Banking in the United States

The U.S. banking system is the largest and most diversified in the world. Both national and international banks are present in the U.S. market. Commercial banks, investment banks, savings banks, savings and loan associations, credit unions, leasing companies, finance companies, and factoring companies that provide asset-based financing are some examples of the different types of financial institutions that comprisethe U.S. banking system. They offer the widest range of products and services globally, ranging from personal to small business, corporate, and institutional banking and can tailor their services to the specific needs of a client.


When an entrepreneur starts a new business or contemplates business operations, the relationship with a bank is of prime concern. For a new business entity or a branch of the existing one, the first step should be to open a basic checking account. The checking account is used to conduct daily business operations, such as paying to the vendors, accepting transactions from the customers, paying employees, and making other regular business expenses. Nowadays, more and more transactions are done electronically; online banking allows owners to access their accounts and complete necessary transactions from anywhere, twenty-four/seven. 


A company may also require a merchant account, which is necessary in order to accept payments from customers by credit or debit card. This convenience may draw more clients to the business, as well as allow existing clients to pay their bills more quickly and conveniently, since they do not have to pay cash out of pocket.


If the business earns profits that it does not need to spend or otherwise distribute immediately, those profits may be deposited into a savings account. The company will thereby generate interest. These accounts may be free to utilize if a business maintains a certain minimum balance and can be used to set aside a portion of excess liquid assets while earning interest. Money held in a U.S. bank account is insured by the federal government up to $250,000.


In addition to savings and checking accounts, most banks provide other useful services to their customers, including cash management and payroll services.


Cash management service means that the bank’s employees, not the company’s, will process the payments, manage cash balances, retrieve all necessary information on the accounts, and notify the owners of any upcoming payments so they can plan for their expenses accordingly. This service helps to effectively manage company money without taking time from the core business dealings. Being able to delegate these duties to the bank instead of their staff allows business owners to use their human resources in a more productive way.


Payroll service allows companies to outsource all their payroll matters to the bank. It will make payments to the employees from the business checking account, prepare and file payroll statements with the government agencies, and submit the reports to the company management.  


Borrowing in the U.S.


Commercial banks supply the most funds to businesses. Entrepreneurs may need to do certain purchases for their businesses on credit and use available cash for other purposes, or they may decide to invest in equipment or real estate but do not have enough personal assets for such a sizeable purchase. In such cases, various types of financing are available. 


Short-term Financing: This is usually arranged as a line of credit or payday loan. It is an easily accessible source of funds for everyday working capital needs. Entrepreneurs pay via credit card, then make periodic payments to the bank until the card balance is satisfied in full. Credit card interest charges are tax deductible.


Middle-Term Loans: These loans are generally issued by a bank for a term of five to seven years. As a condition of the loan, a bank usually requires execution of a note and a formal loan agreement that may contain covenants restricting the borrower’s decision-making regarding certain big transactions. The bank may also require personal guarantees of the business owners, audited financial statements of the company, and even some sort of collateral if a company does not have an established good credit history.


Long-Term Loans: This type of loan exists to help companies purchase capital goods or consolidate their business debts so they will only have to deal with one creditor as opposed to multiple ones. Real estate and equipment financing often involve long-term personal loans, and these loans may be issued for fifteen- or thirty-year terms. 


Leasing: Another way to make sizeable purchases is to lease with an option to buy at the end of the lease term. Leasing is often used to finance the purchase of expensive personal property and equipment. A bank or a leasing company will purchase equipment for the entrepreneur, then lease it to the entrepreneur for a specified periodic payment. The leasing company retains actual title to the equipment. The lessee could treat the rental payments as a current expense on his or her financial statements, thus reducing net taxable income. At the end of the lease term, the lessee usually has an option to return the equipment or to buy it at a depreciated price.


A wide variety of federal, state, and locally sponsored incentives are available for new and expanding businesses, depending on the size and scope of the proposed project and its location. These incentives may include loans with reduced rates, grants, tax credits, tax abatements, and others.


Other Banking Matters


Most U.S. banks operate under a know-your-customer policy that requires them to verify true existence and good faith of a business and its financial transactions and the identity of the persons who have signature authority on the accounts and allows them to request additional documents of the company in case some issues arise.


Informational returns may sometimes be required on the transfer of substantial amounts of cash. Banks will notify the IRS about any cash transactions in the amount of $10,000 or more.


Any U.S. individual or company who has a financial interest in or signature authority over any financial account in a foreign country, where the aggregate value of these accounts exceeds $10,000 at any time during the calendar year, is required to file a Report of Foreign Banks and Financial Accounts with the IRS by June 30 of the following year. Failure to meet this filing requirement could result in high civil and criminal penalties.


In addition to the basic banking services of treasury, lending, payments, and cash management, certain banks provide tailored, sophisticated banking solutions in the areas of corporate finance, corporate investment, leasing, structured finance, commercial finance (factoring), real estate finance, insurance, and equity and debt capital markets. Banks in the USA assist businesses with growing, managing their day-to-day banking needs, and providing a full range of banking services to help entrepreneurs achieve their business goals.

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