What to Look For in a Business Bank Account

Whether you’re setting up your new business for the first time or simply switching financial institutions, choosing a business bank account is an important decision. It can affect everything from how long it takes you to travel to your branch to your business’ cash flow. It’s not a decision to be taken lightly or made based on some temporary advertising gimmick. We’ve all seen those fliers in the mail touting 3 free months of checking or a one-time deposit bonus. As a business owner, you need to look beyond the surface and dig deeper.

How the Wrong Bank Account Can Hurt Your Business 

There are all kinds of business bank accounts. Each bank has their own set of terms. Your job is to make sure those terms match up with your business needs. If they don’t, your business could suffer in very tangible ways. Here are some examples of terms that could be problematic if the account doesn’t suit your business:

Extended Holds on Large Checks 

It’s very common for some businesses to receive checks over $10,000. It’s also common for banks to put holds on large checks over that amount. Hold times will vary among institutions. In addition, some banks will eliminate holds on certain large checks if they are from an established client. For instance if you get a $25,000 check from the same client each month, eventually your business account manager might waive the hold and allow you to have instant access to the funds. Other banks are firm and rigid and won’t release funds until the hold time is complete. Further, some banks have extended hold times that may last between 7 and 10 business days.

Hold times can severely impact your cash availability and cash flow. You can’t safely pay your own bills with that money until the hold is released. This can (and eventually will) cause problems at certain slow times of the year when your business really needs the cash. Look for a bank with shorter holds on large checks and a manager who will agree to waive holds on repeat client deposits.

Fees on Deposits 

Many business bank accounts charge fees on deposits over a certain limits. For example, an account holder may be entitled to five free deposits each month. After that, each deposit carries a $2.50 fee. The system seems strange, but for whatever reason, this is a new trend in banking. Now, if you’re a business that only makes a few deposits each month, fees on deposits aren’t really a big deal because you’ll likely never incur them.

However, if your business makes frequent deposits, these fees will add up fast. You may even end up holding onto deposits so you can batch them together and avoid the fees. But then that negatively impacts your cash flow. Consider how your deposit schedule will work with the terms on any business bank account you’re considering. It may be worth it to choose a bank and account with no limit on deposits so you never have to give it a second thought.

Minimum Balances 

Minimum account balance requirements are very common these days; in particular with business bank accounts. Banks want to know that you’ll keep a certain amount of money in the bank so they can count on it to do business. A negative incentive to keep a minimum balance in there is that the bank will charge you a hefty monthly service charge if your balance drops below that amount. There may even be a daily service charge for each day that your business bank account is below the minimum.

If you’re a large corporation with millions in the bank, a minimum balance requirement is probably not a big deal. But if you’re a small or medium sized business, you may commonly have large fluctuations in your bank account balance. You may even have seasonal fluctuations that are really beyond your control.

Adhering to minimum balance requirements might seem like a reasonable request in the beginning when you’re flush with cash. But how will you feel about it when you have payroll to meet and the money’s in your account, but you can’t use it without incurring penalties? Or when some catastrophe strikes and you need to use your cash resources to get up and running again? Your best bet is to choose a business bank account with either no minimum balance requirement or one with a very low minimum.

Proximity to Your Place of Business 

A smaller yet still important concern is the proximity of the nearest branch to your place of business. Even if you do most of your business banking online, sometimes a visit to a branch may be required. You might have a new manager you want to add as a signatory, a loan application to discuss, or some other matter that necessitates an in-person visit.

If the bank branch is far away from your place of business or residence, you may find it highly inconvenient to do conduct bank business. This can impact how much time you need to spend out of the office and how long it is before you arrive home each night. It can cause scheduling problems if you need to send someone to the bank with a deposit and you’ll be left short-staffed while they’re gone. For long-term convenience, try to choose a bank that’s within an easy drive of your business. Only you can determine how long of a distance you can tolerate on a frequent basis.

These are some of the most important considerations that you should think about when choosing a business bank account. As you can see, many of them are about the bank and not the account itself. If you have any questions about which one to choose after you’ve spent some time comparing and contrasting various options, please feel free to contact us. We’ll be happy to help you select a business bank account based on your business needs.