The market has changed considerably in recent months, and startups have different banking needs than they did last year. It can be challenging to sort through all the information flying around and feel confident in your decisions, especially when the need is urgent.
Finding the right fit for your startup all comes down to due diligence and understanding your needs. Similar to preparing your business plan, you want the partners you select to contribute to your goals and support you along the way. Choosing the right bank from the start will help set you up for success.
For many founders, the initial motivation for a banking relationship might be a basic business checking account. However, this decision will have sizable implications. The bank on the corner or a digital-only bank might seem convenient, but partnering with a bank that has startup credentials, a sound balance sheet and a genuine commitment to early-stage companies offers tangible, long-term benefits.
Here are five things to consider in choosing your bank:
1. Strength and Stability
When assessing a bank’s financial stability for the future, ask these four questions:
1) Is the financial institution a federally regulated bank or a fintech?
A federally regulated bank offers standard banking products and services that serve you as your company evolves. A fintech may offer only limited products and services.
2) Where do my funds sit?
Most fintechs keep their customers’ money at small community banks. Be sure you know where your funds are and have a clear picture of the strength and stability of the institution that supports that fintech.
3) Is the bank diversified in its portfolio?
A diversified portfolio of clients and business lines often leads to more stability. A bank with exposure to only one industry usually carries higher risk.
4) Are my funds FDIC insured?
Standard FDIC insurance covers up to $250,000 per depositor, but many banks offer insured cash sweep options for much higher balances — in some cases up to $150 million. Check with the bank to see what programs they offer to provide additional insurance.
2. A Real Relationship
If we’ve learned anything over the last couple of years through the pandemic and banking industry changes, it’s that having a relationship with your banker is vital. Knowing your main point of contact, how to reach them and being confident that they will respond in a time of need is key. A chatbot or 1-800 number will only get you so far. With the avalanche of demands on your time as a founder, a banking relationship that offers a single point of contact for your startup business account is a necessity. You want to know your banker, and you want your banker to know you. This fosters a more strategic relationship as you grow, making conversations and requests far more fruitful.
3. Understanding of Startup Needs
In truth, banking for startups is a specialized area of focus for financial institutions. You should look for a bank with a dedicated team, specialized product options and a set of resources geared to early-stage startups. The words “free” or “no fees” are always attractive, but understanding the “why” behind them is important. Banks with a commitment to helping startups scale their businesses understand the need to stretch every dollar. Certainly, read all the fine print, but a “no-fee” package of banking services that includes competitive promotions and money market account rates for seed and pre-seed startups is one way your bank can show support for your idea — because when you are successful, so is the bank.
4. Tools to Grow
Any bank or fintech can accommodate a startup’s initial needs, but it’s helpful to look for an on-ramp to a richer relationship that can sustain your company as it evolves. Banks committed to the startup space should have targeted products and services for the earliest phases, through the growth stage, pre-IPO and beyond. As you explore differentiators, ask potential banks, “Do you have the tools and services I’ll need as my company grows?” Importantly, check whether the bank offers venture debt financing to startups to complement venture capital funding rounds, which can help founders retain more of their equity. Not all banks that provide banking services for startups will offer debt solutions as the company grows, or they may have limitations on that offering. You will also want to discuss treasury management, to make sure you are earning capital from your deposited funds, as well as international banking capabilities.
5. Ecosystem Connections
You should have a solid relationship with your banker, one that goes beyond basic banking. A plugged-in tech and innovation bank should offer a connection to the tech ecosystem and know some of the best industry resources for startups. Check for partner resources — from savings to offers on key services, such as cloud services, HR/payroll support and more. A well-connected bank will host industry events for founders to network with peers and investors, provide value-added webinars with industry leaders on relevant topics and offer you other insights.
Choosing a bank that fits your startup’s needs — for now and for later — can deliver real benefits for founders and their growing enterprises.
Learn more about Bridge Bank’s focused approach to Startup Banking
Contact Kelly Caviglia