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.
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.
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.
Is It Possible to Open a Business Bank Account Online?
Simply put: YES. Banks realized in order to meet the needs of their customers, flexibility was critical. That’s why a number of banks now offer online access to open a business bank account, which can be achieved in a matter of clicks whether you’re based in the U.S. or internationally.
Some institutions may still require in-person appointments to open an account, so be sure to check each potential bank’s rules and regulations.
How to Open a Business Bank Account Online
Opening a business bank account is an exciting part of the formation of every new entrepreneur’s business. As a business owner, your time and resources are extremely limited as it is. Fortunately, with the evolution of online banking, the restrictions of having to go into a bank to open your business bank account are gone. With new and improved flexible banking options, opening a business bank account can be achieved online in a matter of minutes. Check out these six simple steps to help you navigate the process of applying for and opening your small business bank account online without the hassle of an in-person visit.
6 Steps to Open a Business Bank Account Online
Now that you’re ready to open up your business bank account, it’s important to be able to discern between the numerous features and functionalities each institution offers, such as offering a business savings account, mobile apps, fees and more. More importantly, it’s critical to choose the provider that offers the most flexibility for your business. Let’s walk through the six important steps to take when selecting a bank for your business.
Step 1: Research Different Online Banking Providers
The first critical step in selecting your online banking provider is due diligence and research. The number of institutions vying for your business can sometimes seem overwhelming. And it’s important to keep in mind just because you have established personal accounts at one bank doesn’t necessarily mean it’s best for your business. Ensure your research is tailored to the specific needs of your business and make a checklist of what items are important, such as the fee structure, ability for mobile check deposits, integration into your bookkeeping software and more.
Some of the more well-known banks that offer small business bank accounts include:
- Bank of America
- Wells Fargo
Step 2: Compare Banking Fees and Features
Now that you’ve conducted due diligence and shortlisted a number of banks that best meet your business’s needs, it’s important to understand the nuts and bolts of fee structures and features.
We’d be remiss to mention that you should look into banks that offer free business checking and business savings accounts first to avoid costly fees in order to retain as much of your hard-earned profits as possible. If a free account doesn’t meet the needs of your business, create a list of the different fees and their structures and make sure you’ll have enough money coming in to cover. Some of the types of fees you’ll run into include:
- Monthly maintenance and service fees
- Minimum account balance fees
- ATM fees
- Wire fees
- Check fees
In addition to fees, make sure your bank of choice offers a robust list of features that will make running your business simpler and provide the convenience you deserve. Far from an exhaustive list, some of those important features include:
- Access to mobile banking
- Sign-up bonuses
- Mobile check deposits
- Merchant accounts
- Debit cards
- Business credit cards
- Small business loans
Step 2: Choose a Bank and Account Type
After you’ve uncovered which features are important to your business and what fees will be incurred (if any), the next step is selecting an institution and choosing the types of accounts your business will need. Let’s break down each type of account offered and what they provide.
- Business checking accounts
- A business checking account is the most common and widely used type of bank account. Similar to how a personal checking account operates, in business terms this account allows you to accept payments from customers, pay bills to vendors and manage payroll and other financial activities related to the business.
- Business savings accounts
- A business savings account can be considered an ancillary account to the business checking account. Much like a personal savings account, it isn’t used for primary business operations but can be used to set aside additional capital not needed in the near term. Business savings accounts rarely accumulate much interest. Keep in mind you won’t see much of a return on your money from this type of account.
- Business certificate of deposit (CD) accounts
- Business CD accounts are similar to a normal business savings account but provide an opportunity to gain additional interest on your money with a fixed interest rate. However, CDs lock up money for a fixed period of time and can incur a penalty if those funds are withdrawn before the maturity date. A business CD account is another option to park profits not needed in the near term.
- Merchant accounts
- A merchant services account is a business bank account that allows a business to receive and process customer payments from online transactions that include credit, debit and online payment applications.
- Synonymous with e-commerce businesses, a merchant account is an option to consider if you find yourself conducting a number of transactions online.
