Starting your own business isn't just one big challenge — it's multiple small tasks stacked on top of one another. One of these tasks is to open a business bank account, a crucial step in managing your business finances.
If opening a business account has been at the bottom of your to-do list, it's time to make it a top priority. We'll show you how!
Below, we'll explore the benefits of a business bank account and what you'll need to open a new business bank account.
Why you need a business bank account
Having a business bank account isn't just a matter of convenience; it's essential to the operation of your business. Business bank accounts allow you to do the following:
Separate personal and business finances
It's essential to use separate bank accounts for your business and personal finances. Relying solely on a personal one can leave you vulnerable in the event of a lawsuit. If someone sues your business, the court could award them compensation, which would come from your personal bank account.
Having a separate business bank account protects your personal funds in the event of litigation.
Avoid tax problems
Tax deductions don't apply to hobby businesses, which is how the IRS might classify your company if you're running your business out of your personal bank account. But a business bank account allows you to track earnings and expenses, which can be helpful when it's time to file taxes.
Accept credit card payments
Perhaps most significantly, your business cannot accept credit card payments through personal banking accounts. The only way to process credit card transactions will be through a business account. Otherwise, you may lose business because they will be limited to paying by cash or check.
Provide company-wide access to business funds
Except for sole proprietors, small business owners will need to grant others access to their company funds. This offers other employees the ability to make purchases and manage funds without giving them access to your personal money.
A business banking account will also be necessary to pay your employees. This will likewise be important for payroll taxes and making secure, recurring payments to those who work for you.
Paying your staff from a personal checking account is usually not sustainable long-term, and it's another area in which business and personal finances can become unnecessarily entangled.
Give your business credibility
A business bank account can give your small business a greater sense of legitimacy and professionalism. Your customers may feel more comfortable submitting payments to an established company rather than an individual.
Why you need multiple business bank accounts
If you're a small business owner, you should also use multiple business bank accounts to manage your finances. These different business accounts will serve various functions for your business.
Business savings account
Business savings accounts are designed for storing money and earning interest. A business savings account can provide funds for needs like:
- Unexpected expenses
- Downturns in business
- Paying taxes
- Hiring personnel
- Expanding your business
While interest rates aren't typically that impressive, they can still provide a modest form of passive income that can enhance the revenue of your small business.
Business checking account
Business checking accounts are used for day-to-day transactions, such as making business purchases or paying bills. Businesses will be issued paper checks or a business debit card, but most banks will also allow their clients to obtain a business credit card account.
Things to look for in a business bank account
You'll quickly discover that you have many options when it comes to opening a merchant account, and you should weigh your options carefully. While some financial institutions offer introductory rates and special offers, try and pay attention to such features as:
- Minimum balance requirements
- Interest rates
- Deposit and transaction limits
- ATM network
- Business credit cards
- Account fees
- A mobile banking app
You'll also learn that you can choose between using a brick-and-mortar institution or online banks. Either way, you'll likely find that your business is more agile when you can manage your business bank account online.
Some lenders also provide additional merchant services when you open a savings or checking account through their institution. Some merchant services accounts also grant access to business loans and other services as an incentive for relying on their company.
Business bank account requirements
Opening a business bank account is a straightforward process, though you'll have to meet the essential business bank account requirements.
Employer identification number (EIN)
Most lenders will require an Employer Identification Number (EIN) to open a business bank account. You can get this number from the IRS website using your Social Security number.
If your small business is structured as a sole proprietorship, some banks will allow you to open a checking or savings account using your Social Security number. Still, most business bank accounts will require an EIN.
You'll also need to provide some form of personal identification, such as your driver's license, passport, or another form of state-issued ID. You'll also be asked to provide your Social Security number when you're opening a business bank account. You may even be required to provide your Social Security card for additional verification.
Certificate of assumed name
In some cases, the legal name of your small business will be different from the name you use for advertising purposes. Before you can open a business bank account, you'll need to provide a certificate of assumed name, also referred to as a doing-business-as (DBA) name.
Business formation documents
Your lender will ask for a copy of your business formation documents. The ones that will be required will depend on the way your business entity is structured.
For example, a limited liability company (LLC) will need to present the articles of the organization. Corporations will need to provide the articles of incorporation.
