How to Open a Business Bank Account

September 20, 2022
How to Open a Business Bank Account

Starting a new business is exciting—and so is making money from your venture. But where will you put all your earnings and how will you pay your vendors? Opening a business bank account is an essential step for your new business, even if it’s a part-time side gig. Keep reading to learn why you need a business bank account, the different types of business bank accounts you may want, how to choose a bank, and how to open a business bank account.

Why You Need a Business Bank Account

Using your personal checking and savings accounts for business might seem like a smart way to save on bank fees. If you are a sole proprietor you may be able to mix business with personal in the same accounts as you and your business are legally one and the same. A corporation or limited liability company (LLC), however, is a legal entity separate from its owner, and is required to have its own bank account to maintain that legal separation. With this in mind, there are several other good reasons for companies of any size to keep business and personal finances separate:

  • Simplicity: Tracking which transactions are business-related and which are personal can be complicated when all your money is in personal accounts. What if you accidentally overspend on inventory for your business and don’t have enough to pay rent?
  • Bookkeeping: With a separate business bank account, you can link accounting software such as QuickBooks®, FreshBooks® or XeroTM to your bank account and easily track business income and expenditures.
  • Taxes: A business bank account simplifies tax preparation and makes it easier for a bookkeeper or tax preparer to understand your business’s financial activity. Mixing personal and business funds can lead the IRS to rule your business a hobby, which could mean tax headaches if you’re ever audited.
  • Liability: Incorporating your business, whether as a C corporation, S corporation or limited liability company (LLC) helps protect your personal assets from legal liability. If you mix personal and business funds, you could lose that protection. That puts your house, bank account and other assets at risk if your business is sued.
  • Professionalism: Just like having a business website, business cards and a logo, a business bank account is one more element that helps establish you as a legitimate business, making clients and customers feel more confident doing business with you.

What Kind of Business Bank Account Do You Need?

Your needs may vary depending on the size of your business, your industry, and the complexity of your finances. Here are the types of business bank accounts to consider:

  • Business checking account: This is the basic business bank account, allowing you to receive and make payments and deposit or write checks. If your business’s financial needs are simple, a business checking account may be all you need. You’ll need to set aside money to pay income taxes, but if you’re disciplined enough not to spend it, you can keep it in your checking account.
  • Business savings account: A business savings account can make it easier to set money aside for payroll, taxes or other future needs. You’ll be less tempted to spend the money if it’s in a separate account.
  • Merchant account: A merchant account processes credit and debit card payments from your customers and puts the money in your checking account so you can access it right away.

As a new business, you may not be ready for a merchant account just yet. Payment service providers (such as Stripe®) offer similar services, typically with a flat-fee pricing structure that can be more affordable for smaller companies. As your business grows, however, being able to switch to a merchant account with your existing business bank could be beneficial. Merchant accounts offer more tailored solutions that generally include better fraud protection, more robust customer service and greater flexibility in negotiating fees, which can save you money in the long run.

How to Choose the Right Bank When Opening a Business Bank Account

The bank where you have your personal account is one place to start when you’re looking for a business bank, but don’t stop there. You can open a business bank account at a brick-and-mortar bank, an online-only bank, or a credit union. Each has its pros and cons. When considering your options, start by thinking about the business services you’ll need. Will you frequently deposit cash? Do you plan to travel on business and want access to branches nationwide? How much money will you keep in your accounts? Do you expect to need business financing in the near future?

  • Brick-and-mortar banks: If you want a wide range of services, like to visit a bank in person or need to deposit cash frequently, consider a brick-and-mortar bank. Today, traditional banks generally offer online and mobile banking services as well as physical locations. They may also have a nationwide presence; a large ATM network; and a wider range of in-person services, such as money orders, notary services or safe deposit boxes. They’re also the easiest way to make cash deposits.
  • Online banks: If your business operates primarily online, you don’t take cash and you’re willing to trade some convenience for lower fees, consider an online-only bank. These banks have no physical locations; instead, all transactions are performed online using the bank’s website or mobile app. Online banks typically pass the savings from lower overhead on to customers in the form of higher interest rates on interest-bearing accounts and minimal fees. You can deposit checks and withdraw cash at an online bank’s affiliated ATMs, but some may not accept cash deposits. Although some online-only banks offer business accounts, these banks may or may not offer the business loans, credit lines or other financing options of traditional banks.
  • Credit unions: If you care more about a personal touch and low fees, and less about convenient online banking, consider a credit union. While banks are for-profit institutions, credit unions are non-profit financial institutions that operate on a membership basis. You generally have to belong to a certain group, such as an employee of a company or member of an organization, to join a credit union. Being non-profit allows credit unions to offer members lower fees and higher interest rates on their money than for-profit banks. They also tend to be community focused and offer more personalized service than larger banks. While credit unions typically have fewer locations, making them less convenient for physical visits, you can generally access your account and withdraw or deposit cash through affiliated ATM networks. Online and mobile banking features, as well as business financing options, vary and may or may not be as robust compared to traditional banks.

