In a time when banks are under siege and taking it out on small to mid-sized businesses, PMF Bancorp recommends that you decrease your banking partners in order to increase your profits. As we noted recently, Bank of America has changed the structure of their lending deals to help themselves and hurt business owners. By having too many banking partners, you leave your business open to being hurt by hidden fees and increased regulatory hoops. Each bank wants to interrogate your business, not focusing on the reality and the history of your company. Rather than focus on profits coming in and the development of new business, they want to ensure their own safety while leaving your future blowing in the wind.
The number of bank relationships is crucial for the business strategy of your company and thus for its performance. Choosing the number of banking partners, however, is not a straightforward task. On the one hand, single relationships are risky and undesirable when your company has a cash flow crisis and needs liquidity. On the other hand, multiple relationships are costly, in particular for smaller companies. Consider the benefits of using smaller community banks as opposed to the larger financial institutions. According to MultiFunding research, in 2010, the top 25 banks controlled about 61 percent of all deposits, but made only 20.3 percent of all SBA 7(a) loans. Smaller banks held about 39 percent of all deposits but made 79.4 percent of all SBA 7(a) loans.
Without a doubt, it is wise not to use a single bank as your only resource. Building additional financial relationships and having a backup or two makes sense. But never let this impulse take you beyond a definite limit of a few banks. By consolidating your bank accounts, you increase the efficiency of your financial management. As you well know, your company treasurer always should keep track line by line of your company’s bank transactions. Still, by limiting your exposure and negotiating from a stronger base, you can lower bank fees and preferential services can be obtained.
Do not undermine your own business. Make a strong decision in regards to how a potential bank meets the specific needs of your company. Rather than be subject to the whims of the economy and the paranoia of the large financial institutions, make sure you design detailed service level agreements with your chosen banks. In addition, never forget that PMF Bancorp offers you a viable alternative to traditional banking. By embracing the potential of invoice factoring and accounts receivables financing, you naturally avoid the absurd obstacle courses and hidden fees that characterizes the dungeon mentality of modern banking.