Bank vs. Credit Union for your Business

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Today I want to write about something somewhat non hosting related.  Dealing with the business side of a growing company has its share of challenges and rewards alike.  I want to share our experience with Banks and Credit Unions from a business perspective in case it will help someone in the future.

Hosting providers utilize a lot of server related hardware.  Many hosts choose to lease this equipment, which lets them say they don’t have any debt.  At Hostek.com on the other hand, about 15 years ago chose to buy our equipment instead of leasing.  Arguments can be made for both leasing and purchasing, but that’s a different topic than what I want to cover today.

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Since we do buy our own equipment, at times we do use debt for a portion of these purchases.  The company had a long term relationship with a bank and specific banker.  A few years ago the bank made a change and let the banker go that we had worked with for many years.

A local credit union picked up the banker and brought him on board.  Since this had been the company’s banker for many years, when he asked for us to move our business to the credit union, it made sense to do so.

Several months later in a typical financial institution power struggle, our banker again was out of the banking industry.  It was the easy thing to do to just stay with the credit union.  This relationship went along good for a couple years.

After consistent growth in our business (we have grown every year since inception in 1998), and continued equipment needs, the credit union didn’t know how to handle such a fast growing business.  It became clear we needed a real Bank, not a Credit union.

Having a great relationship with a banker is very important.  Don’t wait until you need a banker to develop that relationship.

Here are a few tips we followed ourself on finding the right banker for your business.

1.  Prepare a real business plan.  Not something you just throw together real quick; but a real, detailed business plan.

2.  Contact 3-5 local banks letting them know you are interviewing different banks in town to determine who to give your business to.  Get the proper contact person to submit your business plan to.  Some may want to take your information and have someone get back with you.  This is fine too.

3.  Know your company’s financial numbers inside and out before you meet the banker in person.  If you don’t know your numbers, they will pick up on that and will be less likely to want to work with you.

4.  Once you have interviewed the various bankers, you most likely developed a good idea of the type of banker you would want to work with.  Take that type of person, combined with the bank’s terms, to make your decision.

I’ll share a brief story about the first banker that the bank I had been with a long time initially sent out to our business to be our new banker.  He comes in, sits down, stares out the windows and proceeds to tell me how much he enjoys golf.  It didn’t take long to realize this so called banker had no interest in the world about my business.  He didn’t know any more about my business when he left, than he did when he got there.

I know Credit Unions are fighting hard to get into the commercial lending business.  I just want to caution you, as someone that has been there, to really think twice before choosing a Credit Union for your commercial banking needs.  For really small companies that want to stay small, maybe a Credit Union will work for you.  If you become a larger company the Bank will be able to handle your needs much better.

I hope sharing our experience helps someone in the future with their commercial lending needs.  I thoroughly enjoy helping others; especially in the business world of things.  So if you have any questions or comments I would love to hear from you.

Be kind & share!

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