Once you’ve picked a name, filed the right paperwork, and registered your business, what comes next? While opening a business bank account isn’t the most exciting thing, it’s a crucial step in starting your business. Having a dedicated bank account gives your business more freedom and allows it to grow, all while helping protect you and your own personal funds.
Benefits of Having a Business Bank Account
There are a number of benefits to having a dedicated business bank account. But simply put, keeping your money separate from your business’s money will protect you in the long run and give more legitimacy to your business.
It’s easier to track
When your personal money mixes with your business’s money, it can become difficult to properly track expenses and payments. At the very least, it will take more of your precious time. By keeping all your funds separate, you avoid this hassle. Having a dedicated business bank account means you can easily see all your business’s expenses and deposits in one place. This is especially useful during tax time.
It looks more professional
If someone handed you their company business card and it had their home address on it, you’d probably think it didn’t seem very legitimate. Having a client make out checks to you personally rather than to your business has the same effect. Having a business bank account lends an air of professionalism and credibility to your business you wouldn’t have otherwise.
It gives you access to more payment and credit options
Credit cards are perhaps the most popular method of payment used today. But did you know that to accept payment by credit card, you’ll need a business bank account? What’s more, many business bank accounts come with additional perks; many banks offer a line of credit for their business customers that isn’t available with only a personal checking or savings account.
You’ll also be able to get credit cards specifically for your business. Using these cards allows your business to build credit, which will come in handy later on as your business grows.
It protects you
If you chose an LLC or corporation as your business entity, one of the reasons was likely to gain protection against personal liability. Having a business account can further that protection by helping to ensure your personal assets stay separate from your business’s assets.
Types of Business Bank Accounts
There are three main bank account types businesses can get: checking accounts, savings accounts, and merchant services accounts. Checking accounts and savings accounts are appropriate for most businesses. However, merchant services accounts will be less important if you don’t take credit or debit card payments.
Like a personal checking account, a business checking account is how your business will handle its money most of the time. With this account, your business can do the things that most businesses do with their money: make deposits and withdrawals, write checks, and make purchases.
Business savings accounts allow you to set money aside for future use. If your business is just starting, you probably don’t need a savings account just yet. Once your business is more established, however, a business savings account can be very useful, especially as you start to formulate medium- and long-term goals for your business.
Merchant Services Accounts
Merchant services accounts are special accounts that allow your business to accept payments by credit or debit card. A merchant services account links your business with a merchant processor, which is responsible for settling credit and debit card payments you receive.
Rather than a place where you store money, a merchant account is actually a relationship with a payment processor. Merchant services accounts are a crucial part of operating most businesses, and depending on what kind of business you have, will play a big role in its day-to-day operation.
How to Open a Business Bank Account
There are three main parts to opening a business bank account.
1. Choose a bank
There’s more to choosing the right bank than you might think. Rather than sticking with a bank you’re already familiar with or that’s close to your location, it’s helpful to consider other benefits the bank might offer. Consider:
- Transaction fees: Even if they’re tiny, transaction fees can add up quickly. A favorable transaction fee can save you lots of money over time.
- Minimum account balance fees: Many banks require an annual or monthly fee to keep your accounts open. However, some banks may waive this fee if you keep a certain minimum balance.
- Interest rates: Check the interest rates for savings accounts, checking accounts, and lines of credit.
- Early termination fees: Changing circumstances are just part of the game when it comes to running your business. If you have to close your account early or otherwise terminate your relationship with the bank, you may be charged an early termination fee. These fees are usually fairly cheap, but it doesn’t hurt to find a bank without them if you can.
- Account management tools: Nearly all banks offer some level of account management through an online portal. In some cases, however, you might find these tools to be particularly robust. Depending on your business’s needs, access to these tools could be a great bonus that helps you decide which bank to choose.
- Special offers and promotions: Many banks offer introductory promotions that promise fee waivers or other benefits for new account holders. Different banks have different offers, so it’s wise to look around and take advantage of any promotions that suit you.
Recommendations from people you trust can also be a good resource for choosing the right bank. Ultimately, however, the choice should reflect what’s best for your business’s needs going forward.