Before choosing a banking partner, protect your money by making sure the financial institution is insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC insures both traditional and online-only bank deposit accounts up to $250,000 per depositor for each ownership category. If considering a credit union, verify it’s insured by the National Credit Union Administration (NCUA), which guarantees credit union deposit accounts up to $250,000 per depositor for each ownership category. Both types of insurance guarantee that even if the bank or credit union goes out of business, you’ll get up to $250,000 of your money back.

To compare financial institutions, ask about:

  • Fees: Be sure you understand all fees the bank may impose. Banks may charge monthly fees or fees for transactions, services, insufficient funds or falling below a minimum balance. Wire-transfer fees can add up quickly, especially if you have international vendors.
  • Minimum balance requirements: Some banks waive fees if you keep a minimum average daily balance in your account. This can range widely, from a few hundred dollars up to $35,000 or more, so make sure it’s an amount you can reasonably maintain so you don’t get hit with monthly fees.
  • Interest rates: How much interest can you earn on your accounts? Look for lenders offering the best annual percentage yield (APY) on a business savings account.
  • Convenience: How many branches or ATMs does the bank have? How easy is it to bank online or with the mobile app?
  • Sign-up bonuses: Can you earn a bonus for opening an account?
  • Limits: Banks may limit businesses to a certain volume of transactions or cash deposits per month and charge additional fees if you exceed that amount. Some banks and credit unions also cap the amount you can spend on your debit card per day. Ask about any limits that may affect your business.
  • Additional services or features: Does the bank offer extras such as notary services, money orders, wire transfers, or scanners to speed up high-volume remote check deposit? Can you get debit cards for employees? Think about your growth plans, too. If you expect to need payroll services, health savings accounts (HSAs), or retirement plans for your employees, can you get them from the bank?
  • App compatibility: Ask about compatibility and ease of integration with business financial apps you plan to use, such as:
    • Bookkeeping programs such as QuickBooks®
    • Tax-filing software such as TurboTax®
    • Payment processors such as Stripe®, Square®, or Stax®
  • Financing options: As your business grows, can you apply for business loans, business credit cards, or business lines of credit through this bank? Does the institution offer Small Business Administration (SBA) loans?

How to Open a Business Bank Account

The steps required to open a business bank account may vary depending on the bank and the type of account you’re opening. However, you (along with any partners or co-owners in the business) generally need to provide the following information:

  • Name and birth date
  • Address and phone number, both personal and business
  • Government-issued photo ID, such as your passport or driver’s license. Some banks may require two forms of identification.
  • Employer Identification Number (EIN): This tax identification number (TIN) is issued by the IRS. If your business is a sole proprietorship, you can use your Social Security number as your TIN; bring your Social Security card to open an account.
  • Business license: If your state, county or city requires your type of business to be licensed, the bank will want to see your license.
  • Organization documents: Unless you’re operating as a sole proprietor, you’ll need to bring the legal documents used to form your corporation, LLC or other legal entity. This could include your articles of incorporation, partnership agreement or similar documents.
  • DBA (doing business as) certificate: Sometimes called a “fictitious name” or “assumed name,” DBAs are filed with the secretary of state. A sole proprietorship or general partnership needs a DBA to use a business name that doesn’t include the owners’ first and last names.

For example, Shahira Ahmet wouldn’t need a DBA to operate Shahira Ahmet’s Accounting Services, but would need one to operate SA Accounting Services. Corporations and LLCs use DBAs to open different businesses without the need to form a legal entity each time. In this example, Shahira could form SA Financial Services Inc. as a legal entity and then file DBAs for SA Bookkeeping Services and SA Tax Preparation Services.

  • Beneficial Ownership Form: The person opening an account on behalf of the business must provide certification of the legal entity’s beneficial owners (any individual who owns 25% or more of the equity interest), plus a controlling individual responsible for managing the business. The form requires, among other information, the name, business (or primary residence) address, date of birth, and Social Security Number for the Beneficial Owners and one Control Person, as applicable.
  • Money to deposit: Banks generally require a minimum deposit to open an account. This can be as low as $25 for a basic business account, or as high as $1,500 or more.

To ensure you gather all the information you will need before opening an account, visit the bank’s website or contact them for details. Questions to ask include:

  • Can you open an account online, or do you need to visit the bank in person? If the latter, save time by making an appointment with the appropriate bank officer, which you can generally do online.
  • If you’re visiting the bank in person, who must be present? You may need to bring any co-owners or partners in the business, as well as any employees who’ll need access to the business bank account.

The Bottom Line

It requires a little research to find the right bank for your new business, and some preparation to open a business bank account, but the benefits are well worth the effort. Having a business bank account can make it easier to accept payments, manage your business finances and file your business’s taxes.

Beyond being an essential startup tool, a business bank account can also be a foundation for future success. When you have a good relationship with a business bank, they may be more likely to help you access other products and services—such as lines of credit, business credit cards, and business loans—that can help your fledgling business soar.

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