FINDING THE RIGHT BANK ACCOUNT FOR A CANADIAN STARTUP OR A SMALL BUSINESS

This is the first entry in this yet another entrepreneurship blog. If the venture fizzles out, this could also be one of the last entries. It’s also a rather long entry because it’s an ad hoc survey report.

A few months ago I stumbled upon an interesting idea. Not something very original, I felt there was a certain market appeal and a nascent underlying trend. I set about conceptualising, writing up a business plan outline literally overnight. I reached out to some like-minded friends, collected insights, and a small skeleton team was formed.

Over the next couple of months, I was tweaking and further fleshing out the idea. A potential angel investor appeared on the horizon, justifying further effort. To separate this venture from my personal affairs and other pursuits, I set up a BC corporation, hoping to raise a small amount of the initial capital through an FFF round.

So, roughly 350 coffees (or three or four months) into the venture, I actually needed something called business bank account, and had a really hard time deciding which bank and which exactly account type to go for. There are five or six large banks in Canada that dominate the scene, a couple of large internationals, a dozen or so smaller ones, and any number of local credit unions – at least here in British Columbia.

People walk past the main TD branch near West Georgia and Granville St.

The more I thought about it, the more complicated it seemed. The fees were confusing. The large banks had either very basic accounts with limited functionality, or fully fledged accounts requiring minimum balances, – in addition to the various fees for virtually everything. It was not clear (and is still not entirely clear) what constitutes transaction for this particular purpose – I understood, for instance that depositing a cheque was different from transaction, and that wire transfer was different from electronic transfer or Interac transaction, – and the fees varied greatly across the board.

Like many if not most online ventures, ours will be operations-focused at its core, cost-conscious (much like any retail operation), so having a convenient, smooth and low-cost banking solution seems rather critical to the success. A plus-minus 1% of the operating profit margin can make it or break it. Having to pay $1 or so for each and every transaction, having to pay a $30-$60 monthly fee just for having the account, having to maintain a $5,000-$30,000 balance to get rid of some fees – all that can be very detrimental to the bottom line.

One sensible way seemed to start with a basic small business account and then upgrade to more functional one as the business actually went operational. So, I’d need to carefully choose the financial institution, to avoid the hassle of the transition later on.

I posted a note to my 800+ Linkedin contacts and inquired through Facebook. The insights are gathered were no very conclusive (i.e. nobody had a clue), so I continued my own research.

My starting requirements for the account setup were simple:

  • The institution had to have a physical location in or near downtown Vancouver, in case there were some issues that had to be resolved in person.
  • The account had to have low monthly fees (better none at all) in the beginning, with perhaps reasonable monthly fees as the volumes go up. As a startup, we don’t know exactly when the revenue will start flowing in, so paying a high maintenance fee is a no-go.
  • Transaction fees had to be as low as possible – and preferably none at all for electronic transfers within Canada, like Interac transfers or direct deposits for payroll. I was really looking to minimize the cost of paying to our future contributors, a win-win for all.
  • The account had to be easily integrated with outside payment gateways / merchant services to allow convenient (and hopefully low-cost) payment options for our customers. I am yet to look into this side in detail, but for credit cards here is a good round up of the more reasonable providers in Canada.
  • Since most international payments have to go through USD at some point, adding a USD account inexpensively was important. Of course, one can’t expect a truly multi-currency account in Canada (although it’s quite common in Hong Kong, for instance). And, I thought, conversion between the accounts has to be low cost, since it’s within the same account essentially (dreaming, I know).
  • Finally, it had to be easily integrated with a cloud accounting system, so we could see our state of accounting largely in the real time, and from anywhere in the world. (One main point of starting an online business being in being able to run it from anywhere).

Nothing very fancy – just all the basic ins and outs that any online startup needs, and done on a cost-effective basis. On critical assumption though was made that since every new startup is at the beginning a very small business, the banks account specifically tailored towards small businesses would be a better fit. There are very few if any bank accounts specifically designed for startups (which is a shame). At any rate, the survey has mainly focused on small business accounts so far.