- Business money market accounts (MMAs)
- Money market accounts are similar to traditional bank accounts, except they earn a higher yield than a traditional checking or savings account and are much more flexible than a CD account without maturity dates and withdrawal fees. Keep in mind these accounts generally require higher minimum deposits and can be restricted to a minimum number of withdrawals per year before a penalty is incurred.
- MMAs are an excellent option for parking cash and receiving a higher return than some of the accounts previously discussed
- Foreign currency accounts
- If you find yourself conducting transactions globally, a foreign currency account is essential. While this account operates like a normal business bank account, it allows flexibility to accept and make payments via foreign currency in addition to USD.
- Document requirements to open a foreign currency account are almost identical to that of a normal business bank account, which we’ll expand upon in step 3.
- 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.
Step 3: Gather the Necessary Documents
Note that each institution may require a different set of documents to submit online to open your business bank account, but below is a list of the most common documents you’ll need to provide.
- Personal identification
- You’ll be required to submit verification of your personal identity, which can be achieved using a government-issued photo ID such as a driver’s license or passport. If your business has multiple owners, institutions will require identification with owners that have 25% or more ownership of the company.
- Employer Identification Number
- Referred to as EINs, this number is assigned to your business by the IRS as a way to identify how it is organized. In order to open a business bank account, you’ll need to provide this number to verify your business’s eligibility to open accounts with a financial institution. Some banks will allow sole proprietors to open accounts with just a Social Security number (SSN).
- You can obtain your EIN by visiting the IRS website and filling out an application or save the headache and use doola’s simple EIN service.
- Business Details
- The online application for your business bank account will require you to submit your business name, address and if applicable, a dba (doing business as) or trade name.
- Business Entity
- These documents will vary based on how your business was initially organized when created. The documents you’ll need by entity type include:
- Corporations: Articles of incorporation, corporate bylaw, and a business license.
- Limited liability corporation (LLC): Articles of organization, LLC operating agreement and business license.
- Partnerships: Partnership agreement, business license, certificate of business name registration state certificate of partnership.
- Sole proprietorships: EIN or SSN, business license and certificate of company name registration
Step 4: Apply for an Account Online
Now that you’ve done the research, selected your bank of choice and gathered your business documents, it’s finally time to submit the online application. Most online applications are extremely simple and can be completed in a matter of minutes.
The application process for each bank varies, but generally, you’ll create your username and password, be prompted to fill out the formal application, submit your business documents and you’re done. It truly is that simple.
Once your application has been submitted, expect anywhere from 2-4 business days for your application to be reviewed by your bank. Once approved, it’s time to make the initial deposit.
Step 5: Make Initial Deposit
There are several options that can be used to fund your newly opened business bank account, but it’s important to select an account where the minimum deposit and monthly balance are manageable to avoid those service fees discussed earlier.
The initial deposit can be made via a cash deposit, transferred from another bank account, wire transfer or check.
Step 6: Activate Account Services
The final step of opening your business bank account is activating all the services you’ll need to run your business. These services can include opening a business credit card to access additional lines of credit, accessing online banking, small business loans and payroll services integration. Utilize as many of the services offered by your bank to help streamline the financial side of your business.
Finding the Right Business Bank for You
Although it might appear as a small feat, opening a business bank account means you’ve hit a critical milestone in your business. And you shouldn’t entrust your hard-earned profits to just any institution. That’s why it’s crucial to compare the seemingly endless options of banks to make sure they align with your business’s values and long-term goals. Not to mention, having a centralized location for all financial transactions makes it easier to manage your books.
If you’re looking for a stress-free, reliable bookkeeping service, check out doola’s highly-rated bookkeeping solution to help manage the financial operations of your business.
Which bank can I open a business account online?
Many banks now offer flexible, online applications for business accounts. In addition to some of the larger banking institutions such as Bank of America, Chase and Wells Fargo, check out your local banks to see what options are offered to open your business bank account online.
How to open a small business bank account online?
Opening a small business bank account online is easier than ever. File your application online, submit your business documents and wait for approval from your bank, which generally takes around 2-4 business days.
Can I open a joint business bank account online?
Some banks allow joint business accounts to be opened online, while others may require both parties to come into a branch to open a joint business account. Be sure to check with the institution you’re completing an online application with.