Two people sit in a bank branch office setting up small business banking options

Small Business Basics: Attaining a Business Bank Account

Before spending money on your business or accepting money from customers, you should take two important steps. First, open a small business bank account. Then, obtain a business credit card.

There are some differences between business accounts and cards and the consumer products you’re already familiar with. In this article, we’ll describe those differences and help you simplify the process of setting up these important accounts.

 

Why can't I use my personal bank account for business purposes?

There are lots of great reasons to keep your business and personal money separate. By opening a business account, you can see, at a glance, where your business stands financially. This is important not only for monitoring your expenses and watching for shortfalls in your cash flow but also for creating quick-and-easy snapshots of your financial status for investors, lenders, accountants, and others who may need that information to provide support to your business.

Further, when personal and business money is intermingled, you may run into issues you wouldn’t by having separate accounts. These issues could include:

  •  Risking personal liability for shortages in your business’s cash flow
  • Trouble attaining business loans or lines of credit for your business as lenders can’t determine which expenses and influxes belong to you or your business
  • More problematic audits that will require you to prove the validity of the write-offs and business expenses you claim
  • Higher accounting fees from professional accountants who will need to spend extra time sorting through the complexities of your intermingled accounts
  • Delays in processing payments, such as personal checks, and the inability to connect merchant accounts that can process credit card and debit payments on your behalf

 

Beyond avoiding these issues, there are other advantages to opening a business bank account, too. These include:

 

What kind of business account will I need?

Most financial institutions offer the following types of business accounts for small business owners:

 

Free business bank accounts

These accounts allow business owners to make deposits and withdrawals, write checks, and make electronic transfers with no minimum balance requirements or monthly maintenance fees. Some fee-free accounts also offer an annual percentage yield (APY) that enables owners to earn interest on the money they hold in their accounts.

 

Business checking accounts

Many small business owners use business checking accounts to manage their payroll, taxes, and expenditures. Services often include the ability to write checks, use a debit card, and take part in electronic transactions.

Most banks charge a monthly fee for these accounts, which can sometimes be offset by introductory offers or sign-up bonuses or waived by maintaining a preset monthly balance. Other fees may be charged for excessive transactions, sizable cash deposits, the use of out-of-network ATMs, wire transfers, and account overdrafts.

 

Savings accounts

Savings accounts are a vehicle that helps owners set aside portions of their revenue and earn a small amount of interest each month. Many business owners choose traditional business savings accounts, but owners who hold large amounts of cash for long periods of time sometimes opt for high-yield savings accounts, money market accounts, or business certificate of deposit (CD) accounts.

The rates and terms of these accounts vary by financial institution, as can the fees, which may include a monthly maintenance fee (often waived by meeting a minimum balance requirement) and fees for excessive balance transfers, sizeable cash deposits, and wire transfers

 

Merchant service accounts

Merchant service accounts allow business owners to collect and process credit card and check payments, though they are becoming less popular because of the rise of payment processing services, online payment systems, and point-of-sale systems. Merchant service accounts are subject to a bevy of fees, including account maintenance fees, transaction fees, fraud-prevention fees, and fees to settle daily credit card transactions.

 

Credit card accounts

Most banks offer optional business credit card accounts that simplify business owners’ purchasing processes and help them establish business credit.

Like traditional credit cards, these cards are subject to fees and interest payments for outstanding balances. However, bank-issued cards aren’t always the best credit card option. You can learn more about business credit cards in our Small Business Basics article, Attaining a Business Credit Card.

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Most business owners start with a business checking account and add other options as they grow and scale their businesses. You may choose this approach, or you might decide to open separate accounts to manage your income, taxes, payroll, and recurring expenditures. Your accountant should be able to advise you on the right approach for your business.

Would you like to connect with an accountant? Click the Connect button below to get started:

 

How do I decide which bank's options are right for me?

There are many factors to consider. These include:

 

Fees

Compare multiple banks' business account offerings, and pay close attention to the fees that will be charged for transactions, low balances, and transfers. Depending on the nature of your business, some of the fees could become quite costly to navigate.

You may look into online business bank accounts, which are often “fee free” but can present their own set of challenges (namely, it’s impossible to make cash deposits).

Interest rate

Look into the current interest rates of various financial institutions. Rates will vary over time, but you may find consistently higher rates through internet banks and credit unions than through other institutions.

 

Options for lines of credit, business loans, and credit cards

Even if you don’t plan to pursue these options right away, it can be helpful to know whether the banks you’re considering offer these products and the rates they charge.

 

Introductory offers

Many banks offer incentives to business owners who open new accounts with their institutions. Though these offers are a one-time benefit, you should compare the offers of multiple banks and determine whether any offer is strong enough to sway your decision.

 

Keep in mind that introductory cash bonuses are taxable. You’ll need to report any monetary amounts your bank offers on your tax forms that year.

Convenience

Most business owners open business bank accounts at the institution that houses their personal accounts because they know the bank and can access it easily. However, you may consider other local institutions that can provide you with similar convenience, and possibly, better benefits (such as a more accessible ATM network or a better online or mobile experience), as well as online banks you can access from anywhere in the world.

 

Experience

Many business bank account owners have complicated questions or face problems with their accounts that will require the bank’s assistance. In those moments, customer service is critical. Try meeting with the people who would support your account or call the customer service line to find out what it would be like to navigate your issues with a particular institution.

 

Integration

Look into whether the financial institutions you’re considering can feed data into your preferred bookkeeping software. Some smaller banks don’t have this capability, which can create unnecessary headaches for simple money management tasks.

 

 

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What is the process for opening a small business bank account?

Most banks encourage business owners to open their accounts in person, but some offer online applications. Both options require owners to follow a similar process, which includes providing key information about the business and owner and submitting documentation.

The documentation that’s required will vary based on both the institution and the corporate structure of your business. The following list provides common requirements for each structure:

Sole proprietorship

Social security number

Two forms of identification

A Fictitious Business Name (or Doing Business As name) certificate for businesses that operate under a different name than the owner’s

Relevant business licenses

Partnership

Employer identification number (EIN)

Articles of organization

Business partnership agreement

Relevant business licenses

Signature cards for partners authorized to use the account

S Corporation

Employer identification number (EIN)

Articles of incorporation

Corporate charter

Signed corporate resolution

Relevant business licenses

Signature cards for officers authorized to use the account

C Corporation

Employer identification number (EIN)

Articles of incorporation

Corporate charter

Signed corporate resolution

Relevant business licenses

Signature cards for officers authorized to use the account

Limited Liability Company (LLC)

Employer identification number (EIN)

Articles of organization

Relevant business licenses

Signature cards for partners authorized to use the account

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What's next?

The next task on your list should be opening a business credit card. Our Small Business Basics article, Attaining a Business Credit Card, will walk you through the important considerations you should keep in mind before applying.

Be sure to log into your owner’s portal for more free, personalized guidance that will help you make your venture a success.

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