Searching For The Right Bank
5 Questions To Ask Your Financial Institution About Its Global Capabilities
Sotiria Krikelis thought she’d picked the perfect bank for her company, which makes Relax Missy foldable ballet flats that women can slip into a purse when they want relief from painful high heels. She sailed through the application for a small-business loan to finance production runs in China in two weeks. The big, global institution even gave her free letters of credit, which her factory required up front.
But there was a hitch: Bank employees botched the inputting of basic information on Krikelis and her three-year-old, New York City-based business, One Life, Live-It, Inc.—and the agony of actually getting the letter of credit delivered was akin to walking in cruel shoes. “Anything you can imagine went wrong, from the misspelling of my business name to the inputting of my Social Security number,” she says. “When they did have to create the letter of credit, they couldn’t find my business name on file or my Social Security number on file.” It took endless phone calls to resolve the problem.
Krikelis kept her loan with that bank but moved her checking account to TD Bank, where she’s never had a problem. As she found out, it can be tricky to figure out which bank is best equipped to handle your global financial needs. A domestic institution that sounds great on paper may turn out to be poor at executing the transactions you need or lack the specialized know-how to do business in your target market efficiently. And if you choose a foreign bank, you could get stung by unfamiliar laws and regulations—and even instability in the local economy that puts your money at risk. “Be careful. Be very, very careful,” advises Mike Arman, an Oak Hills, Florida, entrepreneur who has been involved in the import-export business for 30 years.
So how do you find a bank that works for you? Here are some questions to ask.
How complex are my needs?
If you’ll only be making simple transactions where you pay in U.S. dollars, don’t rule out your existing bank. It may be great at handling your needs. Herman A. Harrison, who runs 30-employee Foster Transformer in Cincinnati, has worked with a joint-venture partner in China for more than a decade to make some of his electrical products overseas. He negotiated arrangements to conduct transactions with his overseas partner in dollars, so they rely on wire transfers. “That’s about as complicated as it gets,” he says. He has found that his regional bank, PNC, can handle them just fine.
Businesses that will have transactions in a variety of countries or use a foreign currency may need to shop around to find a bank that can handle their particular needs. “The small business has to do a strategic map of where it is going in the next three to five years. Which of the countries are going to be relevant?” says Sankar Krishnan, director of banking and insurance marketing at Sutherland Global Services, a business process outsourcing company based in New York.
Once you know where you’re headed, find out which banks have a physical presence in those markets or are part of networks that operate there, he advises. “As a small or medium client in the U.S., you are better served by the global banks that operate in those markets,” says Krishnan. For leads, he suggests trying the Banking Association for Foreign Trade, a group for organizations involved in international transaction banking, and the Export-Import Bank of the U.S. Ask if the bank offers “multicurrency accounts,” a relatively new product. As the name suggests, they will enable you to conduct transactions in a variety of currencies from the same account, so you don’t have to have two separate accounts for deals done in, say, U.S. dollars and the euro, saving you money.
What level of customer service does it offer?
A bank that does a great job with domestic transactions may not be great at handling international ones. No bank is going to tell you that it will treat your business as a headache, but you can get an idea of what’s ahead by asking how often it handles foreign transactions. If the team at your branch seems clueless, move on.
Arman was taken aback when his former bank, a mid-sized domestic institution, didn’t want to handle his wire transfers to a company in St. Petersburg, Russia, to purchase items like fur hats used by the military to sell in the U.S. “They were nervous about it,” he says. His banker finally asked him to take his account elsewhere. He withdrew his $85,000 on the spot and moved it to another bank down the street.
You’ll often get better service at an institution where bankers don’t get shifted around among branches frequently and you can develop a rapport with one person. Krikelis had such a relationship at the bank where she still has her small-business loan—until her banker was transferred to a new branch—but, because of frequent changes of personnel at the bank, has never been able to find someone to give her the same ongoing, personal service. “Whenever I go in to see someone, it’s always someone new,” she says.
At TD Bank, however, she has built a strong relationship with her banker over the past several months, and that’s made life easier. “He is willing to work with you on things,” she says. She has made a number of overseas wire transfers there and has never had a problem. “It works out beautifully,” she says.
A good relationship may save you money. Ted Scofield, general counsel of New York City-based Icebreaker Entertainment, which has manufactured games in China and now has 18 licensing partners that manufacture its products, says that his banker—also at TD Bank—is so helpful that he’s willing to drop the bank’s wire transfer fee. “We always ask them to waive the fee, and they do,” Scofield says.
How does it handle foreign currency conversions?
If you will not be trading in U.S. dollars, picking a bank that manages currency conversions frequently will make your life easier. “Any bank should be able to do it,” says Craig R. Arends, a partner in the CPA firm and consultancy CliftonLarsonAllen LLP in Milwaukee, Wisconsin. “The key question is: What does the process look like? How long does it take? What are the fees associated with it? Some banks have higher fees than others.”
If you run a substantial size business doing a heavy volume of overseas sales, pick a bank that can help you to manage currency risks. “If there’s a devaluation of the currency you’re in, you’re going to lose money,” says Arends. Some banks do derivatives transactions that will help clients offset the risk, he says.
Does the bank do business in the market you’re entering?
Banks need to understand the local regulatory environment in any country you’re entering and stay on top of political and economic events that may affect your transactions—which is hard to do from a distance. “You’d want to hear that they have people on the ground in that country, either directly associated with them or through some type of international affiliation,” Arends says. “If they don’t have their own bank or an affiliate there, it’s not the bank you want to go with.”
Would you be better off with an overseas bank account?
Some big banks have global branches where you’ll be well served. However, sometimes you may need a bank account in an overseas institution. Say, for instance, you’re going to sell the products you manufacture to consumers in Spain through a web store. It may be easier to handle the transactions through a bank that’s based in Spain than one in the U.S., says attorney Dara Green, director of international tax with the CPA firm Kaufman, Rossin & Co. in Miami. That may also be true if you have set up a business entity in another country to handle sales generated there and need to pay taxes on that income under existing treaties.
To make the right choice for your business, think through how you’ll be receiving and making payments to vendors and others before deciding what type of account to open, Green advises. Foreign banks may not roll out the welcome mat. Expect to provide extensive information about what type of business you run, who owns it and where it’s getting money. “They basically have to know everything about it,” she says.
To prevent tax evasion, the Foreign Account Tax Compliance Act (FACTA), enacted in 2010, requires all foreign financial institutions to report to the IRS on accounts and holdings of their U.S. clients, both individuals and companies in which they have a substantial ownership interest. “It complicates things,” says Green. “A lot of foreign banks don’t like having a U.S. account holder at all.” Some foreign banks are even purging accounts by U.S.-based clients, she says.
To get a sense of what opening an account will be like at a foreign bank, call and explain your type of entity to bank officials, that you’re based in the U.S.—and want to open an account. Ask: “What information will you need from me, and what restrictions will I have if I open an account with you?” You’ll find out quickly if any obstacles are insurmountable.
Bear in mind that foreign banks are subject to the rules of the countries where they operate—and your money may not be as safe there as it is domestically, in a bank where deposits are protected by the FDIC, says Arman. “I don’t think I’d want to have a bank account in another country unless I knew exactly what I was doing.”
Dogged Due Diligence
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