This one might come as a surprise, but founding and running a business costs money. Where there is a financial transaction, there are banks in the backend doing the heavy lifting.
Business banking is a little different than consumer banking, and so, it pays (pun intended) to do a bit of research before deciding where to park your company’s money.
How do I learn about available business banks?
While our first instinct may be to google and do some online research, banks are for the most part a commodity. It’s hard to differentiate what one bank does better than the other just by reading their blurb.
According to Aria at Silicon Valley Bank, well-connected founders tend to rely more on their network. They’ll often use the same solutions that they or their team members have used at a previous company, or those trusted by their close colleagues.
Jason at Mercury echoes this sentiment - and mentions that a lot of startup incubators like YCombinator and Techstars will also have preferred solutions that they recommend and refer to the startups they nurture.
So what sets the banks apart?
Jason suggests that one of the few services that banks can provide that other institutions can’t, is a place to hold your money. Other fintech services have taken care of almost everything else that a bank can do - like transferring money, issuing credit, protecting users from financial fraud, etc. The way that banks show their worth then, is the competency of the bank representatives.
Questions you should ask yourself:
- How good is your company’s relationship with the bank?
- How experienced is the bank in your industry?
- How experienced is the bank with companies of your size, scale, and expertise?
- Who and what does the bank know that can help you take your business to the next level?
That said, Mercury believes in a high quality UI & UX, and that’s what they focus their time on building. They don't think you should have to know someone or explain your company to an old-fashioned banking team. You should have access to great accounts and great product with a 10 minute signup.
Aria agrees - Silicon Valley Bank has been one of the most successful players in the business banking world among startups especially because it has taken its time to nurture relationships with venture capital and private equity firms. They make plenty of introductions, provide consultative services, host networking events, and provide teams of employees dedicated to each one of their business customers. Their mix of digital and human servicing sets them apart from many of the smaller local banks, as well as the big banks that most of us think of like Bank of America and Chase.
The banking relationship is a two way street
Mike at Porter Keadle Moore takes things one step further. He reminds us that the banking relationship is a two way street. You should know the needs of your company, and be able to communicate them with your relationship manager. Know your value to the bank, know your business needs for the next 1-3 years, and know your risk profile. That’ll help you in negotiations about deals and concessions, as well as with getting your foot in the door and making sure that this is a mutually beneficial agreement. Remember that banks are old fashioned, and most are afraid of taking risks on startups with first-time founders.
So, where should I get started?
Well, no surprise here. You have tons of options:
- The battle tested bank: If you want to go with a company with a great track record for working with tech companies and startups of all sizes, you can’t go wrong with Silicon Valley Bank.
- The personal touch approach: If you’re looking for a more local relationship and happen to be in the south or midwest, Mike is a big fan of Central Bank of Kansas City, Atlantic Capital Bank, Sutton Bank, and First Century Bank. These community banks also happen to be payment experts.
- The new kid on the block: If you’re open to newer solutions, Mercury is looking to shake up the banking industry by providing you with accurate snapshots of your company’s overall business & financial health, as well as having a robust and automated system so that you don’t have to directly interact with bank representatives unless you want to. They were built by repeat entrepreneurs who know how startups work, and are funded by top VCs and angels.
Will my bank be able to support me as my revenue increases?
Heck yeah it will! Some options, like Silicon Valley Bank, are able to support companies as they grow from teams of 1 all the way to Fortune 500 companies. If you decide to go with a smaller bank, no worries. Companies usually stick with the bank they started off with.
If there’s too much volume of payments for one bank to handle, it’s pretty common to have relationships with multiple banks in order to get all your transactions processed quickly and efficiently. The more tech-forward banks, like Mercury, will also be able to provide analytics on your revenue sources so you can get a better idea of where you're making money in real time.
Should my bank’s loan underwriting requirements be a concern?
This one’s a mixed bag. On the one hand, early on, liquidity is super stressful for companies. You want to make sure that your burn rate is controlled and that you’re not going bankrupt before you get to show the world what makes you a valuable contender.
In that sense, it’s great that banks like Silicon Valley Bank are flexible with their underwriting and have creative solutions for early stage companies that need credit or debt. In general, if you have a strong relationship with a bank, unless you’re spiraling, they’ll do what they can to support you with loans (dependent on size and due diligence, of course).
However, just like you wouldn’t necessarily get a mortgage from your consumer bank (because other mortgage lenders might have more competitive rates and products), you should feel comfortable shopping around when you’re looking for extra cash.
I love rewards as much as the next person, and I definitely want to maximize the interest I get on my money. That said, keep in mind that rates are usually fairly competitive across the board. The relationships you have with your bank tend to be more valuable in the long term than a half of a percent of interest.
Even so, if you’re looking for additional concessions, make sure to ask your community banks. They’re more likely to fight for your business than the bigger players.
Look for a no-nonsense type of account with a high interest rate, minimal fees, simple daily operations, easy to read reports, and one that is managed by folks who know your company and your industry.
What about credit cards?
Business credit cards are more complicated than one might think. We’ll go into the differences, and best strategies for picking one, in our next article.