How to Choose the Best Banks for Online Businesses

But I'm going to be specifically talking about what banks are good for different stages of an ecommerce business. As a business evolves, you might need a different bank, or add a different bank, to support your banking needs.

0:35 Startup stage

The first phase I'm going to talk about is the startup. The small seller might be pre-revenue or low revenue. They're just trying to get product market fit, have simple banking needs. Maybe you're buying some product and needing to run a few expenses through the bank. And at this stage you've got a lot on your plate, you probably don't have a lot of staff, you want to keep things easy.

So I'm going to talk about two options. Option one is neobanks. Neobanks are technology first banks. They provide really robust technology that makes it really easy to do everything online, and should alleviate the time that you need to focus on your business. In this category there are three that I like: Brex, Mercury and Novo. Those are the neobanks that I would check out. And the thing about the neobanks is they're going to have good integrations with technology, making it easier for you to do your job without spending a lot of time. They're also going to have some interesting ecommerce specific features like instant payouts, where you can get your money sooner. That can be very helpful.

Option two for a startup ecommerce business would be a large bank. Now there's only two that I can recommend here. One is Chase, the other is Wells Fargo. And the main reason I like those two is because of their online portals. Again, you're going to see that I lean very heavily to the technology. They're not quite as fancy as some of the neobanks, but those robust portals are going to play nice with fintech software, and they are going to have a lot of options as you grow. And finally, those big banks are more likely to have bank branches, so if you need to go in and talk to somebody, you're going to have an option there.

2:04 Growth stage and the lending problem

The second phase I would talk about is growth stage. So this is once an ecommerce business has achieved product market fit and is starting to grow.

The big thing we see here, and this can last forever, is credit. When you look at the cash cycle, which is the time between ordering product and being able to sell the product, you look at sometimes weeks, even months, between the time where you have to pay for products and can actually sell it for a profit. So you're going to need a line of credit or some sort of lending.

Now in this situation you may need to layer in or move to a mid-market or a credit union bank. The reason being is they are the ones that tend to work better with small businesses. You're more likely to have more options here in terms of lines of credit and lending.

Now the downside is, in the United States we have thousands of banks, so I can't give you a bank recommendation here. What I would say here is you want to look in your local community, talk to peers in your area in the industry doing ecommerce, see what banks they are using, go in and meet with people, take advantage of that face-to-face relationship to build up a trust between you and that bank so that they'll give you the best terms possible.

3:16

It's not to say that you can't get lending from a big bank, but they have very rigid terms, and they probably don't like you because you're not a collateralized business, meaning you don't have a lot of assets that they can put lending against.

Neobanks also are not going to have a lot of options. Now there's one that I will talk about, Clearco, formerly Clearbanc, which has some cool lending programs for ecommerce that could be an option as you move into growth stage.

3:40 Running more than one bank

Now this brings up a good point. There's no reason you can't have multiple banks. So if you really love the bank you started with but you need a different bank for lending, that's okay. There's really great tools today that allow movement between banks at almost no cost or no cost. The one we like is Wise. You can actually wire money between banks using Wise at no cost.

4:01 Big business stage

The final stage you're going to deal with is a big business. Now what defines a big business depends on who you ask. The big thing I look here is the complexity. You're probably moving a lot of money, you have a lot of needs around lines of credit and capital.

At this stage it's probably an evolution of the growth stage, wherein you probably need more than one bank. You might need banks in different countries depending on the nature of your operations. At that point it's a different conversation. Or you need banks that work very well internationally. A lot of the big banks tend to do that.

And you need to have probably banks for different purposes. So it's not a bad idea to use one bank for lending and purchasing for international things, and maybe you have a different bank you're using for your operating expenses. And that's okay, because you're big, you've got lots of money. I would say at this stage you're probably making at least 10, 20 million in revenue, possibly more. And at this point it's okay to have a more complex banking situation.

The other thing is, big companies probably aren't searching for banks on YouTube. So if you are a big company and you're watching this video, awesome, but more likely you have a CFO who is very savvy, has lots of relationships, and is going to know how to set up that banking infrastructure.

5:17 The bottom line

So here's the bottom line. If you're going to go big banks, Chase and Wells. If you're going to go small banks or credit unions, you really should be doing that because you need lending, and if you're not getting the lending terms you need, I wouldn't use them. Finally, neobanks, as of this video in 2022, I would consider Novo, Mercury or Brex, all very interesting banks for ecommerce businesses specifically.

And finally, a reminder to check out the other videos I have on each of these three bank categories, where I'll dive into the pros and cons of each.

If you've liked this video, go ahead and like it, ask me a question in the comments, go ahead and share it with those who might be interested, and subscribe to our channel where you'll get more videos like these.

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