How To Open a Business Bank Account

Opening a business bank account is essential. Discover how to do this with this guide (that also covers international founders). Visit us now.

One of the more critical parts of running a new business is ensuring you have the right bank at your disposal. Opening a business bank account allows you to separate it from your personal bank account. It also allows you to remain better organized and keep track of your finances more efficiently. The best part of all is that opening a business account won’t take you too long, but it’s essential that you prepare and know what type of account you need to open, where you should get it, and what vital documents you need to open your business bank account.

Below, we’ll go through everything you need to know about opening a business bank account, from the documents you need to how to choose an account suitable for your company.

Benefits of opening a business bank account

Setting up a business bank account can make your life easier. Here are several reasons why:

Protect your personal finances

If you decide to use your personal and business finances, your personal bank account could be at risk during a lawsuit. That means if someone decides to sue your company, and the court awards them compensation, your personal finances could potentially fall under the fair game, even if the way you earn has nothing to do with your business. Establishing a separate small business banking account protects your personal finances from these types of situations.

Avoid tax issues

Setting up a separate business banking account makes it much easier to keep track of your business earnings and expenditures. Doing so will save you from dealing with frustrating situations when you file your taxes, and it can help prevent problems with the IRS. Splitting your personal finances from your business finances indicates to the IRS that you are operating a legitimate business and not a hobby business, which is not granted business tax deductions.

Makes you look professional

If you want to make your business look more professional, you need to have the ability to write checks from a business bank account instead of a personal bank account.  Furthermore, your customer may feel more secure writing checks to your business name than to you as an individual. Customers are also given the option to pay with credit cards, and employees can manage the banking task on behalf of the business.

Limited liability protection

Limited liability protection can secure your liability better with a business bank account rather than a personal bank account.

Credit options

Some banks offer an option for a line of credit that can be accessed in case of an emergency. Most of them also provide business credit cards that can be used to start building a credit history for your small business.

Types of business bank accounts

Similar to personal banking, there are many different types of business bank accounts. It all depends on your needs, so there is a chance you may need to open more than a single business account.

Here are some of the common types of business bank accounts:

Business checking account

A business checking account is similar to a personal checking account. It’s designed to receive payments and spend those funds when necessary. It’s an excellent choice for managing payroll, expenses, and other financial tasks that ensure your business continues to run. It’s also possible for you to earn interest on these funds, but interest-bearing business checking accounts are uncommon.

Business savings account

Business savings accounts allow you to store money your company is not planning to spend soon. Savings accounts funds earn interest over time but have more limitations on how you can access them.

Traditional small business checking account

Traditional small business checking accounts are the same as a personal checking account. It enables you to make deposits and withdrawals, write checks or conduct electronic funds transfer, make purchases, and cash withdrawals with a debit card. Generally, there are ATM fees, deposit fees, maintenance fees, and transaction fees.

Merchant services account

When you are operating an eCommerce company, debit and credit card payments are essential, so you need the ability to process them. Generally, that requires you to get a merchant account to help triangulate between the payments you are gathering, the credit card processor, and credit card companies.

Merchant services accounts are also very reliable avenues for accepting card payments. Having even a single account diminishes the amount of time it takes for a store to receive funds from a sale by speeding up the money before it goes through a whole payment process. It also protects the banks and customers from losses and scams.

Credit card account

This allows you to use a business credit card for emergencies and miscellaneous items for your company. The primary benefit of a credit card for the business owner of a small business or if you have bad credit is that it can help build or improve your business credit score.

When should a small business open a business bank account?

The best moment to open up a business bank account is before you start accepting your first pay for your company’s products or services. Usually, a business bank account is opened during the incorporation process. A bank account cannot be opened until a business has received its license to operate and an identifying tax number. That is the employer identification number or social security number of the sole proprietorship.

What to consider when opening a business bank account

Here are some things you should keep in mind when opening a banking account.

Compare the banks for choosing one

It can be tempting to open a business account with a bank where you have established your personal bank account since it enables you to manage your finances in a single place. But that is not always the best option for a business owner. It’s imperative that you take your time to compare bank accounts and fees with several banks to make a better decision based on which account is best for your business. Even if it ends up being created on a separate bank from your personal one. You could always transfer funds from one bank to the other if needed.

Another thing you need to consider is which account features are a must-have. For example, do you need a business bank account that provides detailed information? Do you want a mobile app that enables you to deposit checks online? Are you in need of a business debit card? Would it be helpful to receive alerts when your account balance is reaching the minimum?

Room for expansion

Unfortunately, some business bank accounts impose transaction limits and charge their users extra fees for exceeding them. That can become a costly affair if you are consistently surpassing that limit. Take the time to review your business budget and anticipate how your company’s future growth is impacted by monthly fees.

If you believe that your business bank account could conceivably become restrictive, check to see if the bank has other accounts that could offer you the additional free transactions or any other services you may require.

How to open a business bank account?

Once you feel prepared to open a business bank account, here are the steps you need to take.

Choose the account that meets your needs

As mentioned above, there are several types of business bank accounts, and your business may require more than a single one of them. Choose the ones that meet the needs of your business.

  • Business checking accounts
  • Business savings accounts
  • Merchant services accounts

Choose the right bank

Once you have decided on the type of accounts your company needs, you need to find a bank that meets your needs. Before opening a business bank account, you should compare options to find a bank that suits your financial needs. You also want to consider how you want to open your account, whether it's going to be online or in-person. Here are some things you should consider when opening your account.

