Getting a loan for your small business may be the first step to making money from your home-based business! These tips for small business banking are from finance and banking expert Michael J. Harris of Aperture Capital.
“Know not only your banker, but also a few other members of the local office, including the Regional Vice President,” says Harris. “Banking is a notoriously transient industry, and your banker today will likely not be your banker in two year. Get to know your banker’s support personnel, and management. If there is a change in your banking officer, you’ll still have familiarity and continuity.”
For a complete guide to small business banking, read Financing the Small Business: A Complete Guide to Obtaining Bank Loans and All Other Types of Financing. And, here are Harris’ tips for small business banking and making money from home…
Getting a Small Business Loan
If you already know you don’t want a business loan, read 30 Ways to Make Money on the Side.
An entrepreneur or small business should open a small business account early. Harris suggests filing a DBA/Fictitious Name Statement and a business depository relationship should be established on Day One.
Opening a small business account right away does two things:
- Establishes a separation between the individual(s) involved in the ownership structure and the actual business.
- Begins a relationship with your bank and bankers. It’s good to get to know each other as soon as possible. This makes any eventual requests for credit a lot smoother, if you handle your deposit accounts appropriately.
A business banking relationship is distinctly different than a personal banking relationship, in that the business needs to be recognized as a distinct entity. If the entrepreneur and business ‘behaves itself’ with its bank, it develops the trust necessary to request and obtain credit to support revenue growth, market expansion, and other eventualities such as purchasing a building, equipment, or financing to acquire another business. This tip for small business banking involves future possibilities.
A big or little bank for your small business loan?
Whether your small business requires a big, little, or local bank depends on several factors. Business owners have their own idiosyncrasies, and need to know what they are seeking in a banking relationship. For example, smaller banks typically have a ‘flatter’ organization structure, which normally affords business owners more direct access to the bank’s senior management and the decision makers. However, smaller banks typically do not have the branch footprint that the multi-regional/national banks have. This may be important to a company that employs people in multiple states, who need to cash their paychecks locally.
Overall, the small banks and the larger banks have all the same products and services in terms of lending and depository/cash management products. This is a relatively recent development (within the last seven years or so), and has basically leveled this aspect of the bank playing field.
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3 Questions Home-Based Business Owners Should Ask
1. What is your credit decision process? The answer gives you an indication of the bank’s ability to respond to requests in a timely fashion. Banks are notorious for taking a very long time to make decisions, particularly regarding credit requests. A linear decision process (where a credit recommendation goes up the chain of command, individual by individual) is typically a faster process than a committee process (where the decision makers meet collectively, usually once every week or two weeks).
2. What is the local credit authority limit? Many local commercial banking/business banking offices will have a Regional Vice President with local signing authority. This comes in handy for requests which fall within that limit, because it typically means that only a couple of people need to recommend and approve the request (versus up to four or five if there is not a local credit signing authority).
3. What is the bank’s standing with the FDIC and their regulators? Ask to see any documentation they can share, revealing their ratings with the regulating agencies. There are plenty of solid, well-capitalized banks out there. There is no reason to start a relationship with one that is on shaky ground. A government take-over is disruptive and invariably creates opportunities for mistakes.
If you have any thoughts on getting a small business loan and making money from your home-based business, please comment below!
If you’d rather work for your money, read 10 Highest Paying Jobs for College Students.
Michael J. Harris’ Aperture Capital acts as a bridge between small-to-midsize companies and multiple capital providers to help them find financial solutions. Harris also contributed 9 Tips for Small Business Owners.
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