What You Need to Know About a Business Bank Account

When small business owners are ready to start accepting payments and spending money as part of their company, one of the first priorities should be to open a bank account dedicated for the new business.

Opening a business bank account is a prerequisite for conducting transactions independent of one’s personal, non-business finances. Doing so is advisable so that the business owner can remain legally compliant. Several types of businesses, such as limited liability corporations (LLCs), require that business accounts are used in order to prevent a company’s legal benefits from being voided.

Types of business bank accounts that one should consider are a checking account, savings account, credit card account, and a merchant services account.

1) Business checking accounts

A checking account that is under the business name that uses the business’ federal tax identification number as the entity owning the account, a business checking account may authorize employees to serve as signers or have a debit card for the account.

Basic business checking accounts may not have a minimum deposit, or may have a very low minimum deposit. A small minimum balance might be an attractive perk for a small business, as long as the account holder populates the account with sufficient funds to cover any check he writes to the account. Some banks may offer packages with these checking accounts that cater specifically to small businesses by including interest on the account or giving the account-holder the freedom to conduct unlimited transactions.

Keep in mind, some banks offer checking accounts with no monthly fees. But account holders may be required to maintain a minimum daily balance (or a minimum monthly balance), or may only make a limited number of transactions to avoid incurring a fee. Make sure you know what the minimum balance is on any account you consider opening, and what the monthly maintenance fee is.

In addition to keeping business assets separate from those in one’s personal finances, a business checking account can be a good way for a new company to establish a credit history by exhibiting steady income receipts. These receipts, as well as the proven ability to pay off providers of services and supplies to the company, can help one build credit.

Along with credit, the checking account can also help a business owner establish credibility. If you’re asking, “Can I use my personal bank account for my small business?”, the answer is, yes, you can, but it’s not advisable. A business checking account helps establish one’s credibility with vendors who provide goods and services to the company. Vendors would rather deal with businesses that have business checking accounts than ones with only personal accounts.

2) Business savings accounts

Whether one is seeking better interest rates or a way to buttress the professional image and reputation of a company, opening a business savings account can help a small business owner do both.

Among the best business bank accounts a company owner can have, a business savings account provides assurance that an entrepreneur will be able to meet its financial obligations. If the company sees a shortfall, but still requires quick access to funds, a business account ensures that the company will not lack the means to make necessary payments in a timely manner.

A drawback of keeping large amounts of cash in a business savings account, however, is that it will not earn as much interest as it would in alternate investment instruments.

3) Business credit card accounts

A small business credit card account can facilitate the management of expenses and accounting records. They are easier to qualify for than bank loans or business lines of credit as long as the business is well established or one’s personal credit rating is solid.

A business credit card is a convenience for those times when a business owner needs to pay for equipment or supplies to keep the company operating smoothly at times when cash flow is not as smooth. This access to easy financing combined with the opportunity to build up credit and the incentives some companies offer for using their cards all make business credit card accounts a potentially viable option for some entrepreneurs.

But small business owners should nonetheless be wary of the potential drawbacks of a business credit card account. These include the requirement that one must give a Social Security number and previous credit history in order to qualify – setting the stage for potential personal credit rating issues in the future. Credit cards can carry high interest rates and late fees, more limited purchase protection and possible security dangers, such as fraudulent charges if the card is stolen. Take care that employees whom the business owner authorizes to make purchases on the card are trustworthy.

4) Merchant services account

Online business bank accounts that permit a company to accept and process electronic payment card transactions, merchant services accounts require a company to join forces with a merchant acquiring bank. Funds deposited into the account are automatically transferred to one’s business banking account, usually within one or two business days.

A merchant is required to have a merchant account with a merchant acquiring bank as long as there is any intention of offering electronic payment options for their goods or services. Merchant acquiring banks are critical for processing and settling transactions efficiently. Merchant acquiring banks charge merchants monthly fees as well as special situation fees.

Nowadays, mobile banking is a part of everyday life. Online banking is attractive for a business owner who needs to have various ways of accepting orders with the help of merchant services through credit cards. But one disadvantage posed by merchant services is the risk of being prone more to scams and frauds. It is not always easy for a business to assess the difference between authentic and fraudulent transactions.

