Small business owners may contemplate switching banks to benefit from bonus rewards, higher interest rates, and lower fees offered by new providers. However, you should carefully evaluate whether switching business banks is a good idea. Although new providers offer many benefits, these may be overshadowed by the disadvantages of changing business banks, such as limited branch access, additional bank charges, and the time-consuming effort of transferring accounts.
Here is a list of seven reasons not to change business banks.
1. Limited Branches
You must consider branch accessibility before moving your business bank account elsewhere. If you need to visit a branch to deposit cash regularly or prefer in-person banking interactions, your bank must have branches near your business location.
Even if online banks and financial technology (fintech) providers offer convenient account opening and services without requiring your physical presence, financial institutions with brick-and-mortar branches can be easier to visit if you have account issues or want to receive more information right away.
2. Competitor Rate Match
While an attractive rate may encourage you to change business banks, it pays to talk with your current bank to learn if it can match a competitor’s offered rate. Many incentives can be available for customers who have been banking at the same institution for years. Some banks can give higher interest rates to your savings accounts and reduce or waive some of the loan fees.
3. Difficult to or Cannot Meet Account Requirements
Check the costs of opening an account at a new bank. If your business holds small balances, it can be costly to maintain a certain balance to waive the monthly service fees. You may also be unable to take advantage of a high annual percentage yield (APY) if a bank requires a minimum balance to earn interest every month.
4. Higher Fees
Before moving your business bank accounts, understand the business banking fees that a financial provider charges. You may be required to maintain specific balances to avoid monthly service fees or to earn interest from your business checking or savings account.
Moreover, some banks and credit unions tend to limit free transactions and charge an additional fee past the limit. This practice applies to cash deposits as well. You will want to know if a bank charges an overdraft fee and returned item fee and if it offers overdraft protection to avoid paying high fees.
5. Additional Time and Effort to Switch
Another reason not to change business banks is the time and effort it takes to transfer your bank accounts. As mentioned, you will need to compare banking fees and interest rates, check branch locations, and submit requirements for new business bank accounts.
Additionally, if your current business bank account is enrolled in plenty of automatic payments, you need to allocate enough time to transfer and set up automated payments at the new bank. You must also have sufficient funds to cover the financial payments at your old business bank account while processing your new account and closing an old account.
6. Lost Business Relationship Benefits
If you are a long-term client, banks can offer more benefits. They may approve your request for a higher interest rate or lower loan fees. Some banks may even waive certain banking charges, such as fees for cashier’s checks and overdrafts, as long as you are a loyal business customer with an outstanding track record of managing your account.
Many businesses also deal with the same banking representative and will prefer to stay with the bank for that reason. Before you consider switching, you should have a conversation with your representative to see if they can solve any issues you have.
7. Risk of Rejection for Loan Applications
Typically, lenders evaluate your bank history when you apply for financing. The chances of getting approved for a loan may be minimal if a bank notices that you have not stayed with one particular bank for long. Although switching business banks might not hurt your ability to get credit, a pattern of changing every few months may raise a red flag when applying for credit.
If you have a solid long-term relationship with a bank, lenders are more likely to help you secure products with their bank. If you don’t have that long-term relationship, they might be less likely to lend you money.
Pros and Cons of Changing Business Banks
The table below shows the advantages and disadvantages of changing business banks.
| PROS | CONS |
|---|---|
| Higher interest rate potential | Difficulty in establishing a stable relationship history when applying for loans |
| Introductory bonus offers | Time to set up automated payments |
| Better banking system | Lose customer loyalty benefits |
| Longer operation hours | Customer service quality may not compare with other banks |
The Importance of Choosing the Right Business Bank
Changing business banks may take a huge chunk of a small business owner’s time. That is why it is essential to research and compare business banking fees, products, and services among different financial institutions.
However, if your business needs have changed and you seek access to more business tools and services, you do not have to stick with your current bank. Read our article on how to change business bank accounts for an easy transition.
Related resources:
Frequently Asked Questions (FAQs)
Changing business banks is recommended if the new bank offers higher interest, lower fees, and more accessible branches. Business needs evolve, and finding a suitable provider that matches your current needs is vital.
You should switch business banks when you pay high fees, earn little interest, and want more access to business tools and software integrations.
No, switching banks will not affect your credit score since the banking history of your checking and savings account will not appear on your credit report. However, be sure to switch all automatic payment withdrawals to your new account, or you could run the risk of missing payments, which could affect your credit.
Bottom Line
Even if there are advantages to changing your business bank, you need to first analyze whether this is a good decision by reviewing what the new bank offers in terms of branch proximity, customer service quality, banking costs, and interest rate. If you plan to apply for financing, you also need to consider the advantage of having a long banking history, which can increase your chances of getting approved for loans.
