Manufacturers & Distributors ARTICLE -
Manufacturers shop for a better banking experience
Target Audience: Manufacturing and Distributing Companies, M&D Industry
In the wake of recent economic uncertainty, manufacturers may be reluctant to make changes to their banking relationships. But, in fact, many companies are exploring their banking options.
According to an August 2010 survey by strategic consulting firm Greenwich Associates, 20% of midsize businesses and 16% of small businesses had requested proposals from new financial institutions in the previous six months. Can your manufacturing company benefit from a new banking relationship?
Reasons to make a change
Manufacturers willing to endure the arduous process of shopping for a new banking relationship are doing so primarily because they want:
Lower fees. Still reeling from the sting of a down economy, manufacturers are requesting proposals from competing banks in the hopes of securing lower interest rates and more palatable banking fees. Common charges include monthly service fees for checking and savings accounts, as well as fees for overdrafts, late payments, exceeding a credit card limit and exceeding the number of monthly transactions allowed for an account. A few missteps and these costs can add up quickly.
More capital. After months of financial prudence, manufacturers are beginning to seek access to more capital for things like equipment purchases and facility updates. Lending capacity varies from bank to bank. So, for growing companies, switching banks could be the solution to an increasing need for cash flow.
Personal attention. The age of banking automation has left many business owners feeling less than satisfied when it comes to customer service. They’re seeking banks that can provide helpful face-to-face service and direct responses to questions and concerns — without paying more.
Before choosing a new bank, it’s important to identify your company’s specific needs and have an idea of what type of bank can fit the bill.
Large or small?
If securing more capital is a priority, you may be inclined to go with a larger bank. But keep in mind that recent mergers within the industry have given smaller, community banks ties to larger institutions and therefore access to more funding and services.
Additionally, community banks tend to allow for more one-on-one interaction with loan officers and are often more likely to know and consider your company’s reputation and character when making lending decisions.
Meanwhile, larger institutions are known for offering lower interest rates — something to consider if rates are a priority. Service fees vary from bank to bank, so be sure to ask about these charges. Smaller banks are more likely to be flexible, assessing fees on a case-by-case basis. And some banks may even be willing to negotiate fees during the bidding process.
Other considerations
Ideally, a bank should have services, knowledge and resources that allow it to accommodate your growing business now and in the future. The right bank will understand the manufacturing industry and be able to suggest useful services.
Some important business banking services to look for include discounted employee checking accounts, business banking programs designed specifically for manufacturers, wire transfers, merchant services, payroll services, retirement accounts and discounts on shipping and supplies.
When making your final decision on where to move your company’s banking business, the extras could tip the scales. Although online banking is fairly common, not all banks offer online business services such as payment collection, payroll applications and invoicing capabilities.
It pays to shop around
Before embarking on a search for a new bank relationship, discuss the move with your company’s financial advisor. He or she can provide a list of banks that understand your specific industry.
Keeping your company’s banking options open — and evaluating the ways in which each bank meets your needs — can help benefit your bottom line and future financial success.
How will financial reform affect your banking relationships?
The 2010 financial reform law signifies some major changes for Wall Street, as well as for the banking industry. And what affects banks likely will affect your company’s banking relationship. The question for many manufacturers is how.
The new law includes a number of restrictions on banking activity, regulating everything from capital to service fees. Although the law’s long-term effects won’t be seen for several years, the initial obstacle for banks will be the cost of compliance with the new rules.
Forecasters predict that this added expense will be passed on to business customers in the form of reduced credit availability. With less credit on hand and to avoid federal penalties, banks could become more stringent about whom they lend to.
In theory, compliance costs will hit smaller, locally based banks harder than larger institutions. If the bank you currently use falls into this category, you could see it make strides toward substantial growth or become one of the many small banks choosing to merge with larger, national financial institutions.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
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