As a business owner, you need a business bank account that you keep separate from your personal checking and savings accounts. If you prepare to open a business account for the first time, the details may feel a little overwhelming, but don’t worry – we’ve summarized everything you need to have your business bank account up and running in no time.
Why Do You Need a Business Bank Account?
Budding business owners may think it would be easier to keep all transactions – personal and professional – in one bank account. However, starting a business account will help you in several ways, especially as your business grows and your financial transactions multiply.
A separate business bank account is useful for:
- Filing taxes. With a business account, you can easily track and report your income, expenses, and bottom line when you file your business taxes.
- Tracking and reimbursing employee spending. If you open a business credit card and link it to your bank account, you can often add free employee cards for company expenses.
- Maintaining a professional image. When a client needs to deposit a payment, providing your business account as opposed to your personal one looks far more professional.
Types of Business Bank Accounts
Business accounts come in three main types: checking accounts, savings accounts, and merchant accounts.
- A business checking account works best for everyday transactions and allows ATM access. Make sure to keep track of regular and incidental fees.
- A business savings account handles long-term savings and usually requires a minimum balance to earn interest. You should monitor account fees and APY (annual percentage yields) with this type of account.
- A merchant account is a specialized business account that accepts debit and credit card payments. A business checking account is usually a prerequisite for a merchant account.
What do You Need to Open a Business Bank Account?
If you have all the necessary information and documents in place, you can often complete your account application within a few minutes, especially when opening an account online.
Every bank has different conditions for opening a business account. Requirements may also differ based on your state and your business entity type.
However, here is what you will typically need to open a bank account.
You will need at least one type of government-issued ID, like a passport or driver’s license. The bank will also request your date of birth, social security number, contact information, and mailing address. If your business has multiple owners, every major shareholder (25% and up) will need to provide an ID.
2. Employer Identification Number
If your company holds an Employer Identification Number (EIN), you will need to share it with the bank, complete with any relevant IRS documentation. If you are a sole proprietor or single-member LLC, your social security number may suffice.
3. Business Details
Your application will include details such as your business name, address, trade name, and other applicable information. You will also need to state your business entity (i.e., sole proprietorship, LLC, partnership, or corporation). Finally, you may need to provide information on your business type and industry.
4. Documents and Agreements
All business entities will need to provide a business license when applying for a business bank account. Otherwise, the specific documentation you will need depends on your entity type.
- Sole proprietorships will need to produce a business name registration certificate.
- LLCs will need to include articles of organization and an LLC operating agreement.
- Partnerships will need a business name registration certificate, partnership agreement, and state certificate of partnership.
- Corporations will need to demonstrate articles of incorporation and corporate bylaws.
5. Opening Deposit
Some financial institutions will let you open a business bank account with zero balance. Others request an opening deposit. The initial deposit amount usually falls between $5 and $1000.
How to Choose a Business Bank Account?
With so many banks and account options to choose from, it can be difficult to decide where to open your business accounts. When you compare financial institutions and their account offers, you should pay attention to available services, fees, and management options, in particular:
- Monthly fees
- Incidental fees for overdrafts or non-sufficient funds
- International transfer fees
- Any fee-free transactions included in the account terms
- Minimum balance requirements
- ATM access for withdrawals and deposits
- Payment, wiring, and transfer capabilities
- Bill paying and invoicing options
- Tech features, such as web and mobile bank apps or accounting platform integrations
You will also need to decide whether in-person service is important to you or whether you prefer to go all online. Setting up an account in your local brick-and-mortar bank has the advantage of the reliability and personal service. On the other hand, online-only banks tend to charge lower fees and pay higher interest rates.
Additionally, consider whether your business may have other financial needs, such as loans or lines of credit. If so, finding acceptable terms in a single business bank can save you a lot of hassle.
Above all, do your research and compare your options. Even if you love your personal bank, don’t automatically assume that its offer of a business account includes the best terms.
Help! I Can’t Open a Business Bank Account
In some cases, a financial institution may decline your application for a business bank account. This can happen for various reasons, including technical errors, unpaid bank fees, or a background check that indicates a past of irresponsible financial behavior.
If your financial history causes difficulties in opening a business bank account, you should work to pay off any debt and unpaid fees. You can also apply at a different bank that doesn’t run credit scores or background checks.
Opening a business bank account is a fairly straightforward process, provided you don’t run into obstacles such as unpaid debt or a bad credit score. We hope the information above helps you get your ducks in a row as you apply for a business account.