Online Business Banking Guide - Small Business Trends

Online Business Banking Guide - Small Business Trends

Online Business Banking Guide - Small Business Trends

Posted: 24 Sep 2020 11:00 AM PDT

We are far from the days when banking tasks meant driving to a branch, waiting in long lines, filling out deposit or withdrawal forms, and conducting business face-to-face. Now, thanks to online business banking, you can manage all your small business needs quickly and easily through your computer or mobile device.

Digital banking has completely revolutionized the industry by offering the convenience, mobility, and flexibility that small businesses expect. The question is whether switching to an online bank, for some or all of your banking needs, is right for your business.

Here's what you need to know about banking online for business.

What Is Online Business Banking?

Online business banking gives you the ability to manage your business account over the internet using a computer, smartphone, or tablet. It offers many of the same services as traditional business banking, but the bank operates entirely online. You apply for an account on the banks' website and, once approved, access it via a web browser or mobile app.

"Online banking assumes a world where you don't have branches in your life anymore," says Eytan Bensoussan, co-founder and CEO at online bank NorthOne. "Everything can be done on your phone and the web. It allows you to do things you already do as a business but in real-time."

Bensoussan says requiring the business owner to go to a physical location to handle checking accounts, withdrawing cash, and other activities "forcibly separates" the business owner from his or her company during crucial business hours.

"The more time spent at the bank means less time conducting business and making sales," he says. "That's where online mobile banking takes a step in a new direction."

What Can You Do When Banking Online?

Practically any type of transaction you can do with a teller face-to-face, you can do online. That includes opening an account, depositing money (either by cash or checking), and moving funds from one account to another. You can also send ACH or wire transactions, pay bills, and apply for a loan online. You lose none of these features using online services.

What using an online bank doesn't facilitate, at least not as well, is having a relationship with an advisor you can meet with in-person. That's no small matter, either. The 2019 PACE study from FIS Global, a banking technology company, found that smaller businesses that have a banking relationship manager (RM) are more satisfied than those who don't.

"Forty-one percent of SMBs with an RM are extremely satisfied, compared to 26% of those who don't have an RM," the study reported.

Another drawback to online banking involves products that traditional banks offer. Many of the newer digital-only banks, also known as "challenger" banks, limit the scope of their product offerings to streamline the service and make it more economical. However, some are beginning to branch out, offering investments, savings accounts, and loans.

"If you choose to bank only online, you're good with 80% of business services online offers, and never have to deal with going to a bank again," Bensoussan says.

One other hindrance to online banking comes with business growth. Bensoussan says that while online banks can be an excellent solution for small businesses, freelancers, and entrepreneurs, once a company grows to a certain size, it needs custom solutions along with a team to build them — something better suited to traditional banks.

Bensoussan adds that other business processes may still require visiting the branch and showing an ID, faxing documents, or getting on the phone with a banker at the headquarters or local branch.

"The shift with online is that you take all those operations into the computer and let them happen immediately," he says.

Banking tasks you can do online:

  • Check your balance at any time.
  • Make mobile check deposits, ACH, and wires
  • Get a debit card (often fee-free)
  • Pay bills and transfer money to other accounts
  • Check bank statements and go paperless
  • Set up or cancel direct debits and standing orders
  • Check on investments linked to your account
  • Integrate with third-party services

Banking tasks you cannot do online (at least not yet):

  • Meet in-person with a banking advisor
  • Explore other products, such as savings accounts
  • Get custom banking solutions
  • Set up a line of credit
  • Apply for a loan
  • Notarize documents
  • Get a safety deposit box
  • Get a cashier's check or money order

The Pros and Cons of Online Business Banking

Banking online is not a panacea. There are tradeoffs businesses have to make. Online banks offer efficiency and convenience but lack the product availability and face-to-face interaction of retail banks. Here are some pros and cons of online banking to consider.

Pros of Banking Online

There are obvious benefits to a bank with no costly overhead that stays open 24 hours a day.

