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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Updated on September 25, 2023
Investment range
$13,385,150 - $28,710,200
Revenue potential
$7.2 million - $72 million p.a.
Time to build
12 – 18 months
Profit potential
$720,000 - $7.2 million p.a.
Industry trend
Growing
Commitment
Full-time
Banks provide people with a safe place to stash their money and a potential source of financing, along with a slew of other services. After expanding nearly 30% in the years before the pandemic, the US bank industry is now worth more than $850 billion after returning to growth in 2022.
Starting a bank is no easy undertaking, but it could be a very lucrative venture, and now is a great time. But you’ll need to learn the ropes of entrepreneurialism before you jump in. Lucky for you, this step-by-step guide details all the business knowledge you’ll need to launch and run a successful bank.
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Starting a bank has pros and cons to consider before deciding if it’s right for you.
Trends in the bank industry include:
Challenges in the bank industry include:
Startup costs for a bank range from $13 million to $28 million, with the biggest expense being the startup capital required to meet federal regulations. If you start a digital bank, rather than a physical bank, you could save up to $4 million.
You will need to apply for licenses and insurance with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC), which is often a laborious process.
You’ll need a handful of items to successfully launch your bank business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $10,000 - $20,000 | $15,000 |
| Insurance | $25,000 - $50,000 | $37,500 |
| Website and app development | $100,000 - $150,000 | $125,000 |
| Land plus bank construction | $1,000,000 - $4,000,000 | $2,500,000 |
| Computer system | $30,000 - $50,000 | $40,000 |
| Starting capital to meet regulations | $12,000,000 - $24,000,000 | $18,000,000 |
| Labor and operating budget | $200,000 - $400,000 | $300,000 |
| Bank furnishings and equipment | $20,000 - $40,000 | $30,000 |
| Total | $13,385,150 - $28,710,200 | $21,047,675 |
Banks make money from fees and from the interest on loans that they make. The profit margin of a bank is typically about 10%.
In your first year or two, you might get 10,000 customers and make $100,000 in fees per month and $500,000 in interest, bringing in $7,200,000 in annual revenue. This would mean $720,000 in profit, assuming that 10% margin. As you build your customer base, those numbers might increase ten-fold. With annual revenue of $72,000,000, you’d make an outstanding profit of $7.2 million.
There are a few barriers to entry for a bank. Your biggest challenges will be:
Now that you know what’s involved in starting a bank, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research banks in your area to examine their products and services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a community bank that offers free checking accounts or an online bank that offers money market accounts.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as savings accounts and mortgage loans, or business accounts and loans.
This could jumpstart your word-of-mouth marketing and attract clients right away.
Banks offer a variety of products and services including:
Account fees can range from $5 to $15 per month. Banks also charge fees for overdrafts, ATMs, and other services. Loan rates will be dictated by the current market environment. The profit margin for banks is generally about 10%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will be basically anyone. You should spread out your marketing to include TikTok, Instagram, Facebook, and LinkedIn.
Selecting the right location for your bank is crucial for its success. Look for a location in a high-traffic area, preferably in a commercial district or near other financial institutions. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
Consider the accessibility and convenience for clients, with easy access to parking and public transportation. Additionally, analyze the demographics of the surrounding area to ensure there is a demand for banking services.
By choosing a strategic location, you can position your bank to attract a wide range of customers and establish a strong presence in the financial industry.
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to banks.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your bank will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Banks are typically corporations – they cannot be formed as LLCs by law.
Here are the main options:
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Your best bet to finance a bank is to seek out angel investors or venture capital. You’ll have to have an extremely detailed business plan and pitch when seeking the considerable amount of money that you need.
Starting a bank business requires obtaining a number of licenses and permits from local, state, and federal governments. You will need to apply for licenses and insurance with the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your bank business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
You will also need FDIC insurance, and then you can use “member FDIC” in your marketing.
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Sales Force, FIS, or AccuSystems, to manage your operations, insurance, compliance, accounts, and financial processing.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your bank meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your bank business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a bank, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in banks for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in banks. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a bank business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Starting a bank takes time and money, and it’s a complicated business to run, but once you get it going, you can make a lot of money and serve your community. If you’re willing to do what it takes, you could even build your community bank into a national powerhouse!
Now that you understand what’s involved in the business, it’s time to find investors, get your bank up and running and start financing people’s dreams.
Banks are very profitable, considering that the U.S. banking industry is worth more than $860 billion. The key is to provide a variety of banking services and offer great customer service.
You’ll have to spend some time marketing to get the word out. Then, when customers come in, you’ll want them to receive personal service.
A business plan is a complex document, and you’ll spend significant time on it. It should have several sections including:
A risk management plan for a bank is very complex. Your best bet is to hire an experienced banking consultant to help you. It will be worth the cost.
Commercial banks generally operate nationally and are subject to federal multi-state banking regulations. Community banks only operate in one state or locality.
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