When it comes to starting a financial institution, the variety of options available makes it challenging to narrow your choices. Join BMA as we look at the differences between traditional bank and industrial loan company (ILC) charters, as well as what it takes to start both options.
Understanding Traditional Banks
A bank is a financial institution that is licensed to receive deposits and offer loans. Traditional banks are open to all clients and do not require a membership or industry affiliation to join.
Banks can offer the full variety of account and service options, including:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit
- Retirement accounts
- Trust Services
- Loans, Retail and Commercial
- Loans, Mortgage and SBA
- Credit & Debit Cards
- Merchant Services
- Online Services
- Insurance
Banks can also extend lines of credit, print checks, and offer bill pay options. Any depository account created at a bank is federally insured by the Federal Deposit Insurance Corporation (FDIC) for $250,000 per individual account holder and $500,000 for joint holder accounts.
What Is an Industrial Loan Company (ILC)?
Industrial loan companies or ILCs are state-chartered financial institutions that are not federally regulated by a banking agency but are regulated by the state banking agency. These depository accounts are also federally insured by the FDIC. An ILC, is typically owned by commercial firms with its services targeted toward individuals within certain industries.
Any account created at an ILC is also federally insured by the Federal Deposit Insurance Corporation (FDIC) for $250,000 per individual account holder and $500,000 for joint holder accounts.
Industrial loan companies may offer the following services:
- Savings accounts
- Certificates of deposit
- Negotiable order of withdrawal accounts
- and a variety of custom banking services
An ILC might offer the same services as a traditional bank but in a limited capacity. ILC charters can only be applied for in a few states, California, Colorado, Hawaii, Indiana, Minnesota, Nevada, and Utah. However, only Nevada and Utah are the only active states, with Utah having the most ILC charters.
Industrial Loan Company vs a Bank: The Differences
When choosing between starting an ILC or a bank, it’s essential to know the differences between each option so you can make the most informed decision.
Industrial Loan Company
- Financial services for industrial activities
- Long-term loans for fixed capital needs
- Longer-term financing repayment options
- Underwriting, promotional, and consultancy services
Traditional Banks
- Financial services for commercial activities
- Short-term loans for working capital needs
- Short-term financing repayment options
- Agency and general utility services to customers
Starting a Bank or Industrial Loan Company
With such differences in offered services, it makes sense that the processes of starting a bank or industrial loan company should also differ. In reality, however, they are fairly similar processes with the exception that applying for an ILC charter is a more involved process.
Starting a Bank
To start a new bank, prepare to be patient — the process could take over a year. You’ll need to complete multiple steps, including:
- Creating a business plan
- Applying for a bank charter
- Applying for insurance
- Raising capital
- Building a long-term projection plan
Starting an Industrial Loan Company
To start an industrial loan company, you’ll need to follow almost the same steps as starting a bank, including:
- Creating a business plan
- Applying for an ILC charter
- Applying for insurance
- Raising capital
- Building a long-term projection plan
Applying for an ILC charter is more involved than applying for a bank charter, simply because industrial loan companies have to meet separate criteria. Questions you may be asked when applying for an ILC charter include:
- Do your organizers have the resources (source of capital) to support an ILC?
- Do your organizers have solid character, reputation, and financial standing?
- Does your management team have a track record and the knowledge, expertise, and experience in operating a depository institution in a regulated environment?
Since the state of Utah currently has the most ILC charters in the nation, you can learn more about its charter requirements here.
Which Type of Bank Should You Start?
When it comes to choosing between starting a bank or an ILC, it mostly comes down to the customers you want to cater to and the services you want to offer. A bank may not be quite right if you want to help individuals in a specific industry, while an ILC might be limiting in terms of the services you want to provide.
Regardless of which option you choose, BMA is able to advise and help you get started.
Partner With BMA
At BMA, we offer a complete range of services for banks, industrial loan companies, and all other types of financial institutions. Our processing software options make running a bank or industrial loan company easier than ever. Get in touch with our team to start preparations today!
