Nonprofit Resource Connection Newsletter
Third Quarter 2010
Selecting a Banking Relationship
Kathy Grochow, Nonprofit Resource Specialist, Bremer Bank St. Cloud
Nonprofits and banks have many similarities. You’re probably thinking, "yeah, right." But truthfully, besides intended use of surplus revenues, (businesses and banks call them "profits" and distribute them to stakeholders; nonprofits use them toward mission-related programs), there are many similarities. Nonprofits and banks both provide valuable community services that are rooted in public trust and accountability. Just as important, both need to attract new money and maximize assets in order to remain viable. Much of this piece is taken from information found in the book referenced at the end of this article.
When seeking a banking relationship, you’ll want to find a bank that understands your nonprofit and values the service you provide to the community. Most importantly, you’ll want a bank that keeps an eye on service, shows loyalty to you as a customer, and is willing to take an occasional risk on customers whose names and circumstances it knows well.
To select the right bank, you’ll need to understand the types of services your organization currently requires and will need in the future. Once you understand your needs, there are several factors to evaluate when selecting a banking relationship.
- Convenience. For nonprofits with significant daily cash deposits, convenience is important and may include the availability of remote deposit, which is a way for organizations to make deposits into their checking account from the convenience of their office.
- Size. Big enough to service your needs (well-capitalized) and small enough for you to maintain a personal relationship.
- Products & Services – Are there discounts for volume? Are loans and credit decisions made locally? These are among many questions you’ll want to ask.
- Cost per Transaction. Understand the fee structures and be sure to balance the costs with the value provided by the bank in terms of service and your organizational values. Do the values of the bank align with the values of your organization? Do they support the community and/or the nonprofit sector?
- Lending Practices. If loans are a part of your banking requirements, ask questions about the bank’s lending practices. Who has authority? What types of loans are taken to a loan committee? Is there a size limitation on loans reviewed by the credit officer? How much lead time is required to process a loan?
- Negotiate Transactions. How does the bank price a "package" of services for an account your size? Does it negotiate loan interest rates for customers or is it the same for non-depository customers? What are fees on checking accounts, minimum balance requirements, fees on credit cards, use of safe deposit boxes and overdraft protection?
There are also other services that some banks offer that may make your life easier. If you have large deposits in a bank, you may benefit from various cash management services. A "sweep account," for instance, will take any balance over a specified minimum in an interest-free account and automatically "sweep it each night into an interest-bearing investment pool." This gives you added earnings and, depending on the particular arrangement, added security through special FDIC protection or collateral provided by the bank.
Another service may be helping you set-up and manage an endowment through its trust department, giving you investment advice, leasing equipment, or providing insurance products for your organization. Regardless of the specific service, your bank can be a significant partner in your financial picture and offer sound advice as you advance the mission of your organization. Choosing the right financial partner is an important step to becoming a smart money manager.
If you are looking for more guidance, please check out a copy of "All the Way to the Bank: Smart Nonprofit Money Management" by Susan Kenny Stevens published by Larson Allen. This book, commissioned by the Otto Bremer Foundation, may also be available from your Nonprofit Resource Specialist at Bremer Bank.