Small businesses are one of the most important and necessary aspects of economic stimulation, and have been the foundation of commerce since the dawn of the Industrial Revolution. But in this modern world, massive corporations have grown to seemingly corner every market, making it very intimidating to try and get your foot in the door as a small business owner.
Don’t be discouraged. Remember that every commercial titan occupying the marketspace can be traced back to a clever old entrepreneur. Competition from small businesses which can market directly to customers, adapt to the environment more quickly and fill the needs which larger companies fail to are key in preventing economic stagnation.
Although meritocracy has shown throughout history to foster success and innovation, a small business can only take off and grow to its full potential if it has something which can jumpstart it.
Namely, finding a good bank.
As much a part of business as production and marketing, financing will make or break an upstart. Many of the same laws which protect corporations apply to small businesses too, it’s just a matter of recognizing how to take advantage of them. If you familiarize yourself enough with the economic system and structure of banking, you can avoid the many pitfalls which could damage your company’s growth, and move through the many loopholes that can allow your company to flourish. Here are 3 simple but extremely helpful tips in establishing an advantageous relationship between your business and its bank.
- Nothing gets you nothing, so consider the fees.
In the famous Broadway musical adaptation of the classic French novel “Les Miserables”, there’s a number called “Master of the House.” In it, a crooked innkeeper proudly sings about how his prices are incredibly low but he charges guests for countless minutia such as shutting the windows or looking in the mirror. By doing this, he’s not technically lying when he says his individual prices are incredibly low but he still cheats people out of all their money when it all adds up in the end.
This is frighteningly analogous to how some banks conduct their practices.
Banks are businesses at their core. This isn’t a bad thing, of course, but it does mean that they focus largely on making money. And since they’re such an essential part of society, it’s near impossible to move through life without using them. As a small business owner, you’re inevitably going to be using many of the functions that banks offer. But remember to go over every detail you can with a fine tooth comb. Certain banks will charge fees on credit and debit cards, paper statements, physical copies of checks and rewards programs. Sometimes, they’ll even charge maintenance fees on your account if you go a period of time without making a transaction.
The best way to avoid being harmed by all the seemingly minor fees adding up is actually simple. Research. Every bank has its own methods and not every option charges the same fees. Consider the precise nature of your business. Whether you want to manufacture and sell a line of products or provide a specialized service for which you’d need to hire employees. Identify the services you’ll most be using and consider which available bank charges the least for using them.
Additionally, refrain from using unnecessary services when you could do it yourself. But don’t waste time or money if you cannot do it correctly.
Sure, it could be tedious but that’s part of the challenge of running a small business: putting in the hours looking up user reviews and official statements can save you thousands of dollars.
- Consider if your business model better fits a smaller local bank or a larger institution.
Although their role as arbiters of financial loans is integral to modern society, remember that banks are businesses. This means that they come in different sizes, and that means they cater to different customers. In a sense, you’re both the customer in this exchange. They want you to get on board so they can profit off of you. But since you’re receiving support from them, the relationship between a bank and its client should be a roughly equivalent partnership. That means that large national banks usually work best when partnering with large businesses—and you may be considered less of a priority. But even some very small businesses prefer to work with large businesses due to convenience, security measures and certain account features.
If you go to a smaller locally based bank, it’s a safer bet that you’ll be given more in depth attention and help. Banks rely on you to make profit, and you rely on the bank to support and assist your company so that you can afford to make your product. If you can sell enough, you’ll make back the cost of the loan and more. The ideal relationship between you and your bank is this positive feedback loop of mutual respect and dependency. You could even negotiate interest rates with your bank if you’ve got a good enough track record to convince them that your company is strong enough to make back their loan. That sort of flexibility is difficult to achieve with a large scale national bank.
As Atlantic Stewardship Bank CEO Paul Van Ostenbridge states while speaking on his company’s policies and philosophy, “Many business owners think all banks or financial partners are the same and although many of the products are similar, the partnership aspect is not. At Atlantic Stewardship Bank, all decisions are made locally by professional bankers who know the market. Our lenders and managers are responsive and respectful of the business owner’s time and needs and we offer solutions.”
The strength of community banks in the area can also be seen in companies such as Boiling Springs Savings Bank which came about in 1939. The bank is a key supporter of numerous community events, programs and nonprofit organizations through its Community Alliance Program, which provides local nonprofit organizations the opportunity to earn money based on the number of supporters who bank with Boiling Springs.
