One of the most important decisions a small business or start-up can make is which bank to do business with. That’s because building a relationship with the right lender is critical to ensuring that your business grows and succeeds.
You want to choose a bank that focuses on small- and mid-sized businesses with offerings tailored to the needs of entrepreneurs like you. But you also want a bank with a track record for great service and happy customers.
While you may have previously relied on word of mouth to choose a bank, you don’t need to do that anymore. That’s because a recent report by LendEDU, the organization I help lead, ranks banks by the number of customer complaints against them. The data comes from from complaints tracked by the Consumer Financial Protection Bureau (CFPB).
If you’re unfamiliar with the CFPB, it's a federal agency, created in 2010, in the wake of the Great Recession of 2007-08, with the purpose of protecting Americans when they use financial products and services.
As of July 2011, the CFPB began tracking consumer complaints against banks. Currently, the CFPB’s Consumer Complaint Database has received more than 679,000 complaints against about 3,000 financial companies.
LendEDU's analysis of banks in 2016 looked at 175,051 complaints in the CFPB database between January 1, 2016, and December 10, 2016. In total, the report featured 57 financial institutions included on the S&P Banks Select Industry Index.
The report included both regional banks and larger, diversified ones. Because the size of the banks varies significantly, the report calculated the number of complaints relative to the value of deposits held at the banks.
In that way, the data could reveal which banks had the most unhappy customers and which had the least.
The best banks
Of the banks that the report looked at, there were 12 that did not have a single complaint against them; these included the Bank of the Ozarks, United Bank, Silicon Valley Bank and Bank of Hope. While that doesn’t guarantee that all these institutions' customers were satisfied, it does mean that none of these customers were angry enough to go online and lodge a complaint with the federal agency.
One thing that’s interesting about the banks without complaints is that they’re all regional banks. They are also relatively small banks. Silicon Valley Bank tops that "smallest" list, with only a little more than $38 billion in deposits. Centennial Bank comes in last, with just $6.8 billion in deposits.
The worst banks
The top ten worst banks, according to customer complaints, reads like a who’s who of big banks in America. The list has Citigroup coming in as second worst; Wells Fargo, coming in third; Bank of America, fifth; U.S. Bancorp, sixth; and Citizens Financial Group, holding the eighth spot. All of these banks are major diversified banks, but there were also a number of regional banks that made the list.
In fact, TCF National Bank came in with the most complaints. TCF National had over 12 complaints per billion dollars in deposits.
In contrast, Citigroup, ranked the second worst bank, received just over eight complaints per billion dollars of deposits. Other regional banks on the list included SunTrust Bank, CIT Group and M&T Group. CIT Group, which rounded out the top ten worst banks, had roughly half of the complaints that TCF National Bank did.
How to use this report for your business
If you’re in the market for a bank for your small business or startup, consider checking out the 12 regional banks that had no complaints, if you live in their respective regions. Despite their small size, these banks might be perfect for your company. David Chen, founder of MillennialPersonalFinance.com, told me he'd recently opened a bank account for his own blog business. “I ended up choosing to bank with a local regional bank," Chen said. "The business accounts come with less fees, compared to the more traditional business accounts.
“And, I feel like they take my currently small business more seriously.”
Smaller, regional banks are more likely to lend to small businesses than large institutions, according to a report from the Federal Reserve. The study found that in 2015 small banks were a source of financing for 76 percent of small businesses. Given that the report also found that 63 percent of microbusinesses (those making less than $100,000 per year) and 58 percent of start-ups reported having experienced credit shortfalls, building a relationship with a small, regional bank with a great reputation might be best for your business.
When it comes to the banks that had the most complaints, you could also use this list to help you avoid those banks without happy customers -- either because they have had bad customer service or those services aren’t adequate. The last thing you need is to spend the time you should be working to build your business fighting with your financial institution. Banks are supposed to serve you; so it’s not a good sign when banks have significant numbers of complaints against them.
Just remember that this report is only a starting point. It’s important to research the services that each bank offers to small companies to ensure that they will be able to meet your current needs and help you grow.