Question: Is it better to keep more money in my business bank account, or less? I don’t want to pay the stupid minimum monthly balance fee to the bank. The minimum is $15,000, which I can barely do. Is it worth the $17 fee per month, or do I have any alternatives?
Answer: You’re feeling an increasingly common squeeze, being put on consumers and business owners alike, by banks that are raising minimum balance requirements and jacking up account fees, ostensibly to make up for restrictions on overdraft and debit card swipe fees imposed by Federal Reserve rules and the 2010 financial overhaul law.
Since Dodd-Frank passed, free checking accounts have dropped from being offered at 76 percent of large banks to 39 percent, according to Bankrate.com. A host of additional fees are being imposed as well, and a recent court ruling that may further cut debit card fees could push banks to shift even more costs over to account holders.
While the problem of fees and minimum balances is widespread, you do have options—if you’re willing to shop around, says Ed Harycki, founder and chief executive of merchant cash advance provider Swift Capital and a 20-year lending industry veteran. “A lot of the free checking that used to be routine has gone away, but banks do offer minimums much lower than $15,000. Some may offer free checking if you keep a balance as low as $1,000 to $5,000, though they may require you to do a lot of your transactions electronically and not provide as many services as you’re used to,” he says.
Some of those business account services include 24/7 access, online and mobile account management resources, deposit insurance, and fraud protection, says Mike Townsend, public relations director for the American Bankers Association. “Many banks are willing to waive monthly maintenance fees if minimum requirements are met,” he says, so you’ll need to figure out how much you can realistically keep in your account month to month and how much you value those enhanced services.
For instance, if you make infrequent deposits and write only a limited number of checks on the account, it may be easier to find a more affordable business checking plan, says Jesse Torres, president and chief executive of Pan American Bank in East Los Angeles. “Smaller, community banks often offer very affordable—if not free—business checking accounts. Or they may have a much lower minimum-balance requirement.”
Some banks determine their pricing based on usage, so if your business processes numerous monthly transactions, it may be difficult to find a better deal—though not impossible. Some banks determine fees and minimum balances based on charging a per-item processing fee, less a credit based on your deposit balance, Torres says.
Do some homework and identify a handful of national, regional, and community banks in your area that have lower minimum-balance requirements and are less dogmatic about waiving fees for valued customers, Harycki suggests. Then go in and have a conversation with the branch manager for business banking and see what that person can do for you if you move your business over. Don’t forget that credit unions also serve small business customers and make business loans as well.
Another thing to keep in mind when it comes to maintaining a minimum balance in your account is that when you are looking for credit, lenders will look at how what kind of cash flow cushion you maintain and consider that when they are determining the health of your company.
“Businesses that have a certain level of revenue but run their balances down low can face other implications on their ability to get loans and leases,” Harycki says. “If a guy’s doing $50,000 to $150,000 a month [in revenue] and ends up with $1,000 in his account, that can tell you he’s running the business close to the edge and there’s no room for error. That will make a lender less likely to lend.”