5 Guiding Principles for Small Business Banking

Before you can start taking orders from customers, paying vendors, and tracking your profits and costs, you’ll need a system in place to manage your company’s money. By establishing a relationship with your local bank, you can position your small business to receive a number of benefits that support your operations and improve your financial management.

When your small business is just starting out, small financial decisions can have big consequences. Here’s how to make better use of your bank as a resource for your business.

1. Open a dedicated small business banking checking account

Sole proprietors may be able to get by without a business banking account, but it can be risky. Personal and business money can get mixed up, and accounting can become a hassle.

These financial conflicts can be easily avoided. Many banks offer low-fee or fee-free checking and savings accounts for small businesses, providing an affordable way to manage your money and keep transactions and balances in order. For a business just getting off of the ground, the low cost of this account is well worth the benefits offered, such as ease of money management and establishing a relationship with a bank.

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2. Read the schedule of fees before opening a small business banking account

Before you open a business banking account, always read the full schedule of fees. Some accounts will come with a flat fee, whereas others will charge small fees for various types of transactions.

If you’re generating a high volume of transactions, it’s likely you’ll have to pay fees of some kind. You don’t want to be blindsided by these costs, so do your research before signing up.

Download How to Choose the Right Bank for Your Small Business >>

3. Take advantage of bill pay services

Most banks also offer bill pay services to ease the process of paying vendors, contractors, and other third parties. Accountants can use this to manage outgoing payments for various invoices as well as rent, utilities, and other services.

These services can typically be accessed online, saving you the effort of going to a physical bank and/or using an accounting service to cut checks. If you make repeat payments to vendors or other third parties, their information can be saved to expedite payments in the future.

4. Use online small business banking to provide account access to other employees

With many business banking accounts, you can create multiple profiles to allow different users access with varying permissions. Some users may be able to view transaction histories but unable to make deposits or withdrawals. Others can have full access to manage your company’s finances.

This provisioned approach to business banking makes it easier to share financial information without creating additional risk through unnecessary banking permissions.

5. Build a better banking relationship by mastering “the 5 Cs”

If you’re establishing a business relationship with a bank, you probably expect that at some point in the future, you’ll want to open a line or credit or take out a business loan. Opening an account and keeping it in good standing are great first steps, but there are other things you can do to position yourself as a strong lending candidate. One of these things is mastering the 5 Cs of credit:

  • Character: Your overall trustworthiness, as perceived by the bank or credit union
  • Capacity/cash flow: Your financial situation and your ability to repay any potential loan
  • Capital: The amount you or other individuals have personally invested into a company (financial institutions are more eager to invest in a business when other stakeholders have a financial stake)
  • Conditions: Your company’s strategy for overcoming challenges and finding a path for success even in the midst of market factors that are out of your control
  • Collateral: Assets the bank can seek out if the loan can’t be repaid
As a small business, you should think of your local bank as a partner invested in your success. Take advantage of the resources they offer to position your company for a bright, prosperous future, and don’t be afraid to ask what other resources and support they’re able to offer.

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*Originally published September 2019. Updated September 2021.

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