Switch your bank

Being locked at home for weeks at a time is a good excuse to do things you had previously postponed. Recently, I moved my personal checking account from the national bank where I had kept it for years, to a regional business oriented bank. I’d like to explain why every entrepreneur and investor should consider making a similar move. 

Choosing my old bank was easy. I opened my account there seventeen years ago, because they had a small branch with an ATM in my neighborhood. It was then, as it still is, one of the big five banks in the country, so there was always an ATM nearby when I needed it. And back then, the big banks had better online systems than any small bank could offer. 

Big banks acquire and service customers at scale. They advertise on television, provision services at low cost, and invest little into building relationships with individual customers outside of their private banking division. For the vast majority of customers, that’s just fine, as their needs are simple and convenience matters most. 

If you run a business, or you invest in private businesses, you have needs that are different from those of your employees. Your need for credit, liquidity, payments, and working capital will be as unique as your business itself. Your ability to meet other business owners in your community will often be a hundred times more valuable to you than whatever interest you might earn on a brokered deposit. The inconvenience of using an out of network ATM when you travel will be vastly overshadowed by the stability of working with the same banker at a regional bank over the course of many years. 

I already knew these things because I keep my business accounts at a local bank that has always provided me with excellent service. Nevertheless, inertia plus a constant stream of more urgent tasks had prevented me from making the switch with my personal checking account. Then, in the last few weeks, I was able to witness the power of small banks in a way I had never expected. 

That display of power was the Paycheck Protection Program. While Stage Venture Partners did not apply for government relief, I know dozens of small businesses that did apply, some VC-backed and many not. The entrepreneurs who struggled with the program tended to bank with large national banks where no one knew their name. The entrepreneurs who got applications submitted on time, and funds transmitted quickly, tended to bank at small banks where multiple bankers knew their name. There were exceptions on both sides, but the contrast was clear. 

Since I like having more friends than fewer, I decided to move my personal checking account from my big bank to a different small bank from the one where I keep my business accounts. Now I have two specialized, local banks that value my business. I know multiple executives and bankers at both of them, and they have knowledge of my industry that is always valuable and welcome. Both have gone above and beyond to help my business, and the businesses that I invest in. 

It looks like I will earn a little bit less interest at my new bank than I did at my big bank. Based on my typical deposit, the foregone interest income each year will be about equal to the cost of a nice sandwich. I’ll miss that sandwich, but I’ll be OK.

Anyone who runs a business, or who invests in businesses, should consider making a similar switch. And wherever you bank, if you run a business, make sure that you know your bankers and that they know you. I think small banks are the way to go, but if you disagree with me, you can still put in the effort to get to know the branch managers and regional vice presidents at your big bank. Knowing your bankers was valuable before the pandemic, and will continue to be valuable after the pandemic subsidies. It just took a pandemic and a lockdown to show it clearly.