National, Local or Online-Only Banks Which is Better for Your Business?

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Choosing a bank for your business can be overwhelming, especially since you need a supportive and reliable bank. Whether your business needs are simple or complex, finding the right bank for your company is vital. Keep in mind that banks differ in the financial products and services they offer to small businesses.

Read this guide to find out about local vs. national banks and how to choose the bank for your business needs.

Quick Summary of the Different Banking Services

Here’s a quick summary of how local banks, national banks, and online banks compare.

CRITERIA NATIONAL BANKS LOCAL BANKS ONLINE BANKS
Size Widespread accessibility Community-based Available only online
Credit options Wide variety of credit options Commercial loans, personal loans, credit cards Some
Security FDIC insured FDIC insured Funds are usually stored at an FDIC-insured partner bank
Locations Nationwide and international Small geographic area Online only
Digital needs Cutting-edge tech tools Online banking, mobile banking Online banking, mobile banking, 24/7 access
SBA loan eligibility Yes Yes No
Services Multiple financial services, auctioning the U.S Treasury bonds, completing daily transactions with local Federal Reserve Bank Personal and commercial banking Standard banking services
Perks offered Widespread accessibility, cash back Personal service, flexible lending, competitive rates Low fees, better interest rates, fee-free checking account
Customer Service In-person, phone, email, live chat In-person, phone, email Phone, email, live chat

What Are National Banks?

A national bank is a commercial financial institution created by the national government in a country. In the U.S., for example, the comptroller of the U.S. Treasury charters them. In other countries, “national bank” is synonymous with “central bank,” a bank controlled by the national government.

But in the U.S., national banks are members of the Federal Reserve, which is not controlled by the U.S. government. The U.S. government uses national banks to facilitate daily transactions with their local Federal Reserve and auction U.S. Treasury bonds.

Examples of national banks include Bank of America, Wells Fargo, Citibank and Chase Bank.

National Bank Pros

  • More accessibility: National banks have plenty of branches and ATMs across the country. And that makes it easy for you to access their services wherever you are. Plus, some national banks even have international locations, so they’re highly convenient if you regularly travel for business.
  • Sophisticated tech tools: Due to their size, national banks often have more advanced technology than local banks. They offer high-tech tools, such as online banking, 24/7 mobile banking and remote check deposits.
  • More financial services: Banking with a national bank gives you access to various financial products and services as well as basic accounts and loans. If your business decides to delve into investing, big banks have financial advisors to help you get started.

National Bank Cons

  • Higher fees: National banks typically have higher fees than small banks. This can include monthly maintenance fees for standard checking accounts and higher interest rates for loans.
  • Less personal service: Large banks don’t have personal relationships with their customers, so it can leave you feeling more like a number than a person.
  • Stricter regulations: Because of their size, big banks tend to have more stringent regulations than local banks. So getting a loan from a national bank can be challenging, especially if your business is new or has a low credit score.

What Are Local Banks?

A local bank — also known as a community bank — is a financial institution owned and operated locally. Unlike national banks, local banks have limited brick-and-mortar branches and offer services such as loans to small businesses and personal loans to individuals within a small geographic area. These banks tend to focus on personal relationships with their customers.

Pros of Local Banks Pros

  • Competitive fees and rates: Most local banks offer fee-free checking accounts with lower ATM and monthly fees. And they have attractive interest rates on savings accounts.
  • Personal service: Local banks provide more personal advice than big banks since they’re more relationship-based. It’s not uncommon to work with the same bank staff overtime. So you develop relationships with the team who learn more about your financial needs and recommend products that may be useful.
  • Flexible lending: Unlike national banks, local banks offer more commercial loans. And the rates may be lower too. Plus, since their lending practices tend to be less restrictive, it’s easier to get a business loan even with a lower credit score.

Cons of Local Banks

  • Limited locations: Local banks operate within a small geographic area and sometimes may not extend to other states. While it’s okay for a local business, it may pose challenges if you decide to expand. And even if it offers online banking services, it can still be difficult to deposit cash and perform other transactions out of the state.
  • Less stability: Even with their strengthening balance sheets, most local banks still struggle to stay afloat and are thus less stable. If you decide to bank with a local bank, it’s important to note that your funds may be at higher risk than if you bank with a national bank.

What Are Online-Only Banks?

An online-only bank — sometimes called a challenger bank, virtual bank, digital bank or neobank — provides banking services online through mobile banking or an app. These banks don’t have a physical presence. They provide their services through automated processes and real-time updates. And they often operate through partnerships with national or local banks.

The popularity of online banks is snowballing for a good reason. You get access to all the banking services on the go. You can transfer money, deposit checks and even pay bills online. And one of the major advantages of online-only banks is that they tend to pay higher interest rates and have lower fees than traditional brick-and-mortar banks.

Examples of online-only banks include Lili, Revolut, NorthOne and Ally Bank.

Pros of Online-Only Bank

  • Better rates: One of the significant advantages of online banks is that they typically offer higher interest rates or annual percentage yields on savings accounts. And the most generous online banks offer 1% to 2% more than what you’ll earn on traditional bank accounts.
  • Lower fees: Online banks tend to have lower fees than traditional banks since they don’t charge monthly maintenance fees and overdraft fees. And some internet banks offer fee-free checking accounts or savings accounts and other perks that can save you a few dollars per month.
  • Online convenience: With an online bank, you get 24-hour convenience. Whether it’s depositing a check, paying bills or transferring money, you can perform your transactions any time of the day or night.

Cons of Online-Only Banks

  • No physical locations: Since online banks operate entirely online, you’ll have limited access to in-person help. Instead of face-to-face meetings, most online banks offer phone-based customer service. Some banks provide assistance via online chats and social media.
  • Absence of their own ATMs: Online banks don’t have ATMs. So it can be hard to deposit cash. You may have to find a deposit-accepting ATM, such as those from Allpoint or Green Dot. Or you may have to put money into your traditional bank account and then transfer it to your online bank.

Further Reading: Best Business Checking Accounts

Which Should You Choose?

Deciding which bank is right for your business can be overwhelming. And there’s no all-inclusive answer for everyone. Before choosing a bank, it’s crucial first to identify your specific business needs:

Perhaps you need a bank that offers comprehensive financial services. Or maybe you’re planning to expand your business to a few states. If so, going with a national bank makes sense.

Or are you a freelancer who travels often? Then an online service like Lili Bank could be a good fit.

Just be sure to shop around and see what each bank offers before settling on one.

The Bottom Line

A good bank can prove to be an indispensable partner for your business, as they can suggest financial products that may be useful. Put more effort into finding the right bank and nurturing your relationship with that bank.

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