A two-day survey and comparison of several banks and credit unions resulted in the following very rough summary table, by no means complete and accurate. There may be omissions and inaccuracies, – please do your own research as well, particularly when it comes to the fine print and the fees for various services. You’ll see a lot of question marks in the table, but I think it’s a good place to start. It’s better viewed from a desktop or a tablet device.

Small Business Accounts at various banks/credit unions in Vancouver

Bank / Credit Union Product

(with link)

Monthly fee, CAD Transactions included Add. transaction fee Minimum balance Adding USD account USD exchange Credit card included Merchant service Payroll service
RBC RBC Business Essentials 6 Very few apparently 0.60-1.25 None needed US$9/mo. Not clear Not included(can be added?) No No
Small business eAccount 0 Unlimited electronic transactions Electronic free, paper $1.25-$5 or more None needed USD 9/mo., Not clear Not included(can be added?) No No
Scotia Right Size 9.95 1.20-0.85 6,000 to waive monthly fees $9.95, other currencies $16/mo. $2 forex No No No
Basic Business 6 5 1.20-0.85 None $2 forex Yes No No
BMO Business Start 6 7 0.60-2.00 None Not clear “better than airports’” J Yes, add. Yes (?) No
Business Builder 1 20 35 0.60-2.00 None Not clear Not clear Yes, add.
CIBC Basic Business Operating 6 1.00-1.25 None $6/mo. Yes Not clear No (?) No
Everyday Business Operating 20-25 30 1.00-1.25 None $6/mo. Yes Not clear No (?) No
TD Everyday Business 19 20 1.25 None $19-125 Not clear Not clear Yes, TD No
Basic Business 5 5 1.25 None $19-125 Not clear Not clear Yes, TD No
CWB Business Current 5 ? $0.90 paper

$0.75 electronic

$7.50/mo. Not clear No No No
HSBC Business Vantage 55 20 0.85-1.00 None Another $55? 4% No No No
Coast Capita Deposit For Free 5 From 0.95 None $0 (?) $5 Yes Yes, Desjardin No
One Small Fee, the Rest is Free 35 1 From 0.95 None $0 (?) $5 Yes Yes, Desjardin No
Vancity Credit Union Independent Small Business (w.interest) 6 0.75 1500 to waive monthly fee $3 (?) Could not find Yes Yes Yes
Prospera Pay-As-You-Go Chequing 5 0.90-1.25

Elec free

None $3/mo. $2.45+0.90 Yes Yes Yes
Business e-chequing 12 Unlimited free electronic 0.90-1.25

Elec free

None $3/mo. $2.45+0.90 Yes Yes Yes
First 35 Chequing 18 35 0.90-1.25

Elec free

None $3/mo. $2.45+0.90 Yes Yes Yes

Based on the above, I thought RBC eAccount, BMO Business Start, Coast Capital Deposit for Free, Vancity Independent Small Business and perhaps Prospera Business E-chequing seemed more reasonable than the rest. If you’re in the BC region, some of them might work for you, depending on your situation.

RBC is virtually everywhere in Vancouver, so their website was where I started my search. I found that their offerings for small businesses were not too bad, especially if your business relies mainly on online transactions. Adding merchant and payroll services would probably cost extra, but they are inevitable. I wasn’t able to see immediately if RBC had those provided in-house. Also, in my previous dealings I was never very impressed with their forex rates (and usually opted for VCBE for that purpose). Anyway, a not-so-bad solution for a mainly North American online operation.

Scotia, – I have been hearing good things about their small business accounts, but large volume transaction fee seems a bit higher than at RBC: RBC charges $0.75 for over transactions over 300, while Scotia caps at $0.85 at 150+. Also, to keep a $6,000 minimum balance to waive $9.95 monthly fees. One good thing, not always available, is the business credit card included.

I liked the BMO Business Start account. It’s one of the few banks, if not the only one that has something more or less tailored towards startups. Electronic transaction fees are also one of the lowest in the category – $0.60 although of course international transfers are going to cost a lot more. Dig deeper if you need international transfers – but a lot will depend on the exact currencies and countries you work with.

TD’s offerings are some of the least impressive, in my brief research at least (you can always find something worse). However, given their heavy presence in the onsite merchant services area one might suspect they are more competitive for retail business users that need POS terminals. Perhaps a similar thing could be said about CIBC – average fees, nothing that really stands out. I keep seeing the Tangerine (formerly ING) ads for personal banking (and customer complaints), but since they are not promoting their business chequing accounts and they were hard to find on their website, I didn’t consider them as an option.

