Choosing a bank for your law practice
April 10th, 2015 by Briana Cummings
If you have no idea how to choose a bank based on anything other than how long it takes you to walk to the closest branch (or whether they offer lollipops at the teller window), I off the following checklist of other factors to consider. Not all banks are created equal, and most experts recommend reevaluating your banking needs not just at the start of your business but also every few years.
As you comparison-shop, a business account officer from each bank you’re considering should be available to answer all your questions—though you might get the best scoop by asking around among your colleagues.
- Is it approved for IOLTA accounts? If you plan to hold client fees in trust (i.e., before you perform the work), you need to hold the money in an “Interest on Lawyers’ Trust Account” (IOLTA). In Massachusetts, attorneys may only hold IOLTA deposits in financial institutions that have been certified by the IOLTA Committee.
- Expertise in the legal sector. How familiar is the bank with the legal industry, and more specifically with law practices at your stage of the growth cycle?
- Where are you more likely to get a loan or line of credit? I’m looking at you, litigators working on contingency. . . . Most small business loans come from smaller community banks. Managers at community-based banks often have more discretion than managers at branches of large banks to give loans. Small local banks are less bureaucratic, know local market conditions better, are more likely to issue loans to businesses in their community, may put more emphasis on a borrower’s character rather than rely solely on his or her credit score, and often provide more one-on-one access to a loan officer. On the other hand, larger institutions are more likely than smaller ones to offer loans backed by the U.S. Small Business Administration (SBA). SBA loans are available to businesses whose credit histories, cash flows, or collateral would be inadequate for them to obtain traditional bank loans, and often offer more flexible repayment terms.
- How flexible is the bank? In addition to greater flexibility around lending, smaller regional banks may be more flexible about things like covering overdrawn accounts without imposing stiff penalties.
- Interest rates. A study cowritten by the National Federation of Independent Business says large financial institutions systematically charge lower rates than community banks for loans. But they may also offer lower interest rates on deposit accounts. . . .
- Fees. If you’re a small practice just starting out, you probably won’t be completing enough transactions to need a paid account with extra features. Find a bank with a free business banking package that includes printed checks and debit cards, and no monthly fees, ATM fees, wire transfer fees or minimum balance requirement. (And a bank that rebates for foreign ATM fees.) If your bank charges for these things, ask them to waive the fees; many will. Fees for other services (e.g., merchant card services, money market accounts) may be bundled in different ways, so shop around; these fees, too, may be negotiable, depending on the bank’s history and size.
- Hours of operation. Look at how long the branch is open each day, and whether they are open on six or seven days a week. If you get a fraud alert on Saturday, you don’t want to wait until Monday to contact customer service.
- Does your bank issue corporate credit cards to small businesses? Larger banks are more likely to do this. It’s often easier to open a credit card account than to secure a line of credit from a bank.
- Online services. Online banking for bill payments, bank transfers, and checking balances has become mainstream, and many banks offer it for free. (Though at some banks it’s only free for individual accounts, not for small business accounts). I don’t recommend using an online-only bank, however, which will, for example, make it impossible to get same-day certified checks or make cash deposits. And if the online-only bank makes a typo on the certified check you asked for, it can take months—rather than minutes—to get it fixed (as I learned from painful first-hand experience).
- Customer service. A lot of banking is about relationships. Another reason you should not go with an online-only bank (see above). Make sure bank representatives are accessible and experienced.
- Fraud protection.
- Quickbooks compatibility.
- Mobile apps. Important if you want to do banking through your smartphone. Most banking apps are free and allow you to accept checks and mobile deposits.
- Other perks. This is probably the least important criterion (after lollipops), because “it rarely takes more than a year for a new product or service to be copied by banks across the country,” according to The Wall Street Journal. They’re all competing with one another.
Once you pick a bank, take six months to see if you’re happy with your choice before setting up direct deposits and online bill pay features.