Break Up with Your Bank: Should I move my business account out of a large national bank?

What is “Break Up with Your Bank” all about?

On September 29, Bank of America (the second largest bank in the country) announced that they would begin charging consumers a monthly fee for use of debit cards.  This hit a nerve with consumers, and even though Bank of America has since backed down, hundreds of thousands of people have left big banks for credit unions and other smaller institutions.  This movement has been affectionately referred to as “Break up with Your Bank.”

How does this affect small businesses and startups?

As a practical matter, the $5 per month fee is pretty insignificant.  However, the fact that your bank is willing to risk adversely affecting its relationship with you for $5 per month speaks volumes.  In our section about how to Open a Business Bank Account, we recommend that you develop a relationship with a smaller bank.  In order for someone to care about you, they have to know who you are.  I’ve had an account with Compass Bank for over ten years and they have no idea who I am.  However, every time I walk into ChooseWhat.com’s regional bank, Plains Capital Bank, I’m greeted by name.

What are the advantages of switching to a smaller bank?

I’m going to repeat my above statement because it’s really important:  In order for someone to care about you, they have to know who you are.  Here are a few examples of how our banking relationship has benefited our business and me personally.

Phone Calls, Not Overdraft Fees

If our account is overdrawn, our banker calls us to let us know so that we can put more money in the account. A big national bank will just send you a fine.

Flexibility

I bought my house in 2010, two years after my business partner, Leo Welder, and I started our business. To qualify for a mortgage you have to submit two years of tax returns, and at the time I hadn’t filed my 2009 return yet. My 2008 return was fine, but my 2007 return showed earnings of only $19,000; so I didn’t qualify. However, my banker knew my financial situation, and Plains Capital Bank gave me a short term loan so that I could close on my house with the understanding that I would refinance with a traditional mortgage as soon as I filed my 2009 tax return. Try getting service like that from Bank of America.

Protection

We previously had a landlord that was having some financial trouble. One time he took our rent check to the bank lobby to cash it. The bank thought this was strange, so our banker called and asked me if they should cash the check before they gave our landlord the money.

Convenience

If I need something from our bank, I have several people I can call who know me by name. I don’t have to enter my account number on a touchtone keypad, I just call our banker on his cell phone and tell him what I need.

Quality Customer Service

You might be saying, “It sounds too good to be true.  ChooseWhat.com must be a major account to receive the level of service they’ve experienced.” That is simply not true. Today, we are doing pretty well. However, when we opened our account, Zilker Ventures, the parent company of ChooseWhat.com, consisted of me, my partner Leo and a few part-time interns. Our bank has always treated us the same way we’re treated now. We have a good relationship with our bank because they have been with us from the very beginning. They understand things about our business that you can’t see on a financial statement. Developing this type of relationship can be very valuable for your business.

What are the disadvantages of switching to a smaller bank?

Inconveniences

The main reason not to change to a smaller bank would be to avoid the logistical complications with changing banks.  You’ll have to get new checks, new check card numbers, update your payroll, etc.  Things rarely go exactly according to plan when making major changes like this.

Credit

Another reason might be that your credit isn’t as good as it was when you opened your account at your current bank.  If this is true, you might not be able to open a new account somewhere else.

If you do plan to switch banks, make sure to open the new account first.  Keep the old account open for a few months even after you’ve switched all your activity to the new account just in case you missed something in the switch.