A person completes paperwork to open a small business bank account

Small Business Basics: Attaining a Business Bank Account

Every small business needs a bank account. It's key for spending money on your business or accepting money from customers. Just as importantly, you'll need a credit card for purchases.

Business bank accounts and credit cards are much like the personal ones you use every day. Still, there some differences you should keep in mind. In this article, we’ll walk you through those differences and explain how you can set 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. You can also easily monitor your expenses and watch for shortfalls in your cash flow. And importantly, you can create quick and easy snapshots of your financial status for investors, lenders, accountants, and others who may need it to provide support to your business.

When personal and business money is intermingled, you may run into issues you wouldn’t by having separate accounts. Here's what that might look like:

  •  You may have to use your personal savings accounts to cover shortages in your business’s cash flow.
  • You could have trouble getting business loans or lines of credit for your business. This is often the case when lenders can’t determine. which expenses and influxes belong to an owner or their business.
  • Audits could be tougher to navigate, especially when you need to prove the validity of the write-offs and business expenses you claim.
  • You may have higher fees from accountants who will need to spend extra time untangling your intermingled accounts.
  • It could take longer to process your personal checks through your account.
  • You might struggle to connect merchant accounts that can process credit card and debit payments on your behalf.

.

Of course, there are other advantages to opening a business bank account, too. Here are a few:

 

What kind of business account will I need?

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

 

Free business bank accounts

These accounts allow 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 lets owners to earn interest on the money they hold in their accounts.

 

Business checking accounts

Many owners use business checking accounts to manage their payroll, taxes, and expenditures. With these accounts, you can write checks, use a debit card, and set up electronic transactions.

Most banks charge a monthly fee for these accounts, but many have introductory offers, sign-up bonuses, or balance rules that waive it. Of course, there could be other fees. You could see charges for excessive transactions, sizable cash deposits, the use of out-of-network ATMs, wire transfers, and account overdrafts.

 

Savings accounts

With a savings account, you can set aside portions of your revenue and earn a small amount of interest each month. Many 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.

Of course, the rates and terms of these accounts vary by financial institution. The fees can vary, too. You may be charged a monthly maintenance fee (often waived by meeting a minimum balance requirement) and fees for excessive balance transfers, sizeable cash deposits, or wire transfers.

 

Merchant service accounts

Merchant service accounts allow owners to collect and process credit card and check payments, though they're becoming less popular with new payment processing services, online payment systems, and point-of-sale systems. These 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 also offer business credit card accounts that can simplify your purchasing process and help you 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 this guide:

.

 

Most owners start with a business checking account and add other options as they grow and scale their businesses. You might choose this approach, too, or you could 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? Check out some of our favorite firms here:

 

Play Video

Reconciled

Your Business Deserves the Very Best

Reconciled is an award-winning organization and one of the fastest-growing accounting firms in the country. Their team of entrepreneurship gurus, e-commerce pros, and tech-loving cloud accounting specialists look at your business holistically and help you analyze your spending, measure costs, and find opportunities to enhance margin and profitability, along with taking on your day-to-day bookkeeping. Want to learn more? Click the connect button below for an introduction.

Play Video

Xendoo

Be Tax Ready All Year Long

With Xendoo, you can access a dedicated team of expert CPAs and accountants who provide monthly bookkeeping, tax preparation and filing, and tax consulting, three services that will help you stay on top of all your financial needs. Their team can also help you with your personal tax returns, too. You can explore their plans with totally transparent pricing by following the link below, and for a limited time, you can try their online bookkeeping service free for one month. Restrictions may apply. See Xendoo's site for details.

Play Video

1-800Accountant

Say Hello to Better Online Accounting

Business owners love 1-800Accountant. Here's why. First, the service pairs you with a CPA who is an expert in your state and industry and can answer the tough questions you have about your business. Second, while many others charge by the hour, or worse, by minute, 1-800Accountant sets you up with an affordable, flat-rate pricing plan so you always know what you'll be paying. Follow this link to try 1-800Accountant for 30 days with a money-back guarantee.

 

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

There are lots of factors to keep in mind. These include:

 

Fees

Compare the accounts you could set up at multiple banks. Pay close attention to the fees you'll be charged for transactions, low balances, and transfers and whether you'll be able to navigate them.

Want to avoid these fees? Look into online business bank accounts. These accounts are often “fee free,” but they can present their own set of challenges (namely, it’s impossible to make cash deposits).

 

Still, many are highly recommended, including Novo. This fintech provides free business checking accounts to more than 150,000 small businesses. 

Interest rate

Study the current interest rates of various banks and credit unions. Rates will vary over time, but you may find consistently better rates through some (like 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 use these options right away, it's good 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 for opening new accounts. Though these offers are a one-time benefit, you should compare what's available and decide if 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 owners open a small business bank account at the institution that houses their personal accounts. Often, it's because they know the bank and can access it easily. Still, you may consider other local institutions that are just as convenient, and possibly, have better benefits (such as a more accessible ATM network or a better online or mobile experience). You could also look into online banks you can access from anywhere in the world.

 

Experience

At some point, most business owners have complicated questions or 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 them. Wait times and friendliness are two factors you might weigh in.

 

Integration

Look into whether the banks you’re considering can feed data into your bookkeeping software. Some smaller banks don’t have this capability, but those that do make money management a much simpler task.

 

 

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 an online process. Both options require owners to follow a similar process. This includes providing key information about the business and owner and submitting documentation.

The documents you'll need to provide 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

.

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.

Share:

Facebook
Twitter
Pinterest
LinkedIn

Leave a Reply

Related Posts