2. Get the necessary documents
Once you’ve chosen a bank, it’s time to apply for a business account. As with opening a personal account, opening a business bank account requires proper documentation. Some special circumstances may require additional documents, but generally a bank will ask you for
- Your employer identification number, or EIN (although some small businesses, like sole proprietorships, may use a social security number instead);
- Business formation documents, such as the Articles of Organization (LLCs) or Articles of Incorporation (corporations);
- Other governance documents, such as ownership agreements, partnership agreements, operating agreements, or corporate bylaws;
- A business license for your area or industry (such as a liquor license), if applicable; and
- Related filing documents, such as a “doing business as” (DBA) registration.
If you haven’t done so already, this step is a great time to make sure you keep these documents all in one place. When you need them again, having them properly stored and organized will save you time.
3. Apply for and start using your account
Once you’ve completed and submitted the necessary paperwork, your chosen bank will review your information before opening your account. Once that happens, it’s official: your business will have its own bank account ready to use.
The Big Picture
Establishing a business bank account is a necessary step in starting your business. Not only will others see your business as more legitimate, but it will help protect your personal funds from liability. Fortunately, the process is relatively easy, and you should be able to get your business bank account up and running in no time.
ZenBusiness makes opening a business bank account easy
Once you’ve established your business bank account, you’ll be well on your way to growing your business. Unfortunately, keeping track of all the choices and requirements can feel overwhelming.
That’s where ZenBusiness comes in. Our experts can help you with your business from formation to opening a bank account. Take advantage of account discounts from our banking partners when you apply to open a small business bank account. Once your business bank account is all set up, we can also help you manage access to it with our banking resolution template.
Frequently Asked Questions
- What documents are required to open a business bank account?
Typically, you’ll need:
An employer identification number (EIN) or social security number (if you’re applying as a sole proprietor);
One or more forms of personal identification;
Other governing documents you created when registering your business; and
Business registration information.
Each bank is different, and some banks may require more (or less) paperwork when opening a business bank account.
- How much do you need to open a business bank account?
Your business does not need thousands of dollars to open a business bank account. Most banks offer minimum deposits in the double-digit range, making them very accessible to all business sizes.
If you’re concerned about fees, banks frequently waive them based on a minimum account balance. There’s no exact standard for this, but you can expect most banks to require at least a few thousand dollars in the bank each month to meet the waiver requirement.
- How do I choose a bank for my small business?
Fortunately, there is no “right” way to choose a bank as long as you give the decision the proper amount of consideration. Along the way, however, there are certain things you can think about to help you make that decision. For example, businesses that conduct a lot of e-commerce may prefer banks that offer no-fee merchant accounts. On the other hand, businesses with less liquid funds may be more interested in low minimum balance requirements.
Beyond that, it can be helpful to consider the bigger picture: What are your short-term financial goals? Long-term financial goals? If you have a five- or ten-year plan for your business, which banking option best fits with that plan? Make a list of the important needs, goals, and limitations of your business. Then, compare that list with the benefits or programs offered by each bank you look at. When you’re done, you should have a better idea of which banks best align with those needs, goals, and limitations.
- How can I cash a check made out to my business without a business bank account?
When you cash a check, you request that the bank exchange the check for the equivalent amount of cash. By contrast, when you deposit a check, the bank will transfer the amount on the check to your account.
Whether you can cash a check made out to your business depends on what type of business it is. If you own a sole proprietorship, you won’t need any special permission because you’re the sole owner of the business. For other businesses, like corporations or LLCs, the process can be more complicated.
If you don’t have a business bank account for that business, you may encounter some obstacles if you try to cash a business check. In fact, you may be unable to cash the check at all. Some retail stores like Walmart offer check cashing services up to a certain amount, but typically these options are limited. Alternatively, the issuing bank may be able to verify the legitimacy of the transaction.
- How do I endorse a check made out to my business?
Endorsing a check made out to your business is much the same as endorsing a check made out to you personally. To endorse a check payable to your business, you will need to:
Sign your name on the back of the check in the endorsement section;
Include your title with the company (such as “Owner”);
Sign the name of the business as it appears on the pay line; and
Include any restrictions for added security.
The biggest difference is that when you endorse a business check, you must be authorized to do so. If you’re the owner of the business, this won’t be an issue. However, it is something to keep in mind if there are other people in your organization who may receive checks on behalf of your business.
When it comes to restrictions, many people add “for deposit only” to ensure the check is restricted from cashing. You may decide to include the account number as well so that the bank knows the check is intended for deposit only to your specific account.