Diverse accounts

You need to make sure that the bank you choose can accommodate you with the basic business bank accounts you need immediately. However, you also need to anticipate your future needs. If you require a business credit card or loan in the future, it's best to check if the bank you are thinking of has those options available.

Convenient network

Regardless of your choice on opening the account online or in-person, make sure it has a sizable ATM network with free fee ATMs in your area, in case you ever need to access your cash. Brick-and-mortar banks are usually a far better fit for those who prefer personalized customer service, but they often have much higher fees compared to online banks.

Affordable fees

Depending on the bank you choose, there is a chance you may have to pay a monthly maintenance fee. Some of them may have monthly fees as well as per-transactions fees if you exceed a capped number of transitions within a month. Other fees to keep an eye out for include deposits fees, ATM use, and wire transfer fees.

Think about which of these services your bank uses and how the fees can impact your profits. However, not every one of these banks makes you pay a monthly maintenance fee. Some of them offer free checking accounts and are willing to waive the fee if you maintain the minimum balance requirements.

Interest rates

Interest rates usually only matter when it comes to business savings accounts, but some business checking accounts offer interest rates too. The higher the rate is, the better, but you need to weigh that alongside some other factors we’ve mentioned previously.

Quality online and mobile banking experience

The bank you choose should offer an excellent online experience, including online bill pay, electronic funds transfers, and mobile deposits. If your business accepts payments through payment applications such as Paypal or Zelle, check to see if there are any extra fees and how long it takes for the transaction to go through. Since most banks offer mobile banking these days, make sure the banks mobile app works seamlessly.

Sign-up bonuses

Some banks may offer bonuses for opening a business bank account with the. For example,  a bank may offer you $400 if you open an account and maintain a minimum balance requirements. Offers like these are an excellent way to earn some extra cash flow. However, you should remember that these bonuses are taxable. Don't be surprised if you receive 1099 for the bonus during the next tax season.

Gather the required documents

The documents you need to submit to open up a business bank account will vary depending on the financial institution. You need to gather all the necessary documents we’ve mentioned previously.

Employer Identification Number or Social Security Number

Most banks these days require business owners to provide their employer identification number (EIN). That enables them to see if you are eligible to open a business checking account or savings account, but some of these banks may permit sole proprietors to open a small business account with just their social security number (SSN).

If you need to obtain an EIN, you can acquire one for free by filling out the application on the IRS’s website as long as you have a valid social security number and your business is based in the United States or one of its many territories.

You could also save a lot of time by using our hassle free EIN service.

Personal identification

For this part, you want to have a government-issued photo ID, such as a passport or driver’s license. If your business has multiple owners, you need to include their personal details and identification for every owner with 25% or more ownership in the company.

Business’s formation documents

The banks will request your business formation documents. What you need to provide them all depends on your business entity type and the state where your company was established. Here are the documents you may need to share with them based on your business entity.

  • Corporations: Articles of incorporation, corporate bylaws, a business license.
  • Limited Liability Company: Articles of organization, LLC operating agreement, a business license.
  • Partnerships: Partnership agreement, state certificate of partnership, business name registration certificate, business license.
  • Sole proprietorships: EIN, a business license. company name registration certificate.
  • Startups: Business licenses, organizational documentation, personal or business identification.

Some of the banks may request slightly different verification documents. So you need to review every instruction carefully when it comes to submitting your business documents.

Business license

The bank will require proof that your company has the appropriate license before it permits you to open a business bank account. The requirement to acquire a business license varies depending on the location you base the company.

Doing business as (DBA) certificate

If the name you are using to advertise your company to your customers is different from the company’s legal name, you need to have a certificate of an assumed name, otherwise known as doing-business-as (DBA) name. The bank also requires a copy of this when you open up your business bank account.

Credit card revenue

Companies that are interested in opening a merchant services account to process credit and debit card transactions need to provide their bank with details of the average monthly credit card revenue. Small businesses may not have any preceding credit card revenue, but they should provide you an estimate of how much they are expecting.

Open the account online or in-person

Most banks these days provide the option to open a business bank account in person at a branch location or online. However, online-only banks will only permit online openings since they have no physical locations. Regardless of which of these two you choose, you need to have the required document on hand for your company ready to show or submit on the bank’s website.

It may be preferable to visit a branch to receive face-to-face customer service. Online-only bank accounts tend to offer customer service through the phone or live chat.

Deposits the funds

Now that you have your account set up, start depositing your funds and begin using it just like you would a personal bank account. The bank may require you to make a minimum deposit when you first set up the account. It can be done through a cash deposit or money you transfer from another bank account through an electronic deposit or wire transfer. It is also possible for you to write a check.

If your business is accepting checks, most banks offer the option for a mobile deposit. That can be accomplished through the use of a mobile app on a smartphone device. If you anticipate a massive volume of checks, inquire whether it is possible to get a check scanner so that you can scan these checks more seamlessly. However, the bank could potentially charge you a monthly fee to use the scanner.

Conclusion

Opening a business bank account is a crucial step in order to ensure that your business needs are in place. There’s a lot of information you need to consider before committing to opening a business bank account. You need to take the time to compare the options available to you, but if you follow the information we have provided, you should be able to get everything up and running in no time. If you want a trusted partner that can help you start a business in the US and assist you in accessing US payments systems, then check out our solution.

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