There is another Canadian bank here that people keep forgetting about: Canadian Western. Their business accounts are very basic, but the fees for the Business Current offering are actually more reasonable than one would expect – and it has an interest-bearing alternative, Business Current Plus (normally, with most banks, they want you to open another savings account to park the extra cash). You can also add a USD account rather cheaply at Canadian Western. Still, unless I were to operate a strictly local business, with a very small international volume, it’s probably going to be at the bottom of my list.

I didn’t go too deep into the international banks, since they are not very visible in Canada, other than HSBC. The parent organization in Hong Kong has become notorious for being difficult to open an account with – especially for a small or foreign business. It’s almost as if they don’t clients, and it’s no wonder that they don’t really has an easy way to see the account options on their Canadian website either. I can longer find the Small Business account product there, and the only basic one is $55/month with rather standard or unappealing additional fees: $1 down to $0.85 for large volumes. They do offer first 20 transactions free of charge. So, unless you are starting a very well funded venture with immediate international ambitions, HSBC is probably not for you.

Now, what really impressed me were the local credit unions. There are literally dozens of them in the region, and I have looked only at the three of the most active in the Greater Vancouver. The fact that they are able to offer very competitive rates and a full range of services didn’t surprise me – I have read about that before, but it’s a very different thing to discover it for oneself. I was very pleased. They come with a substantial downside for an online venture though (details below).

Vancity’s Independent Small Business. In my brief review, Vancity and Prospera seemed the only institutions that provided an integrated payroll solution which can be critical for some businesses with many employees or contractors. Transaction fees are among the lowest and are not tied too much to the volume.

Coast Capital is a close alternative. Transaction fees are not super low, but apparently it doesn’t seem to cost any extra to add a USD account with Coast, there’s an integrated merchant system (Desjardins). The flat foreign exchange fee of $5 seems higher than at the other credit unions, but the trick is usually in the hidden fee through the unfavourable exchange rates – new Fintech developments should fix that in the near future.

Prospera is not a very visible name, but it is a full-service institution with some good options for a small business. I thought their foreign exchange fees seemed really good (at first sight at least), and like Vancity, Prospera offers both merchant service and payroll integration. It’s not downtown though, and has only one location in Vancouver.

What’s also good about the credit unions is that virtually all of them have free depositing service – most banks will charge something like $0.20, a trivial amount, but still.

Now, the downside with credit unions is that they might not be a good choice for an online, e-commerce business that targets mainly overseas markets, or has multiple partners overseas. I was told at Vancity that because credit union typically have no international compliance facility, and due to AML regulations, they will find it difficult approving payments coming from overseas, particularly from high-risk jurisdictions (yes, that includes Russia and China). This is something that could still be addressed, one way or another, but at the moment, it seems, a full-serve bank would be a better choice (they might still, however, have issues with cryptocurrencies).

Conclusion: I haven’t decided what’s really best for me, but it did clarify some things and eliminated some alternatives. Both of the larger credit unions look like a sensible solution, but I am not convinced yet if they are convenient for an international operation, so I might still go for a “normal” bank. What would it cost, in comparison, to receive payments from overseas, for instance? Or what if an issue happened and I happened to be overseas, and needed to present at a branch? (That’s almost a non-issue with HSBC. Some large Canadian banks have overseas presence, at least in the financial hubs).

I am pleased that virtually all account types have some form of merchant-system integration, although the fees will vary. There’s even one that offers payroll (although I suspect you’d still need an outside payroll service for a very large volume). And integration with cloud accounting still remains an open question. Xero, I hope, is easily linked up with most Canadian institutions, the same should be true for any other established provider (I am still window-shopping for an accounting provider).

Hope this helps someone. Do your own search, make your own judgement. Perhaps one could start with a BMO Business Start account and then upgrade to Business Builder 1, 2 and so on as the volumes pick up. Or just stick with the RBC eAccount if all you do is selling designer flip-flops online. And check with you local credit union – you may be pleasantly surprised.

Till next!

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