  • Convenience — Online-only banks give business owners access to their accounts on a mobile device or computer any time, day or night. No more dealing with "bankers' hours."
  • No more lines — Going to a branch and, possibly, waiting in long lines is no longer an issue.
  • Lower costs — The PACE study cited fees as the number one reason for stopping or switching a banking relationship. Because they don't have their brick-and-mortar counterparts' overhead, online banking models are cheaper to use. Some offer a lower monthly fee or no fees altogether. That includes overdrafts, monthly maintenance, and ATM transaction fees.
  • Better security — Many online banks use biometrics, such as Face or Touch ID, which minimizes the risk of someone hacking a user's account. Plus, these banks are built from the ground up with security in mind. Of course, safety is as much a responsibility of the customer as the financial institution. Keeping computers and other devices up-to-date and ensuring the operating system, antivirus software, and firewall are current are necessary to protect unauthorized access to data.
  • Customer support — Just because someone is banking digitally does not mean no humans are involved. All have customer support teams with full access to business account information.
  • Connectivity — Many online banks connect to and integrate with third-party services, such as accounting software, payment processing services, and other applications. NorthOne, for example, integrates with 14 different services, including Quickbooks, Stripe, Shopify, and PayPal.
  • Small Business Focus — In the case of online business banks, everyone focuses on the needs of their primary customers: small businesses. This is unlike traditional retail banks, which have other product lines (e.g., personal and institutional).
  • Better for the Environment — Banking online cuts down on paperwork. In some cases, a business can essentially go paperless with immediate access to company balances, electronic statements, and other environmentally-responsible business activities.

Cons of Banking Online

While there are certainly plenty of pros, there are also some cons of using an online banking service. They include:

  • Limited product offerings — Online banks tend to be more limited in scope regarding product offerings. (Few offer a savings account, for example.) As a business grows, the complexity and sophistication regarding banking features and functionality increase. It may find the need to apply for loans or lines of credit, services typically found at retail financial institutions. That said, some online banks are beginning to expand to include not only a savings account but also loans, investments, and other services.
  • Lack of brand awareness and trust — While everyone knows brands like Wells Fargo and Bank of America, these new challenger banks lack such brand awareness, so trust is an issue. The PACE study, referenced earlier, points out that trust is more than a brand promise. It is one of the bank's most important assets, an advantage these new entries will have to earn.
  • Less convenient for cash-heavy businesses — Businesses that deal with many cash transactions, such as a restaurant, may find doing business digitally to be problematic. Making small cash transactions via a linked ATM is one thing, but large deposits are something else.
  • Cash deposits still require trip to the ATM — Even when your bank is online, cash deposits still require visiting an ATM and filling out a deposit envelope just like at a traditional bank. For very large cash deposits, the customer may need to split up deposits into several smaller increments to fit into the deposit envelopes. Some retail banks allow users to connect to the digital bank. The deposit is made at the physical location and then transferred to the online bank. Also, some businesses buy a money order, which they deposit via mobile.
  • Limits on cash withdrawals — Most ATM networks put a limit on how much cash a person can withdraw each day. That presents a problem if you need more and don't have access to a local bank.
  • Potential technology issues — If the online bank's website is down or the app isn't working, you're sunk. There are no business transactions taking place until service is restored. While there's only a remote chance of that happening, it's still within the realm of possibility.
  • Lack of face-to-face interaction — Digital banks put a premium on customer service, but there are times when it may be better to sit down across from the bank manager or advisor to iron out a more complex issue.

Is It Safe for Your Business to Bank Online?

Yes, using an online bank is safe. Banks tend to be risk-averse, so security is a big deal — and even more so with online banks. As mentioned, they deploy biometrics, so customers don't have to remember a username and password. However, they also use "microservices," a type of technology architecture that structures an application as a collection of services, which are loosely coupled and independently deployable.

Bensoussan explains:

"Modern banking security is built using microservices. Instead of one giant piece of software where someone can access the whole castle, with microservices, it's nearly impossible to get into the entire banking system. At NorthOne, we also use third-party services to monitor transactions to make sure everything is safe."

Can I Open a Business Bank Account Online?

Businesses can open business accounts entirely online via a website or mobile application and skip the branch altogether. For many online banks, the process is much simpler and quicker than traditional banks.

"For many online digital banks, the big question was, can we get the whole thing online," Bensoussan says. "Now it only takes minutes instead of going to the bank with documents, waiting an hour, and the next week you get something."

Once you pick your bank, choose the type of account you want to open and answer a few questions, such as the kind of business you operate and your tax ID. Most online-only banks require less documentation than their retail counterparts. You'll probably be asked to verify your information via email or phone.

The steps at NorthOne are a good example. In their case, signup takes only a few minutes and involves the following steps:

  • Input your phone number and business email address
  • Create a password
  • Accept the terms and conditions
  • Verify your email
  • Answer a few questions to confirm your identity (name, address, SSN, etc.)
  • Answer a few more questions about the type of business and products or services offered, the business name, date when the company started, and address.

What are the Best Banks for Online Services?

