Three Banking Terms Every Small Business Needs to Know

Cash Flow Analysis, SBA Loans, and Merchant Services are three essential banking terms that every small business or start-up should know, period. There are especially important when speaking to bankers.

“Bank Speak” is an unfortunate reality in the small business banking industry. Bankers, like all professionals, speak in jargon. It’s not that they purposefully try to be confusing, bankers have just used their jargon for so long that they forget that the banking terms they use aren’t always common to business owners. Doctors, Lawyers, and even consultants like us need to be mindful of it.

Before you speak to a banker about your business, there are a handful of banking terms that you might want to know. Below, we talk about terms like cash flow, SBA loans, and merchant services, which your startup might need to know when it comes to banking for your small business. 

What Is a Cash Flow Analysis?

The best companies have a solid grip on how much money flows into and out of their business. I’ve often said that profit is like food and cash is like air. Cash flow is like the oxygen gauge on a scuba tank. If you have 5 minutes of air in your tank, you don’t want to be 10 minutes from the surface. The same is true for the cash you have on hand to run your business.

Susan Ward from The Balance Small Business wrote a great piece called “Cash Flow Analysis for Small Business Owners.” Her article has some great charts and explanations of the ways to track your money. But there are two big points that I wanted to address. First, your cash flow, like a scuba tank, can help you make the decisions necessary for survival. Second, a detailed understanding of your cash flow can identify problems you already have. To use the scuba metaphor one last time, divers always check for leaks in their hoses. By looking at your cash flow monthly, you’re doing the same.

What Are Merchant Services?

Simply put, merchant services allow you to accept credit cards. Lori Fairbanks wrote a great article, “The Best Merchant Services of 2020,” published on Business.com. In this article, Fairbanks provides a clear definition of the different types of merchant services your business can use.

When you accept payment from a client or customer, a merchant service like Square or PayPal (two of the most popular) allows you to process the money. There are different types of merchant services that are suitable for various small businesses. The rates, fees, and terms vary, and different businesses have different needs that your banker can inform you about. But all merchant services charge a set percentage of the sale plus a fixed per-transaction fee. Therefore, you want to look for the one that best fits your business.

For example, if you have a lot of small transactions, you might want a merchant service account with a larger percentage of sales and a low per-transaction fee.  In contrast, if you have a few large transactions, you would probably want a smaller percentage of the sale fee and a higher per-transaction fee.

One thing to note: merchant services are NOT merchant cash advances. People sometimes confuse them as they sound similar. They are NOT. I advise people to avoid this type of financing if possible. If you need funding, there are far better ways to get it, which brings us to our final banking term… 

Why Do I Need to Know About SBA Loans?

Odds are, you’re familiar with the SBA and the loans they offer. If not, here’s why you should bring them up. First, they offer the lowest rates with the longest payback periods. Second, the SBA underwrites part of the loan, thereby reducing the risk to the bank.  The catch is that you need to be in business for a while. Therefore, they are typically not an option for businesses that have been in operation for < 2 years.

The SBA offers several different types and sizes of loans that could be right for your business. The SBA’s website has a wonderful section about the kinds of loans you might want to consider and what makes them different. Check out their site for more information. 

The Three Startup Small Busines Banking Terms to Know

Let’s recap the three small business banking terms:

  1. Cash Flow: Remember, it’s the oxygen gauge on your business’ scuba tank. Banks will expect that you are monitoring it. If you need help, we have a template you can use
  2. If you want to accept credit cards, you will need a Merchant Services account. Remember, they include a fixed and variable fee. So, make sure you know which service is right for your business. 
  3. SBA Loans are the best source of funding for Small Business debt — they offer the best rates, longest payback terms, and reduce risk in banking. Therefore, you are apt to be able to qualify for more and have lower monthly payments. 

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About Me

Brian Cairns, CEO of Prostrategix Consulting. Over 25 years of business experience as a corporate executive, entrepreneur, and small business owner. For more information, please visit my LinkenIn profile

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