Entrepreneur Enterprise: Finding a Bank for Your Small Business

Starting one's own business can be the fulfillment of the American Dream. But it's also a risk that should be carefully calculated. According to the Small Business Administration (SBA), more than 50 percent of new businesses fail in the first five years. The SBA cites reasons such as lack of experience, insufficient capital and poor credit arrangements as some of the problems that plague new business owners.

Starting a new business requires sound preparation and homework. In addition to creating a strong business plan, new business owners need to give serious thought to finding a bank which can service their small business needs. While many entrepreneurs will invest personal money for their business, a business loan of some kind may also be needed. There may be SBA or other government-guaranteed loans the entrepreneur may consider. However, to access any kind of small business financing, one needs a solid business plan, good credit rating, and collateral to present to a bank.

Whatever the financial needs, it's important to recognize that one of the most important relationships a small business owner will develop is with his or her bank. Having the appropriate capital is a key element to a successful business. Therefore, this is one relationship for which an entrepreneur must give time and examination.

One place to begin is with other business owners. What banks do they recommend? Why? What types of services make them stand out from the others? Entrepreneurs should also consider the bank's specialties and determine which ones specializes in small businesses. A commercial realtor would not be utilized in the personal purchase of a home; and similarly, business owners should not select a bank focused solely on personal business needs. Rather, business owners should seek a bank which works actively with businesses. At the top of the list should be favorable interest rates and knowledge of the unique needs of a small business. It's not a bad idea to look at an average of at least ten banks.

Business banks offer special features such as night depositories, online business banking services, business checking, and commercial loans and lines of credit. It goes without saying that the bank should also be FDIC insured, which ensures deposits of up to $100,000 are covered by the government.

Some may be tempted to completely overlook a smaller or regional bank during their interview process. However, one should keep in mind that a small or medium-size bank may take the time to consider and provide a fledgling business with the cash needed to run the business. In some cases start-ups may find it's these banks that are more flexible and willing to offer credit. Some larger banks must maintain a more rigid philosophy in their lending practices, making it difficult for a new business owner to obtain financial support.

While the bank will be interested in obtaining a clear financial picture of a potential borrower, the borrower should also be prepared to examine the financial health of the bank. In developing an important relationship such as this, both parties need a realistic bottom-line look at the numbers. A small business owner should have a feel for his or her bank's primary source of revenue, as well as exposure to residential and commercial mortgages. In turn, the borrower should be prepared to present the bank with numbers on available assets and any personal or business debt. In today's market, banks are wisely tightening their belts and using caution when it comes to lending money. It is imperative entrepreneurs show their ability to pay loans and manage funds responsibly.

After a decision has been made and a business account established with a particular bank, it's a good idea to become acquainted with the bank's staff. Using a commercial transaction window regularly allows business owners to become familiar with the managers. Taking the time to remember names and faces will help bank staff remember you. A positive business relationship with a bank is a win-win prospect for both parties. And it's key to helping businesses overcome the certain challenges encountered on the road to success.