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The Pros and Cons of Banking Exclusively Online

Many Americans are handling most of their banking online. Not surprisingly, small businesses are doing so, too. Given that many small businesses have modest personnel resources, their use of online banking -- and, in some cases, their opting to deal exclusively with Internet-only banks -- can be both practical and cost-effective. But is banking online ideal for every small company?

Following are four key points to consider regarding whether your small business is suited to completing its financial matters using 21st century methods and/or an Internet-only bank.

  • If your company's revenue is modest, online banking can be attractive. The savings financial institutions see as they eliminate unneeded branches -- often to the point of having one central location and multiple ATMs -- can be passed on to you in the form of higher interest rates.
  • Does the Internet-only bank provide officials to visit your company when needed? There are times when an actual meeting is both necessary and, to further the relationship between the two parties, helpful. Similarly, if you use a non-bricks-and-mortar financial institution, is its headquarters office near your company? Just because you can't necessarily make a cash deposit at the site doesn't mean you might not need a face-to-face sit-down there, especially if your community's electrical grid malfunctions.
  • Most Internet-only banks are FDIC insured. Make certain yours is too.
  • Many Internet-only banks allow for conducting business via mail and by using bank wires and money transfers. These can be helpful or a hassle. Some small businesses -- given their modest operational scope and scale -- can afford to spend a bit of extra time conducting financial matters. Other small companies offer services and products that are influenced by time constraints and do not have that luxury.

If you decide to do your company's banking primarily online, or with an Internet-only bank exclusively, there are pluses and minuses.

On the positive side, online banking provides detailed transaction information. For example, your company can do an ATM withdrawal and see that transaction on your bank's Web site typically within one hour. Also, you can see your account balance at the close of the most recent business day, quickly view a graphic image of a specific transaction and transfer funds from account to account (often importing the data into a preferred company finance software program). Lastly, Internet-only banks tend to be small, like your company, and can relate to the challenges you face.

As to the negatives, if you use an ATM, the fees can be a factor. In addition, if your business deals with hard cash, making deposits with an Internet-only bank can be a challenge, as you will need to mail them. Perhaps most troubling, having an account being locked for security or technological failure reasons can be much more troubling, and exasperating if you conduct financial business with an Internet-only bank.

A major requirement for the success of any small business involves that company's partnership with a financial institution. Whether you bank in a conventional manner, combine online banking with a bricks-and-mortar entity or opt for an Internet-only bank, the key is keeping your company's finances in order.