There is no single best bank for online service, but here are some of the more popular (in alphabetical order):

  • Azlo – This online bank doesn't charge any fees or require a minimum balance on a small business checking account. Other features include sending digital invoices directly from the account and integration with other business tools.
  • Lili – Lili is designed for freelancers. It offers no account fees or minimum balances. It also provides the ability to categorize expenses and download reports, to help the freelancer save on taxes.
  • NorthOne – Like Lili, NorthOne is designed for freelancers as well as small business owners and startup entrepreneurs. All banking is done via the mobile app, and customers can break out income into sub-accounts for expense tracking and tax purposes. It works on a flat-fee model. Customers pay $10 per month to access all features, including the checking account, business debit card, and other services.
  • Novo – This bank is also designed for use by smaller business owners, entrepreneurs, and freelancers. Novo offers free business checking and many of the same services as the other banks on the list.
  • Radius – Founded in 1987, Radius is one of the early entries into the online banking world. It partners with many other fintech industry companies. Radius also offers a 1% cashback with its rewards small business checking account. Unlike the other banks listed here, it has one physical location, in Boston. Also, it is not strictly a business-only bank but offers personal and institutional banking services in addition.


With the number of online-only banks on the rise and traditional banks catching the digital wave, it's time to ask the question: Is online banking right for your business?

Can you benefit more from the convenience and cost-efficiency digital banks provide and completely sacrifice visiting a local bank? Or, is a more moderate approach, one that combines the benefits of online while still offering access to a brick-and-mortar location, better? Either way, it's time to acknowledge a new reality. Digital banking is not just a burgeoning trend. It is the way business is done.

To learn more, check out these resources:

Franchise Financing Options: How to Find the Money - Small Business Trends

Posted: 21 Sep 2020 05:00 AM PDT

When buying a franchise, the key number you will need to know for franchise financing purposes is the initial investment. The initial investment is your "all in" costs and includes the franchise fee and various startup costs such as grand opening, initial inventory, signage, leasehold improvements, supplies, equipment and more.

The initial investment for most franchises is between $75,000 to $500,000 — with about half falling under $250,000. However, the initial investment varies widely by industry and brand, with some franchises at less than $75,000 and others approaching $1 million or more.

But don't shy away because of these numbers. Buying a franchise is very doable. "Many first time franchise buyers can find an abundance of viable franchise options between $100k to $250k," advises Mariel Miller, a national franchise advisor. "And most of the time, with the right franchise financing strategies, they can come up with several funding combinations to afford it."

Many buyers put together financing options that include a combination of personal savings, SBA loans, conventional business loan products, 401(k) rollovers, and/or franchisor in-house programs.

In this guide we help you identify existing assets you may have available. We'll also identify lenders for the best sources of franchise financing.

Table of Contents

Assess Your Situation

To figure out your franchise financing needs, first assess your existing situation.

Franchisors and lenders expect prospective franchisees to have some personal funds to put toward the initial investment. Candidates usually need 10% to 30% cash, provided  they are open to considering the many popular funding strategies available today, says Miller.

Franchisors may impose two requirements:

  • Net worth. Franchise brands want to know you can afford the franchise. They specify a minimum net worth of  assets over and above debts.  (Calculate your net worth.)
  • Liquid assets. Some franchisors require a cash equivalent — such as $35,000 — in savings.  This is money you can get at quickly to cover unanticipated startup expenses, pay for living expenses until the business turns a profit, and/or apply toward the franchise fee.

"We recommend and assist clients in conducting a cost-of-capital analysis as well as a general fundability or prequalification discussion with a franchise finance expert early on in the process. Based on my experience, it's rare that we cannot find a solid funding strategy that works," says franchise advisor Mariel Miller.

Personal Assets  for Franchise Financing

Always get your spouse's agreement to use personal assets. Retain a portion for family expenditures such as children's education and emergencies.

Here are assets commonly used for franchise financing:

Savings and Investment Portfolios

Your personal savings includes bank accounts and investments in brokerage accounts.

Severance Package 

Been downsized — or about to be?  A severance package can include all kinds of goodies. There may be severance pay, unused vacation and sick pay, deferred compensation, and company stock or stock options to be cashed in.

Home Equity

People with equity in their homes sometimes choose to tap into it through a home equity line of credit. Although popular, this is not usually the best idea. It can limit your future credit availability. And you could be mortgaging away your family's security.

