How to Choose the Best Bank for Small Business (and Avoid the Worst!)
Banking is a funny thing.
With every deposit, we are putting our money in someone else’s hands and trusting that it will be there when we want or need it. We’re also giving that institution the power and ability to use our money while it is held on deposit. But..
We all know that not all banks are created equally — or ethically.
So if you’re trying to build a business that has positive impact on the world, you must pay attention to your banking choices. Luckily, you can ensure that your money isn’t going into the worst banks by screening for values and impact first.
What does your bank do with your money?
Business owners often choose to open bank accounts at places that are physically close to us (convenient) or where we have banked previously (known).
For many people, the convenience and security equation leads them to choose one of the country’s biggest banks: after all, they are practically everywhere (convenient) and dominate that marketing landscape (well known... I mean, doesn’t everyone bank there?).
But in the age of electronic banking, proximity is not always the best indicator of convenience.
And size is certainly not a guarantee of safety or security.
Big banks are sometimes the worst banks and not necessarily trustworthy. (Try a quick search for Wells Fargo scandal and you’ll see what I mean). Nor are big banks the most in tune with the needs of small business owners.
Fair warning: Choosing a new bank may feel overwhelming. But it is also a great opportunity to practice an effective decision-making process. Start by brainstorming your list of what’s important to you in your next banking relationship.
When I think about choosing the best bank for small businesses, I start with three questions (in this order):
Alignment with social values and ethical priorities (Do I feel OK banking here?)
Online access and functionality (Can I do what I need to do, easily?)
Cost/fee structure (Are the fees reasonable for the services I need?)
There are literally hundreds of banking options available to you depending on where you live and assuming you have reliable internet access for online banking. Luckily there are some tools to help narrow the search.
Start your search for Ethical Banks at Bank for Good
To avoid the stress of unlimited search, I recommend that you start your search at Bank for Good. Bank for Good is an amazing tool to help you find a bank, credit union, or other financial institution that backs the planet and its people and doesn't fund fossil fuels.
A few things I really like about this site: Off the top, it clarifies that you can search for a business or personal bank on the site so it will literally work for everyone. More importantly, the organizations behind it are clearly addressing both social justice/ racial equity AND climate change in their lens – which means you can get transparent and useful information to identify a shortlist of banks to research further for your business banking needs.
Go ahead and try a quick search on the site. I’ll wait…
OK. Now you have a short list of banks that may match your need to make sure your banking is aligned with your values. How do you know what you’re looking for?
The best Value-Aligned Banks for Small Businesses fall into 4 categories.
The banks I recommend fall into four categories: Social Impact Banks, CDFIs or Community Development Financial Institutions, Credit Unions, and Independent Community Banks.
To understand all the options available to you, here’s an overview of each type of bank to consider.
Social Impact Banks Mesh Mission with Business Structure
Social Impact banks have their social impact mission built into their business structure and core operations. To be sure this is a solid commitment (not just “greenwashing”), you can rely on institutions that are certified B Corporations. B Corp members meet the highest standards of verified, overall social and environmental performance, public transparency, and legal accountability.
If you need international banking, check out The Global Alliance for Banking on Values, an independent network of banks using finance to deliver sustainable economic, social, and environmental development. The Global Alliance for Banking on Values posts member information on a global map — most of these banks active in the United States are also B Corps.
Community Development Banks and Credit Unions serve under-banked communities
Community Development Financial Institutions (“CFFIs”) are specific banks and credit unions dedicated to providing financial services to underserved and under-banked communities. All community development banks and credit unions are certified as Community Development Financial Institutions by the U.S. Treasury, a designation which affirms their focus on mission and that the geographic areas served meet a standard criteria.
If you are lucky enough to have one in your town or neighborhood, you’ll find they are a great way to know your money will be used to support your neighbors.
Plus, because they are small and geographically focused, you’ll have the benefit of building strong personal relationships with your banker. To find opportunities in your town/city, check these lists:
Community Development Bank Association: Community development banks are community banks committed to helping the underserved.
National Federation of Community Development Credit Union: Credit Unions are unique because they are structured as cooperatives that are owned by their members. Community Development Credit Unions generally serve specific geographic areas; individuals or business members are required to have some relationship to that area to be eligible to join. Community Development Credit Unions have fair-priced services as part of their core mission. If you’re looking for lower-cost banking services and care about the financial opportunities for community members, a Community Development Credit Union could be the right match for your banking.
All Credit Unions are Owned by the Members
Not all credit unions are CDFIs’ so you should also consider local credit unions that do NOT have the CDFI certification.
And because credit unions are structured as non profits that must benefit their members, they reliably offer:
Lower fees
Lower minimum balance requirements
Fewer add-on services, and
More flexible underwriting
Some people fear that smaller credit unions could be higher risk than large commercial banks. No fear: all are insured by the National Credit Union Administration, up to $250,000. So risk is not a big factor for deposit accounts under $250,000.
NOTE: if you have large cash reserves, first of all congratulations! And second, ask your bank or financial institution about sweep accounts which will move funds over the insurance limits to other federally insured banks or credit unions - that way all of your funds can be held in trusted deposits. You can even screen these for social value as well. Risk eliminated.
Independent Community and Regional Banks are friendly lenders to small business
About 80% of small business loans are originated by regional banks. This is because regional banks are still in the business of building relationships. They are more likely to actually get to know you and your banking needs and may possibly be more flexible about things like monthly fees and how they evaluate your loan application.
Where to find them? Look on the main street of your town or local shopping area.
Also note, many Black and Minority owned financial institutions fall into this category. So if you want to support Black/BIPOC wealth and entrepreneurship this could be a great banking choice for you.
Bank Black is an excellent resource to explore if you want to go this route. This is also a searchable category on Bank for Good.
Help for choosing a Better Bank
If shopping for a new bank sounds like a lot of work, remember it’s YOUR money, and it’s up to you to be sure that your money is being used to build the world you want to live in — and the world you want to leave to future generations.
Choosing a new bank is great opportunity to intentionally use our effective decision-making process.
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