Small Business Banking: What Most Advisors Miss

Most small-business banking advice focuses on lending relationships. The deposit side deserves equal attention.

Small-business banking advice from financial advisors tends to focus on credit relationships: which bank will extend an SBA loan, which bank has the best business credit card, which bank processes payroll. The deposit side — where the operating cash and reserves actually sit — receives far less scrutiny.

The consequence: most small businesses keep operating cash in a business checking account earning 0.01% at a bank chosen for its lending relationship. On $200,000 in operating reserves at 0.01%, the annual interest is $20. The same $200,000 at 4.50% earns $9,000.

Three observations most advisors miss:

First, FDIC coverage on business accounts is separate from personal accounts only if the business is a legal entity (LLC, corporation, partnership). A sole proprietor operating under a DBA shares the $250,000 limit with their personal accounts at the same institution. An LLC with a separate EIN has its own $250,000 coverage.

Second, online business banks (Mercury, Relay, Bluevine) consistently offer higher deposit rates on business savings and have modernised the ACH and wire infrastructure. The old argument — 'you need a local bank for your lending relationship' — is less compelling as SBA loans, business credit cards, and equipment financing are increasingly available from online lenders with no deposit requirement.

Third, the cash reserve beyond one month of operating expenses is a savings, not a checking, problem. Two months of reserves in a business savings account at 4.50% instead of 0.01% is not a trivial difference on the P&L of a profitable small business.