Retirement Accounts

Aspiring franchisees may want to withdraw from their retirement accounts — IRA, 403(b) or other account.  But that's not always wise. First, you could be risking funds you'll need in your golden years.  Second, you could have to pay a 10% penalty for early withdrawal, along with taxes on the money — seriously eating into the available funds to put toward a franchise.

The IRS rules are complex. Before using retirement funds, get your accountant or a franchise finance expert to estimate taxes and penalties. Avoid unpleasant surprises later.

401(k) Business Financing

If you're still intent on using retirement funds, an option is a 401(k) rollover, also called Rollovers as Business Startups (ROBS).

The ROBS rollover enables aspiring business owners to tap into their own retirement monies to fund their businesses, without paying taxes or early-withdrawal penalties. The business owner forms a new corporation, and rolls the retirement funds over into a new 401(k) in the new corporation. Then the new 401(k) invests in stock in the business owner's own corporation.

The original retirement account is treated as a rollover. Therefore, no taxes or early-withdrawal penalties apply — provided all the i's are dotted and the t's crossed.  ROBS are legal and the IRS says they are not an abusive tax avoidance strategy. But the IRS still calls them "questionable".

Franchise consultant Joel Libava believes that under the right circumstances, ROBS can be appropriate to finance a franchise.  But he emphasizes caution.  "ROBS are not for everybody. As long as the IRS says they are legal, and they are set up correctly, I can see their value. However, the scenario needs to be right. A 25-year-old with $12,000 in his IRA — not a good fit. But 50 year-olds with $400,000 in their IRAs? Much more applicable. However, people should never dig into retirement funds too deeply. In other words, they shouldn't use $375,000 of the $400,000 sitting there."

Libava warns it's essential to set up a ROBS — also called 401(k) business financing — correctly.  Not following the rules could be costly.  "I've seen franchisees use 401(k) financing successfully, provided it's done properly. If you're going to do one, find a firm experienced in setting up ROBS plans correctly. Understand exactly what you can use the funds for, and what not."

Guidant Financial is one firm that specializes in these 401(k) rollover plans.  Read more on ROBS plans.

Franchise Loans

Any discussion of franchise financing options usually addresses one key issue: how to get a loan for a franchise.

Some lenders that offer financing for franchise business owners make startup loans for new franchisees. Others work exclusively with existing owners already in business.

  • For first-time, new franchise owners, the best options are a term loan or an SBA loan.
  • For existing franchise business owners who want to expand, refinance or get working capital, the best options include short term loans, medium-term loan, SBA loan, equipment financing, business line of credit, alternative lending, or merchant advance.

To get a business loan, your personal credit score is key. The bare minimum is a credit score of 600. To get an SBA loan most experts agree that you need a score in the range of 640. A credit score of 700 and up will get you the biggest number of financing options and best terms for a bank loan.

Financial institutions typically require personal guarantees for small business loans. They may require collateral and a down payment as high as 20% to 25%.

SBA Loans for Franchisees

SBA loans are made by lenders but backed by the U.S. government and can be used by franchisees. The U.S. Small Business Administration (SBA) establishes all requirements and generally guarantees 75% of the loan.  To be eligible to get SBA financing for franchises, the brand must be listed in the SBA's Franchise Directory.

Small Business Administration financing is available to borrowers who otherwise would not be able to obtain financing.  A lender can assess the franchise finance options available to you.  Try to find an SBA-preferred lender, which has authority to give direct approval and helps you get through the application process quickly.

The two main types of SBA loans are the 7(a) and 504 programs.


An SBA 7(a) loan is the best SBA option for new franchisees.  This loan can also be used by existing franchisees that need working capital, to refinance or for growth. Advantages are:

  • A 7(a) loan can be used to open a new franchise business.  Conventional lenders are often hesitant to lend to a startup with no track record of sales. But 7(a) loans can be based on future projections.
  • The required down payment can be lower than conventional financing. Business owners can finance a significant chunk of the project costs – up to 90%.
  • The maximum amount for a 7(a) loan is $5 million.  The repayment term can be longer than conventional business loans – up to 10 years.
  • Interest rates are often favorable.
  • Veterans may be eligible for reduced fees under the Veterans Advantage Program.

One downside: the lender is required to tie up your personal real estate as collateral by placing a lien on your home.  This can hamper future personal plans, such as your ability to sell your existing home and buy a new one.


The 504 SBA loan can be used to finance real estate, facilities and equipment.  A 504 loan is not a good option to get a new franchisee business going because of the limitations of what you can use the funds for. But it may be appropriate for existing franchisees who want to grow and expand by, say, buying a new building.  SBA 504 loans can have terms up to 25 years for real estate, with favorable interest rates.

