Banking Tips to Start Up (and Run) a Successful Small Business

September 21, 2018
Jennifer JohnsonBy Jennifer Johnson
Branch Manager • Security National Bank 

It takes more than a great idea to launch a small business. It’s also important to have a reliable financial partner to help you turn that great idea into a successful business venture. 

That’s where banks come in! The banking industry has a long history of providing the capital small businesses need to survive and thrive. In fact, according to the Federal Reserve, the majority of small business borrowers (73 percent) turn to banks first when seeking financial advice.  Banks also offer loans to help your small business to get established, stay in business or even expand.

 In this article, we’ll highlight some important financial steps every entrepreneur should take, to best position their business for success:

1. Ask Yourself: What Type of Entity Are You?

Are you a DBA (Doing Business As) entity? A sole proprietorship? An LLC? A Corporation?  Depending on what you choose, a lawyer may need to help you draw up the necessary documents explaining what type of business you have. Those documents will be required to open a business account at a bank.

2. Figure Out How You Will Accept Payments

Will you accept cash, checks, credit cards, debit cards, mobile payments — or all of the above? Your banking partner can help you determine what forms of payment will work best for your business, and help you implement the process to make sure those payments land in your account in the most efficient way.

3. Know the 5 “C’s of Credit

There are 5 “C’s” that most bankers use to evaluate a borrower — and you should know them, too, if you want to improve your chances of getting a loan. They are:

  1. Character (trustworthiness). Much like a job interview, be ready to put your best foot forward when you meet with the lender.
  2. Capacity/Cash Flow (ability to repay the loan). Determine at least two ways that you will be able to pay back the loan.
  3. Capital (how much the borrower is putting down). You should have a certain amount saved up for a “down payment” to get your business off the ground.
  4. Conditions (economic, industry and environmental). Articulate why your business has a better “value proposition” than your competitors. Also, know the risks in your industry and have a plan to mitigate them.
  5. Collateral (assets for the loan). Have a list of all of your assets, to help the lender determine your credit risk.

4. Don’t Assume Your Personal Bank is the Best Bank For Your Business

There’s a difference between restaurants like McDonald’s and your local steakhouse — and the same goes for banks. Yet some people spend more time deciding where to grab a cheeseburger than they do looking for a financial institution. Don’t be afraid to shop around and compare offerings from different places, including rates and fees, customer service, locations, access to credit and cash checking/deposit services for your employees.

5. Value a Great Working Relationship With Your Bank.

Does your banker know your name, and what you do? Are they familiar with your industry? Do they have local lending authority, or do they leave the loan decisions to someone else higher up on their national chain? At Security National Bank, we pride ourselves on knowing our partners — and making local decisions that are in their best interest.

6. Remember: “Free” Business Checking Can Still Have Fees

Watch out for hidden fees from banks that claim to not have any. For example, a “free” business checking account might still come with cash transaction fees or excess activity fees.  Ask your banking partner about these hidden charges — and make sure your account matches the type of business you expect to bring in. At Security National Bank, we are transparent and offer many different types of small business accounts, tailored to fit your needs. And if your business needs ever change, we can switch your account type without changing your account or card numbers.

7. Understand FDIC Insurance Limits

You probably know that accounts at the bank are insured up to $250,000, in the event of theft or disaster. But did you know that if you’re a sole proprietorship (a business owned by one person), that insurance amount is applied toward the combination of your business account AND your personal funds. For example, if you are a sole proprietor with $200,000 in your business account plus $100,000 in your personal account(s), your combined total of $300,000 will leave you $50,000 short of the amount for which you’re insured (and we would encourage you to move some of that money elsewhere). For non-sole proprietorships, FDIC limits are $250,000 per entity per bank.  

8. See if You Qualify for an SBA Loan

The U.S. Small Business Administration helps small business owners get funding through federally subsidized “SBA Loans”. Through these loans, the government guarantees up to 85 percent of the loan amount, which could mean a smaller down payment and lower interest rates for you (to qualify, you must meet certain requirements and have a solid credit history). Make sure your bank is comfortable working with the SBA loan system before you start doing business.

9. Think About All Of Your Business Banking Needs

There are plenty of available bank services that small business owners forget about:

  • Multiple account types (sweep accounts, payroll accounts, online accounts, savings accounts)
  • Payroll services
  • Employee debit and credit cards
    Discounted personal banking for employees
  • No-fee check cashing services
  • Business online banking services
  • Remote deposit checking
  • Merchant services
  • Lines of credit
  • Term loans
  • Commercial real estate loans
  • Wire transfers

Make sure you are taking full advantage of all the business offerings your banking partner has to offer. 

Want to Know More About Starting up a Small Business? 

At Security National Bank, we have decades of experience helping our small business partners achieve continued success. If you’re an entrepreneur with an idea, set up an appointment with us today!

About the Author

Jennifer Johnson

Jennifer Johnson the Branch Manager at Security National Bank of South Dakota's West 26th Street & Lorraine Drive location in Sioux Falls. An experienced personal and commercial banker with nearly two decades of financial experience, Jennifer has also served as a business advisor with the Peace Corps in Kenya, Africa.