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Opening a US Bank Account for Your Startup is More Challenging Than You Might Think

Opening a US bank account would seem to be a simple process. However, if you are a UK or EU startup wanting to open a US bank account to support your US expansion efforts the process can be far more challenging than you might think.

Why you need a US bank account

Businesses and financial institutions in the US primarily use a proprietary system called the Automated Clearing House, or “ACH” system, for electronic funds transfer (EFT) within the United States. Your US your company will need a US bank account to transact processes such as accounts payable, accounts receivables, and payroll funding via the ACH system. US banks do participate in the global SWIFT payment system, but US banks typically charge high fees on a per transaction basis making it cost prohibitive to conduct ongoing and regular business transactions in the US through the SWIFT system. To conduct business in the US your company will need a US bank account.

The challenges of opening a US bank account

Banking in the US is a highly regulated and complex industry. One of the primary challenges foreign companies face when wanting to open a US bank account is a regulatory doctrine banks must adhere to named “Know Your Customer”, or “KYC” for short. Know Your Customer regulations were designed to prevent banks from unwittingly banking organizations involved in money laundering or terrorist activities. KYC regulations require banks to verify the identities and perform due diligence on any new customers. One of the unintended consequences of KYC regulations is that it makes it very difficult for startups from a foreign country to open a US bank account. Most large banks in the US simply won’t invest the time or resources required to verify the identities and perform due diligence on young venture backed startups wanting to open operations and bank accounts in the US.

Another challenge of opening a US bank account is that your US company will need to have a physical office address for the bank to verify. However, to sign a lease on an office your company will first need to have a US bank account that can be verified by the landlord. A classic “catch 22” situation for sure. While there are a growing number of “virtual” office options available that provide a company “address” and mail service as a subscription these options risk not passing the due diligence process a bank might pursue.

Additionally, to open a US bank account your US company will also be required to have a US Federal Employer Identification Number (FEIN) and Articles of Incorporation with a named officer or officers with authority to open a bank account.

Options for opening a US bank account

It’s most likely not a worthwhile use of time to try directly contacting the large banking brands in the US to open a US bank account for your startup. Most large banks in the US simply won’t invest the time or resources required to comply with the KYC regulations to open an account for a non-US startup.

You can potentially find an introduction from a US service provider like a law firm or accounting firm to a mid-sized or regional bank that might be willing to undertake the verification and due diligence requirements on a referral from someone they have a relationship with and have known for several years. Maybe.

If you’re a venture backed startup in the UK or EU, your best option is to open a bank account with Silicon Valley Bank UK. Silicon Valley Bank is uniquely positioned to serve startups with US expansion aspirations in several ways. First, they have banking operations in both the US and the UK so they can open a US bank account for your company from the UK. Since SVB specializes in venture backed startups they understand how to evaluate the success metrics of a high growth business beyond the traditional metrics of free cash flow and EBITA that most banks would use in underwriting decision making. As such, SVB issues lines of credit and even venture debt no traditional bank would even consider extending to startups. Of course, they provide traditional banking products such as online banking, checking accounts and credit cards as well. Lastly, and they don’t advertise this, SVB helps make introductions for their startup clients to venture investors. As a 3X CEO of venture backed startups I’ve personally found SVB investor introductions reliable and extremely valuable.

If you have questions about banking in the US or US expansion in general, please feel free to contact us. We are always happy to talk and answer any questions you may have for us.

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