Best Franchise Financing Sources

One of the best advantages of working with a franchise advisor or consultant is referrals to companies that specialize in franchise financing. "Experienced advisors have a wide range of contacts and can refer you early in the process, without any sort of commitment or costs," says Miller.

Another option is your local community bank if you have a good relationship there. And there are online sources including:

ApplePie Capital – ApplePie Capital is a lending marketplace focusing exclusively on franchise loans. It brings together a nationwide network of lending partners. It also offers its own conventional loan product called ApplePie Core.  ApplePie Capital supports first-time franchisees and existing franchisees.

Credibly – Credibly offers a variety of loans for small business owners, including for franchisees.

SmartBiz – SmartBiz is known for being experts in SBA lending for small businesses. But the group also offers bank term loans.

Balboa Capital – Balboa is best for franchise financing for existing franchisees (in business at least one year with $100,000 in revenue).  Balboa works with a variety of franchise brands. It provides options such as short term and medium term loans.

OnDeck – OnDeck offers term loans and a business line of credit product. Requirements are a credit score of at least 600 and one year in business.

Funding Circle – Funding Circle is a marketplace that underwrites and funds loans for small business borrowers and then finds institutional investors for those loans.  Funding Circle is best for existing franchisees, and offers SBA 7(a) loans and term loans up to 10 years in length.

CAN Capital – CAN is best for existing franchisees and offers a short-term loan of 6 to 18 months.  The maximum amount is $250,000.  CAN also offers merchant cash advances.

In addition to the above lenders, the franchisor may offer options, as per the next section.

Franchisor Provided Financing

Many franchisors are willing to provide franchise finance resources in some way. Assistance takes various forms, as follows.

In-House Franchise Financing

It's possible to find franchisors that offer in-house financing, but it's the exception rather than the norm. "Only about 12% of franchisors offer in-house financing," says Miller.

One example is 7?Eleven. Its website says it has "an internal program that provides up to 65% financing on your initial franchise fee. This program, which is uncommon to most franchisors, also provides an open account (or financing) for the inventory purchases and operating expenses of your store."   Ask the franchise sales representative or your franchise advisor for any in-house options.

Preferred Franchise Lenders

Many franchisors have "preferred lender" partners. The franchisor sets up a working relationship with one or more lenders that offer financing to its prospective franchisees.  Subway, for example, offers three preferred lender choices:  Ascentium Capital, JenCas Financial and IPC Franchise Financing.

Other franchisors simply point you toward a list of franchise lenders. Auntie Anne's documentation says, "we can provide a list of lenders who have expressed interest in lending to franchise partners."

Financing Consultants

Some franchisors engage a financing consultant to work with you — for free.  Moe's Southwest Grill, for example, states that it "may engage an advisor who will provide consulting services to franchisees to assist them with securing financing and it pays the advisor for this assistance to franchisees."

Franchise Incentives

Franchisors today may offer incentives to encourage new business.  Incentives include reducing the franchise fee and relaxing other requirements to make it less expensive for a new business.

For example, hundreds of franchisors provide incentives to U.S. veterans, active military and sometimes military family members. See the listings on the VetFran website.  If you are transitioning out of the military, also check with the VA's Transition Assistance Program (TAP).

"Not only are more brands honoring discounts for military families, some have extended the same consideration to first responders," says Miller.

How Do You Qualify for Franchise Financing?

Qualifying for a franchise loan is similar to qualifying for any other kind of loan. Remember, to start you also need to meet the franchisor's requirements.  At a minimum you will need these qualifications:

  • Acceptable personal credit history.  Your personal credit score reflects whether you are reliable as a borrower.  Check your credit history to make sure all information is accurate before applying for any kind of franchise financing.  Your small business credit score may also come into play if you apply for credit for an existing business.
  • Required down payment.  Almost any kind of SBA or conventional business loan will require a down payment.
  • Financial information.  Be prepared to submit a business plan — or revenue and expense forecasts, or a P&L.
  • Franchise information. Lenders want to know: is the franchise brand an established name, with a track record of successful franchisees?

How Do You Buy a Franchise With No Money?

The short answer is:  you cannot buy a franchise with no money.  Every franchise requires an initial investment. While it's not possible to buy a franchise with no money, you can target lower-cost franchises. See:

If you have no money at all, think longer term — and plan. Sometimes it's best to step back, accumulate savings, and apply for financing options later after your financial situation improves.



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