Comparing European and U.S. business banking – an analysis

A quick scan of the world’s top 10 companies by market cap or most billionaires quickly reveals that the U.S. leads Europe. Undeniably, the two continents have contrasting cultures and attitudes regarding business, which becomes evident in how they perceive risk. In the U.S., investors have more access to capital and are encouraged to try again even if their business fails.

Business differences between Europe and the U.S.

Europeans don’t have the same access to capital for their ventures, forcing them to pay more attention to addressing concerns before venturing into seeking financing. As a result, lenders typically give smaller loans and have more restrictions on the business profile to which they are willing to loan money.

As we see from companies like Amazon and Tesla, market share and growth are more important to American businesses than profits. The former only became profitable after nine years, whereas the second after a decade. However, Americans think big when considering potential business outcomes and incomes, allowing them to seek more opportunities and take more risks.

Comparing European and U.S. Business Banking

One of the significant restrictions of opening a business banking account in Europe is that each country has a different banking system and will have additional document requirements for the various business structures.

Most countries across Europe follow rigid banking regulations, and some countries require their banks to request credit history documents, something that’s difficult for startups to provide. Additionally, services provided by banks also depend on the company type.

Some European banks require a capital deposit when applying for a business banking account that only becomes accessible once the business is formally registered.

Typically, some of the documents needed for getting a business banking account include proof of identification, proof of residence, incorporation documents, and in some cases, credit checks. The rules become even more complex for foreign entities.

Most businesses outside Europe prefer opening a multi-currency account in their own country to accommodate their business processes there.

Across the U.S., banks require the same documents from business owners that want to open a business bank account. These include the business articles of incorporation, employer identification number (EIN), and the owner’s personal identification documents. The U.S. doesn’t have residency requirements for opening a business bank account, but the business must be registered in the country and have an EIN.

Benefits of opening a U.S. business account

Sole traders are not required to have a business account in the U.S. However, a business account can offer every business person certain benefits. These include simplified tax returns, building a credit rating, and helping keep business and personal finances separate.

One of the main requirements for opening a business bank account is an EIN, the nine-digit document representing a business’s tax identification. Therefore, the EIN is the unique identifier for businesses received after making an online application to the Internal revenue Service (IRS). Besides its use for your business taxation and opening a checking account, you will need it when hiring employees.

Do I need an EIN to open a business bank account?

To the question, “Do I need an EIN to open any of the various business checking accounts in the U.S.?” the answer is “yes” most of the time.

The only time you won’t need an EIN to open a business bank account is if you can use your Social Security number. That means your business is a sole proprietorship or a single-person LLC with no employees.

However, an EIN can prove valuable to even the smallest business because it can speed up the process when applying for a business loan or business credit card, protects your personal identity, and boosts your business reputation.

Not all financial institutions will open a business bank account without an EIN. A phone call will determine if they will and which other documents they will require instead.

Final take

Business owners around the world rely on business banking to smooth their entrepreneurial processes and have access to lending. Comparing European and U.S. business banking is not easy because of the vast differences between how business is perceived and done between the two continents. Despite the EIN requirement, applying for business banking accounts in the U.S. is far easier.