3 Essential Banking Tips for a Small Business Owner

As a business owner running a small company, you need to work with the bank to manage your everyday financial transactions. But if you are currently facing struggles in keeping the business successful, you may be overlooking some important elements in banking.

To help you navigate your banking choices, here are essential tips to keep in mind.

1. Make the right banking choice

Some small business owners make the mistake of opening or using a personal bank account for business transactions. Yes, convenience is an advantage, but by making this common choice, your small business may also incur heavy costs or transaction fees. Your reliance on your personal bank may cause you to lose substantial amounts of money that you need for critical business operations.

Instead, open a business bank account which gives you access to SME banking provisions that fit the precise needs of your small business. This way, you can reinvest in your business through monthly savings.

Not all banks are made equal

Different banks demonstrate different levels of risk tolerance for various businesses. For instance, some banks may prefer to finance a restaurant over a service company. Make sure you do your research and ask your bank about their financing experience in terms of your specific industry.

It’s also a good idea to ask these key questions:

  • Do you offer credit lines and term loans for a small business?
  • What will I need to comply to become eligible for a credit line or term loan?
  • What terms and conditions come with these loans?

Thoroughly evaluating potential banks to work with will save you from making the wrong choice. You never know — the bank you overlooked previously because of a slightly higher fee (or other factors) may actually have the best capabilities for funding the growth of your business and can accommodate your concerns.

Consider the convenience offered by the bank

Some banks offer small business owners great tools and different ways to bank to make transactions more efficient. For example, take a look at free bill payments online where you can automate them on a monthly basis.

Other financial institutions also have services that allow you to track expenses and monthly charges to help you understand better how your business finances are changing over time.

2. Focus on the “5 Cs” when getting a loan

The “5 Cs of Credit” is a basic guideline for most financial institutions to evaluate a borrower. As a business owner who intends to get a personal loan, understanding these categories will improve your chances of getting a loan approval.

  • Character – This is a lender’s general sense of a borrower’s credibility and character. Ensure that you have high-quality references and credentials, and are sincere in all your bank interactions.
  • Capacity or Cash Flow – This is the borrower’s capability to repay the loan. Get your financial status sorted out and plan exactly how you intend to use the funds and make repayments.
  • Capital – This is the amount of money that you invest personally. Most banks are actually willing to lend money to individuals who invest their cash into developing a company.
  • Conditions – Economic, environmental and industrial conditions may affect your company and how you’ll be using your loan. Understand your market and prepare to explain to the bank how your business will succeed despite these conditions.
  • Collateral – This pertains to your personal assets that will act as a backup in case you fail to repay your loan.

3. Build a two-way relationship with your banker

Often, small business owners have a limited relationship with the bank, such that most checking transactions only involve debits and deposits.

Make time to get to know your banker and ensure that they also get to know you well. Remember, having a good relationship with your banker will benefit your business in a lot of ways.

Some business owners are even able to get a credit line or a business loan, and have their fees reversed. This is all because of the trust and track record they have with the banker. You never know — your working relationship may be beneficial to your business in the future.

Choosing the right bank for your business is a critical decision. Make sure to pick a good bank that offers answers to your problems and goes the extra mile to ensure the growth of your business.

News Reporter