Small business owners should ask themselves what they are getting from depositing money in a bank in addition to safekeeping and low interest. If their current bank is not supporting their small business ventures, maybe it’s time to look for a new bank.
The flow of funds to various forms of investments have made many banks focus more on attracting and maintaining core deposits. In addition to core deposits, many banks also accepted “brokered deposits” to improve their balance sheets.
However, brokered deposits are volatile, highly sensitive to interest rates and subject to more regulatory scrutiny. On the other hand, core deposits — which include saving, personal, checking and small business accounts — are stable, low-cost and typically not sensitive to interest rates.
Small business owners have assets that banks desire in this competitive deposit market – their personal and business deposits. Using the value of their deposit account with the right banking partner could lead to more attractive financing terms and conditions that will support small business ventures.
When it comes to bank loans, existing bank clients are viewed more favorably than a loan applicant off the street.
Which bank to choose?
Typically, banks have expertise in certain industries where they are comfortable in extending credit. A business owner may need to spend additional time to find the appropriate bank from peers and industry centers of influence.
After choosing a bank, small business owners should not just focus on the rate offered. They should ask if part of the loan portfolio is funded by the Small Business Administration (SBA) or if it’s purely conventional. Often, banks desire the protections afforded via the SBA which offers partial government guarantees to the bank in the event the borrower’s business does not become profitable after an expected period of time.
They should also inquire if the bank would support the business even if there is no bank branch in close proximity of the business.
The business owner’s deposits have increased value to the bank, whether it’s across the street or across the country. They should assess the extent to which they are monetizing the value of their deposit by asking the right questions. They should always think that another bank may provide greater benefits for their small businesses.