For nonprofits of any size, how you hold on to your money matters. You may already be researching banks in your area in preparation for opening an account but don’t know what to look for when choosing the best one.
If you’re a nonprofit, the rules are a little different than those followed by for-profit organizations. When selecting a bank, you’ll need to consider factors that for-profit organizations don’t typically deal with when setting up an account for their business.
Opening a nonprofit bank account is an extremely crucial step to collect donations and move your nonprofit’s mission one step closer.
If you’ve founded a nonprofit and are ready to start soliciting donations and spending money, you might feel the urge to rush to opening a 501c3 bank account. However, it’s a better idea to begin by researching banks in your area first.
It won’t necessarily be simple to switch banks once you’ve opened an account, so make the right decision the first time. You want to ensure your nonprofit’s mission and goals align with those of your bank. You also want to choose a bank with excellent services and customer perks.
Many banks hold themselves to a high standard of social responsibility. If you’re a socially-focused org, you’ll likely want to work with a bank whose interests mesh with yours. Typically, you should be able to ask your banker for their institution’s code of ethics or check whether the bank has a social responsibility statement. These will give you an idea of the bank’s standards and let you know how the institution positions itself within the community.
Working with a smaller bank or local credit union can also be a good idea for nonprofits that want to connect closely to their local community. Regional banks with local ties are more likely to be invested in the surrounding residents than larger banks. Banking with them can assist you with networking and identifying local issues your nonprofit can help with.
Additionally, see if your chosen bank or credit union follows their ethical standards in practice. Despite having the best intentions, not every bank does. A quick investigation of the bank and its relationship with community members will tell you how likely the institution is to follow its standards in day-to-day operations.
Not all banks have significant experience with nonprofit banking. When selecting a bank, the best fit will be one that has had many nonprofit clients in the past. The ideal business will have a decent percentage of nonprofits as current clients.
If your bank has experience working with nonprofits, they can provide expert assistance. For example, nonprofits can sometimes apply for tax-exempt loans, bonds, and financing. A bank with no experience working with nonprofits may not be able to help you navigate the application process if you want your organization to receive this kind of funding.
While you can work with a bank with no nonprofit experience, its staff may not have the level of expertise you need for smooth operations.
You should also consider other relevant skills. If you plan to form a public-private partnership, for example, a bank that’s worked with public agencies and private organizations is more likely to offer useful guidance and advice.
Many banks — but not all — offer unique resources and services for nonprofits.
These services can include direct lending, networking opportunities, and training that will help your org secure and manage money more effectively. If hiring a full-time treasurer isn’t an option for your org, some banks will act as a treasurer for a fee.
Some banks also offer special accounts for nonprofits that you can take advantage of. For example, PNC Bank will waive the monthly service charge if you keep at least $500 in your nonprofit’s account. TIAA offers an account with no fees at all, so long as you maintain $5,000 in it.
Opening a bank account for your nonprofit typically isn’t a complex process. It will, however, require some preparation and the right documentation. Almost every bank will require your nonprofit’s incorporation paperwork, bylaws, tax ID number, and letter of exemption from the Internal Revenue Service (IRS).
You will also need to identify a treasurer and select which officers will sign checks on behalf of the organization. Your bank will probably require that you provide some form of identification for these officers. Certain banks may request even more information. They may ask for additional documents or extra certification before they’re willing to open an account. For this reason, it’s a good idea to call ahead and ask what documents you’ll need before you try to open an account.
If you haven’t already applied for tax-exempt status, you should start there. There are numerous tax-exemption options for nonprofits, and only one will be the correct choice for your organization.
You may be able to open a bank account for your nonprofit organization before you receive tax-exempt status. You won’t, however, have access to any of the benefits that this status offers your organization. You also may not be able to use the designated services your bank has for nonprofits.
Selecting a bank is a major choice for a nonprofit of any size. The process isn’t complicated, but it does require some significant documentation and coordination between the organization’s officers. Not all banks offer the same perks and services, which makes researching your options crucial.
When researching banks, look or ask for ethical statements and standards designed to guide their behavior. These things will ensure your missions line up. Be sure to ask about the experience a bank has with nonprofits. Those with nonprofit banking experience and current nonprofit clients are much more likely to offer services and guidance that can help your org be successful.