Kearny Bank, Provident Bank, Spencer Savings Bank and Bogota Savings Bank, which have all been operational since the 1800s, also assume important roles in the community and provide small businesses with customized options for their banking needs.
It is this very same reliability and trust between the bank and the client—which have held these companies together throughout nearly all of modern history—that you want to try and foster with your business.
Of course, just because small banks can offer a more direct relationship doesn’t mean that you should disregard larger ones as viable options. There are certainly advantages to partnering with a national bank too, such as the added security they provide, even if it means adhering to stricter regulations and policies.
You also don’t even have to lose that sense of personal closeness. Stephen A. Jarossy, the Vice President of TD Bank, a national institution, says that “A good banker will take the time to get to know you and your business. Take the time to know your bank and your banker. You may be doing business together for a long time. Relationships still matter a lot, especially in commercial banking.”
In the end, it comes down to what your business is and what you’re going to need to establish it.
Thoroughly researching the banks which are available options is one of the best things you can possibly do for yourself, second only to planning and analyzing in depth every risk and marketing approach and employee wages and production cost highly specialized to your own specific business model.
- Respect your bank, go in with a strong plan and hold up your end of the bargain.
A recurring message which should be acknowledged throughout these tips is that they focus on understanding your bank as well as your business. Every bank does things a little differently in terms of tax, loans, interest and fees. There are many ways some banks can take advantage of you if you aren’t careful, but it’s insane to imagine that banks are malicious towards their own customers.
The pitfalls and hidden fees are there for a reason, and that reason is insurance. An unsettling thought for any business minded person is that money is only worth what people think it is worth.
The government keeps careful track of what’s in circulation but only through a social agreement of supply and demand can a strip of dyed cloth be exchanged for the food and water you need to live.
When this balancing act is thrown off and people spend more money than there is and the numbers all change and then suddenly everything’s worthless, society is thrown into chaos. Economic crashes like these can be seen all throughout world history, and even as uncomfortably recent and close to home as the 2008 real estate crash, a direct result of loans being given out carelessly.
The banks help control the economy and how the general population interacts with it. This gives them an amount of responsibility which it’s difficult to overstate. A bank isn’t some enemy which you need to fight against so you can win loans. They only charge extra fees because so often people take out loans that they cannot repay, which means that they’re drawing from the pool of their customer base’s money. This is unfair to users of the bank, as it literally means that the money they’re supposed to have is imaginary until the loan is repaid. So though it may seem unfair to individuals who aren’t savvy enough, banks are actually providing the greatest public service of all by giving meaning to society in general.
Because of their important and delicate position, you can’t simply go into a bank and expect a loan based solely on your word that eventually you’ll be able to pay it back. You need to pitch your business to the bank as you would to an investor. Show them that you’ve got a thoroughly thought out and well calculated plan of action, with plenty of contingencies. Convince them that enough people will want your product that your company will be profitable.
“We are going to ask you to invest in yourself and your business. You’re not going to get 100 percent financing. Figure 80 percent of cost or collateral value, and up to 90 percent with SBA,” Jarossy states regarding TD Bank’s policy.
Remember, inspire confidence by taking it upon yourself to provide collateral. When you apply for small business administration loans you should allocate specific percentages of the cost you need and what you need it for. Calculate a realistic profit margin and expected growth over time.
Show the bank that you’re a responsible intelligent business owner who’s capable of managing their company and sticking to a plan, let them know for that you’re worthy of their time and money.
Key Business Banking Account Highlights From Selected Institutions:
Atlantic Stewardship Bank has several levels of business banking options, including an “Everyday Business” option that doesn’t require a minimum balance and does not have a monthly service fee.
Bogota Savings Bank offers their commercial customers additional banking convenience with Merchant Remote Capture electronic processing system so they capture and deposit money orders, consumer checks, cashier checks and corporate checks electronically.
Boiling Springs Savings Bank provides several different options for various size businesses, including specific small business checking account that has more flexibility and minimal hassles.
Kearny Bank offers a special tiered business checking, which earns interest on balances of over $50,000.
Provident Bank’s business checking account offers 1,000 free transactions per month as well as cash back on spending through the bank-issued debit card that comes with the account.
Spencer Savings Bank offers business customers two checking account options, both with options to waive the fees depending on balance and transactions.
TD Bank has three levels of business banking accounts, starting with the simple checking account that has a $10 monthly fee and up to 200 free items paid and/or deposited included per statement cycle.
Aidan McHugh is an art student at the Bergen County Technical High School in Teterboro. He serves as an editorial & art intern for Meadowlands Media.