Should your business have more than one bank?



A second bank or lender can be a useful back-up or a competitive alternative for some businesses.

But it’s certainly not an option for everyone, says Neil Slonim, founder of thebankdoctor.com.au

One of the benefits is increased competition. "Any financial services supplier is going to be more mindful of issues like fees and security when they know you are also dealing with a competitor," he says. It also helps to spread the risk in case of a problem with one of your lenders.

Another possible benefit is a bigger selection of products and services. "For example, you might prefer the transactional banking platform offered by one bank and the leasing finance options available from another," says Slonim.

Not always a good idea

On the other hand, splitting your banking relationships may not be a good idea if you’re just not big enough, says Slonim. "It’s hard to strictly define but generally it’s difficult to justify having more than one lender if your total business borrowing needs are less than, say, $1m."

It’s also unlikely to work for you if you can’t split your assets to meet the security requirements of two lenders, he says. And, if you don’t have a good track record, it’s unlikely another bank will be any more helpful than your current institution.

"Finally, some business people struggle dealing with one bank and may believe the idea of having a second institution would simply cause them ‘double trouble’," says Slonim.

How to make use of a second bank

Many businesses find the best way to have two lenders is to have one for their trading business and another for property or personal needs, says Slonim.

A second bank does not have to have equal standing with your first bank, he says. "You can use another bank for your non borrowing needs like deposits, credit cards and leasing. Smaller banks are more likely to be comfortable with such arrangements than the big four, which tend to want all your business."

In fact your second banking or lending relationship doesn’t have to be with a bank, he says. ‘’It could be a specialist lender like a debtor financier or a specialist leasing company."

"Even if you can’t justify establishing a second banking relationship now, you should make yourself known to another bank so at least you remain on their radar," says Slonim.

In other words…

  • Consider the pros and cons of having more than one banker or lender for your business
  • One of the advantages is increased competition and more choice
  • A disadvantage can be finding appropriate security for different institutions

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