The 7 biggest banking complaints of startup founders

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Successful startups require a unique combination of vision, passion, and grit. But what happens when the very thing that could propel a young company forward becomes a blocker to its success? 

While startup founders face a long list of hurdles while building their business, having access to their capital shouldn’t be one of them. In the world of Wall Street, startups are such small potatoes that most U.S. banks don’t even distinguish between these companies and consumers in their SEC filings. That means that support for founder checking accounts is often elusive, fees are frequent, and exhausting challenges abound. For entrepreneurs trying to attain high growth in a short period, this isn't exactly a partnership made in heaven.

Banking systems are a particular pain point for the 94 percent of small businesses launched without venture funding or the backing of a financial institution. But even funded companies aren’t immune. If there’s one thing most startup founders agree on, it’s that banking can be a nightmare. Here are seven of founders’ most common banking complaints, and how Brex hopes to alleviate them:

1. Opening a bank account is a challenge in itself

In addition to private equity from venture capitalists and angel investors, seventy-seven percent of startup founders draw from a mixture of retirement savings, asset-based loans, or home equity lines of credit at some point in their funding. Many struggle to qualify for basic financial tools like bank accounts, credit cards, and debit cards because banks are generally reluctant to trust companies with non-traditional business models and income streams. And none of the available options provides a W-2 or recurring direct deposits, ultimately categorizing the entrepreneurs as technically unemployed. Plus, if they do qualify for accounts and cards, those products come laden with restrictions and balance requirements.

“At my first startup, all we were given was a Visa checking card,” recalls Scott Edmonds, now an advisor to Syncari. “It was a real problem. We were told we had a minimum balance on the account. If we went below that balance, the card would get declined and we couldn’t access our money. It was painful. At client meetings, we were picking up the check with personal credit cards and expensing it later. This just meant more work.”  

2. The traditional banking experience can leave you feeling defeated

For startup founders busy disrupting the old way of doing things, the traditional financial services experience can be jarring. "It’s hard to be a tech company solving problems digitally and be forced to watch a banker stuff a ream of paperwork in your face, ask you to initial 30 pages, then photocopy it,” says one e-commerce entrepreneur. “But at the same time, it’s also a pain to transition away. They’ve got you locked in."

Unintuitive banking sites, apps with multiple logins, and disconnected web and mobile banking experiences do more than frustrate: They demand time and energy. “My job is to build a business, not spend time managing multiple logins and financial partners,” says one two-time founder. “I spend enough time on bill pay, AR, AP, and regulatory reporting. Time is the one resource I’ll never get back.” 

That said, the future of online banking looks promising. Forbes recently reported that, “A July 2020 survey of US consumers found that 14.2 million Americans now consider a digital bank to be their primary bank—a 67% jump from January 2020.” Startups suffering through the pain of traditional banks are creating their own streamlined realities, and helping their fellow founders in the process.

3. A lack of automated processes means more painful bank branch visits

Many entrepreneurs report feeling that more of the banking process should be automatic. And if they’re not smartphone friendly, they should at least have online capabilities. In the era of Google, social media, and Amazon two-day shipping, instant gratification is a necessity, not an option. With traditional banks, new accounts can sometimes take days to register, and the process for opening additional accounts can often only be done with physical paperwork and an in-person visit. “In our first month, I had to visit a branch at least ten times. It was a huge time suck,” says one founder. “Don’t they realize we have our own companies to run?”

“Having a lot of branches isn’t a selling point for me,” says one entrepreneur. “It’s an un-selling point. I don’t want to visit a branch. I want better UX and mobile banking and account information so I don’t even need support. I want to do it all from my laptop.”

4. Bank fees often feel excessive and unwarranted

Little is more frustrating than watching a much-needed $100,000 infusion being nibbled away by ACH or wire transfer fees. After graduating from Y Combinator with $150,000 in financing, one founder recalled the frustration of dealing with fees. He remembers watching his money being depleted by “an arm and a leg in hidden fees” in the first year by international wires to offshore contractors. 

International wire transfer fees, which can range from 1-4%, constitute a sort of reverse investment, and undermine the savings found in hiring contractors.

5. “Gotcha” credit card rewards programs ignore founders’ actual needs

Nearly every corporate credit card offers a rewards program. But many entrepreneurs lament that some of their biggest expenses are excluded from these benefits. For instance, payroll accounts for as much as 30% of a startup’s budget. But not only do payroll activities seldom earn points, they are assessed additional fees.

“I question the wisdom of juggling credit cards and playing rewards, just based on time investment,” says one founder. “When you go through the statements, they don’t apply the categories as generously as you’d like, and there’s always something obvious exempted.”

5. Waiting on hold is a waste of entrepreneurs’ precious time

More than the average person, time-poor entrepreneurs resent having to wait on hold or navigate phone trees for an extended amount of time. And banking systems sometimes take days to respond. “If I needed anything, I had to talk to my person. And we were small potatoes, so he’d always take a while to get back. Things were really slow to get done,” says Edmonds. 

“It all comes down to time,” says Chad Newell, co-founder and CEO of Snapwire. “A bank’s inability to resource or respond quickly to startups costs you precious time that you really can’t afford.”

6. Banks’ inflexibility forces founders to rely on personal finances

The reality is that until they have an employee count in the double digits, startup founders will always supplement their funding with some degree of personal credit. And banks are reluctant to troubleshoot this shortcoming. A bank issuing a checking account and debit card to a founder does so on personal collateral. “But most of these banks won’t issue IRAs or mortgages to entrepreneurs because they don’t have consistent cashflow,” said one two-time founder. “And when you talk to the banks, they’re not interested in designing workflows to help them understand that personal income stream. That’s complicated for a lot of founders.”

7. Founders are expected to live in Silicon Valley or major city

Not unlike some of the most prominent venture capital firms, U.S. banks expect that startups will maintain a physical presence in big startup hub cities like San Francisco or New York, where branch visits are feasible. But more and more startups are reconsidering real estate and office space, and transitioning to fully remote workplaces after the last year. And accounting arms are becoming increasingly outsourced. As a result, it’s less common that co-signers and accountants will share the same zip code or can access a branch without first hopping on a plane.

Brex Cash alleviates founders’ banking pain points

Founder woes abound when it comes to traditional banking. But according to the New York Times, big banks might be on their way out. And to make matters better, Bloomberg, Forbes, and the Wall Street Journal have all recently reported that the future of mobile banking looks bright. Startups are taking it upon themselves to create systems that combat the pain points of tired traditional banking. 

As a startup itself, fintech unicorn Brex understands these pain points all too well. That’s why we created Brex Cash. As reported in Business Insider, Brex Cash offers the experience and integrations entrepreneurs need to focus on running their business instead of running down finances. And it's free of fees. There are no overdraft fees, no minimum balance fees, and no ACH or wire transfer fees. Plus, it's not held back by the legacy infrastructure of old banks. So it can offer a far higher annual percentage yield (APY) on your savings—compared to the traditional 0.1%—thanks to the use of money market accounts. 

Perhaps most importantly to founders, Brex doesn't require personal collateral. That’s right. Your business can get approved in its own right, which frustrated founders find wonderfully freeing. Call it the upside of banking without the woes of the banking system. 

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