service is how long it takes your banker to call you back when you ask a question. Remember, the banker may be faced with several phone calls, meetings and messages in a day, but if a week goes by without a response, you should ask, “Does this bank really want my business?” Good bankers often look at their customers as a whole, and will suggest different opportunities and products for their customers. Sometimes, examining your current relationship can be a very good thing. A different bank or a merged bank may offer different, and often times improved, products. This could be a free checking account, improved sweep accounts, or opportunities to rework your loans at different rates and terms. Does your current banker look at where you are and what products you are using?
How you do it
If you have decided to look at what’s out there, the first thing to do is to talk to the person who is most familiar with your financing. This is often your controller or CPA. They can tell you if you have a good deal, or if you need to look around. They can also tell you if you have any surprises in your current packages, such as prepayment penalties, guarantees, related debt, or similar items.
Then pick two or three banks, and invite them in for a discussion. Your CPA can often help with the invitations. The bankers will want to do their homework in setting up your proposal, and will want information. They will look at your current products and relationships, talk to you about what you want, talk to your current advisors (attorney, CPA, and others), and present what they think is the best fit for you and your business.
After you meet with the banks, and get their proposals, schedule them out against each other. If the bankers have done a thorough job, the proposals should look pretty similar. Most banks will be offering similar products in loans and deposit accounts. Some will even offer to handle your insurance or investments for you.
An important part of the evaluation of a bank is how close they came to what you were asking for. Did they propose a variable rate loan when you asked for fixed? Did they use terms in the proposal that you did not understand, and then not explain them?
A banker should be willing to spend the time to meet with you and review in detail what you are looking for, and what you are getting into.
Here again is a good time to have another person, such as your attorney or CPA, look over the proposals and talk with you about what you want.
Look at yourself and your business
Take a look at your current relationships. Are your loan payments always made on time? Does the checkbook get balanced regularly? Do you know where you want your business to be in one, three or five years?
While a financial institution cannot do these things for you, a full-service institution will work with you and help you to achieve your goals. A full-service bank will proactively help you by staying in contact, being responsive to your needs, and communicating changes that may impact you on a regular basis. When was the last time you talked with your banker?
Thomas Troost is the Director of Financial and Information Systems with Bott & Company PC in Traverse City and has over 14 years of experience assisting Northern Michigan businesses. BN