A sole proprietorship requires the least amount of documentation, but sole proprietors may still be asked to present the appropriate business license and a sales and use tax permit. You may also be expected to register your business name.
If your small business is structured as a partnership or an organization, your financial institution may ask to see the operating or partnership agreement. These documents outline the rights and responsibilities of all those who operate in the business. They will also provide insight into how the company will operate.
Before you open a business bank account, you'll have to obtain the appropriate business license. The requirements associated with business licenses depend on where you live, so you may also have to fulfill additional requirements to obtain your business license.
For example, if your business serves as a finance lender, you may have to provide documentation on your ability to process loans.
In some cases, you'll be asked to make your first deposit on the spot. Many banks have minimum balance requirements that you'll have to meet to avoid monthly fees or penalties, so always check these details before opening a business bank account.
How to open a business bank account
Simple enough? Now that you know what's expected, let's walk through the process of opening a business bank account.
1. Choose the right business bank accounts
What type of business bank accounts are you looking for? You'll want to choose a bank that allows you to open a business checking account, as well as a savings account.
Using the same bank for your savings and business checking accounts will make it easier to transfer funds back and forth. In some cases, you may also want to use the same bank that you use for your personal bank accounts, though this is up to you.
2. Choose the right bank
Earlier, we gave you some tips for what to look for in a merchant services account. As you shop for banks, you'll have to weigh the pros and cons of merchant accounts until you find a business banking solution that fits the needs of your business.
3. Gather your paperwork
Next, you need to get organized. Gathering the documents we've listed above can save you time as well as a headache. You open a business bank account that much faster, thanks to your diligent preparation.
4. Apply for the account
Every bank will be different, but the application process will primarily be a matter of reviewing your business information.
If everything is in order, you can generally expect to open a business bank account on the spot. Otherwise, you may need to return to step 3 to obtain the appropriate paperwork.
5. Deposit funds and start banking!
Once your merchant account is up and running, you'll likely be asked to make a deposit. Like many personal accounts, most merchant accounts will have a minimum balance requirement; otherwise, you may be stuck with account fees.
Turn small business into big success
The best business bank accounts put you in the driver's seat and provide the kind of customized solutions needed to help your business flourish.
At Invoice2go, a Bill.com company, we believe that modern small business owners deserve great resources to streamline their business. Our innovative banking solutions let you do your business your way by offering features that include:
- Banking with NO account fees
- Safe and secure payments
- Payments that are auto-matched to invoices
- A business debit card
- Fee-free withdrawals at 55,000 nationwide ATMs
It's easy to see the business advantages of our superior, state-of-the-art solutions.
If you're trying to determine the best banking platform for your company, check us out and enjoy the next 30 days on us. This free trial period will introduce you to our many features and services. We'll show you how you can turn your small business into a big success story!
Frequently asked questions
As you've seen, the process of opening a business savings or checking account has multiple moving parts. You may have some lingering questions. Here are some of the most common ones that we hear:
Will a business credit card impact my personal credit history?
In some cases, business credit cards can show up on your personal credit report. That's because some credit card accounts are connected to consumer credit bureaus. This means that if you make a late payment from the credit card associated with your merchant account, it could lower your credit score.
You can mitigate this risk by finding a credit card that only reports to commercial credit bureaus, which will further increase the separation between your personal and business finances.
Will my credit score prevent me from opening a business bank account?
Even though you're opening a business bank account, your personal credit history may cause your bank to deny your request. In some cases, your bank may place restrictions on the services associated with a business checking account, such as overdraft protection, or they may set limits on your credit card account.
How do I get a business license?
Business licenses vary by state and by industry. You'll first need to visit your state, city, or county website, where you'll find guidance for how to proceed.
You can also visit the U.S. Small Business Association website, which can give you a clearer picture of the licenses and permits required for different business types.
Do both business partners have to be present to open a business bank account?
If your business is structured as a partnership, your partnership agreement will need to specify which partner has the authority to open a bank account. In the absence of this specification, most banks will require both partners to be present.
What forms of personal identification will I need?
Generally, most banks will be satisfied with a driver's license or passport to open a merchant account. Other forms of state-issued identification may be used, though your bank will likely expect a photo ID. In some cases, your lender may ask for your Social Security card to verify your identity.