Startups are an important part of the global business ecosystem. They strive to find solutions to various problems in different markets, attract regulatory attention, and help expand different types of business operations. If you want your project to be a success, it is important to find a flexible banking option. In this article, we’ll look at how a small-sized startup can select a foreign bank account.
Business Account for a Startup. What is it?
A business account is a specialized current or DDA account that allows you to separate personal funds from business funds in a smart way. Fast transfers, purchase of new assets, investments, settlements in different currencies can be ensured with a corporate bank account.
In addition to that, business accounts help companies track their cash flows, correctly pay taxes, and prepare financial statements.
A competently chosen bank account can provide access to additional resources for expanding your business and sales channels.
Why is it So Important for Startups to Choose the Right Bank?
When comparing the advantages of foreign banks for a startup, you should keep in mind a number of important points:
- the appropriateness of using a business account;
- expected volume of future financial transactions;
- bank requirements for incoming/outgoing payments;
- integration with accounting or book-keeping software;
- the need for access to additional financing, including government furloughs etc;
- the nature of financial transactions, i..g. B2B / B2C;
- dependence of the company on foreign currency transactions;
- geography of counterparties and partners.
There are a number of points that can turn the choice of a suitable offshore bank into a real challenge. Therefore, should you decide to launch a startup or a company, please begin by selecting the right jurisdiction and a bank account. You should take into consideration the bank’s scope, rates and policies, as well as all the subtleties of the company’s corporate structure.
Should Startups Use Large Foreign Banks?
Large banks have both advantages and disadvantages. From the technical standpoint, they can offer many advanced banking features such as P2P transfers, mobile banking apps, and fast access to currencies.
Larger banks, however, are rarely able to ensure personal attention and care that small-sized companies need so much. As a rule, big players have a unified approach to most customer service issues, including charging standard fees, while smaller banks can provide an individual approach and even take into account the specific situation of a company at the time of negotiating fees.
Factors to be taken into consideration when choosing an offshore bank for a small-sized startup:
- The company’s banking needs. This may seem obvious – but many business persons overlook it. Make sure that the bank you chose understands the type of business of your startup, the type of financial transactions, their scope, and your relationships with your counterparties and partners.
- Available payment options. It is crucial that the foreign bank account allows for cross-border transactions. For example, many European online banks are unable to execute payments in U.S. dollars due to correspondent bank issues, so businesses have to open several accounts at once.
- Account operation mode. Depending on the legal structure of your startup and its country of incorporation, a number of anti-money laundering rules must be followed. It is important not only for opening an account for your startup, but also for keeping it active, and this will require compliance with a certain business account operation mode.
- Compliance of the country of incorporation. Not all offshore banks are ready to open accounts for all international companies. Make sure that the bank you chose welcomes the jurisdiction where your particular startup is incorporated.
What Services Does a Small-Sized Offshore Startup Need?
- availability of bulk payments;
- availability of payroll solutions;
- access to SEPA, SWIFT and CHAPs transfer systems;
- IBAN account that allows making payments to and from SEPA countries and the rest of the world;
- bank cards;
- convenient online banking to control your corporate finances preferably via mobile application (Apple, Android).
Where Can a Startup Open an Offshore Bank Account?
Conventional bank accounts
They provide access to a variety of products that can meet the needs of companies of all types and sizes, regardless of where they are incorporated and where their partners are located. However, there is a catch: a small-sized startup will only be able to open an account with a foreign bank if it has enough capital. Therefore, many business persons use an alternative to bank accounts.
EMI Payment systems / Neobanks
Non-banking institutions offer a worthy replacement for conventional bank accounts. These accounts are safe, being regulated by a number of legal norms and rules. The main advantage of opening an account with a payment system is the fast-track application processing, more dynamic attitude to compliance, and a large variety of services.
The scope of corporate accounts with the foreign payment systems (EMIs and neobanks) includes innovative technical solutions that simplify operational management.
Accounts with the payment systems are an ideal option for small-sized startups because they allow performing international transactions for the lowest fees.
Why Would a Startup Be Refused for Opening an Offshore Bank Account?
The reasons for which the banks may refuse onboarding an offshore client are numerous. The tightening of policies and regulations aimed at combating money laundering and terrorist financing has led to a situation where offshore banks have to impose many restrictions of their customers. These restrictions apply to the type of business, its size, country of incorporation, nationality of ultimate beneficial owners. Here are some of the main reasons we can outline:
- failure to comply with the requirements of the bank at the time of application for opening a business account;
- lack of required documents;
- presence of mistakes in the bank forms;
- use of overly-complicated business structure;
- your type of business does not comply with the policies and requirements of the bank;
- your company does not correspond to the bank requirements in terms of turnover and capital;
- the scope of operations the bank can offer is inconsistent with your business;
- insufficient understanding of how the account operation mode is organized;
- deliberate providing of inexact information.
If your startup is registered in a jurisdiction with an unstable financial and political situation, high corruption, and an unpredictable currency rate, the chances of opening an account with an offshore bank are close to impossible.
Therefore, before applying for opening a business account, first consider the requirements, legal and tax requirements and possible pitfalls of the specific jurisdictions.
Should you wish to select an offshore account for a small-sized startup, please feel free to use our Bank Pre-Approval service or contact us right now using the special box above.