According to the SBA, some things one should consider when opening a merchant services account include:

  • Discount rate: The percentage charged for every transaction processed.
  • Transaction fees: The amount charged for every credit card transaction.
  • Address Verification Service (AVS) fees.
  • ACH daily batch fees: Fees charged when you settle credit card transactions for that day.
  • Monthly minimum fees: Fees charged if your business doesn’t meet the minimum required transactions.

Another critical reason why getting a business bank account set up is of paramount importance is that divorcing personal finances from business finances enables a company owner to take advantage of items that can be designated as tax write-offs.

Keeping track of expenses, managing employee pay, showing finances to investors, receiving and depositing payments, and more accurately planning a budget can be achieved with the establishment of a business bank account.

Here are the steps you’ll need for a business bank account opening (unofficial business bank account requirements to open):

1) How many accounts do you need?

While having a separate business banking account is certainly a step in the right direction toward keeping company finances better organized, having an excessive number also can become unwieldy.

Business owners should consider whether they want or need one business checking account for operations, another account that apportions a certain percentage each month for taxes at the end of the year, a savings account for business goals, an account for emergency savings in the event that unexpected expenses arise, and perhaps a flexible spending account in case unforeseen opportunities present themselves.

2) Choose a bank

Some of the variables to consider which bank is good for small business account:

  • Have a concept of what it is that you need from a bank.
  • Take a good look at the differences between smaller banks, which might be more in tune with the local market and provide more personal, flexible banking services, and larger banks, which are likely to offer better interest rates but might not be as willing to granting a loan in a time of need.
  • Find out what the fees are for all the banking services the account will include.
  • Find out whether the bank is sponsored by the SBA. If so, loan approval for small business owners could be more streamlined.

3) Select a name for the account

A business may already have established its name prior to opening a bank account dedicated just to company finances. If not, the business must register at a county clerk’s or state government’s office to file for the business’ name and, possibly, trademark protection.

4) Prepare all necessary documents

What documents are needed to open a business account? A company owner needs to be sure that all forms of identification are in hand when he or she sets up a new account. The tax ID that is used to open the business bank account should be the company owner’s Federal Employer Identification Number (EIN), not the Social Security number. To get a tax ID number, file a request from the Internal Revenue Service.

5) Prepare to start accepting payments

Set up a merchant account if the business will include either an online presence or the option for customers to pay by credit card. Decide whether to include PayPal purchasing options for customers, which is just a matter of a payment being made instantly via a customer’s e-mail address.

6) Remember to keep track of everything, including incoming funds, taxes owed, business expenses and payroll costs.

Remember, what qualifies as a “business expense” can actually cut a pretty wide swath. A business owner who works out of his basement can deduct a portion of his home and its utilities as a business expense. If a company owner has lunch with someone and business is discussed over the entrees that could qualify as a business expense.

How can a small business owner identify the best business bank account?

What is the best bank for a business account? Start by finding out the cost of maintaining the account, what the interest rates are on deposits and what the bank offers in terms of loan options and other services for small businesses.

A business owner who is the sole proprietor actually might be best off by opening a business account at the same bank where he already has a personal account. That might be the best way to get the most favorable terms. Managing personal and business accounts at one bank also simplifies your responsibilities so you don’t have to go from bank to bank. Having access information to multiple accounts in the same location is an attractive selling point to opening a business account where she may already have a personal account.

Larger companies might have to do their homework a little more thoroughly to find the best account for them. A bank account that charges you less might come without a lot of extra services, so a business owner needs to weigh the advantages of a low-cost account against the “no-frills” nature of that account.

For companies without a lot of cash reserves, a business bank account’s interest rate is not as crucial. These businesses are repaying interest on commercial loans and reinvesting their profits, and that might not leave a lot of extra cash for which a higher interest rate would be a greater benefit.

Many small companies are wise to seek out a bank that offers business loans with competitive interest rates and high flexibility on both the amount and the payback rate of each investment required.

Does an LLC need a business bank account?

Corporate structures in which owners are not personally liable for the company’s debts or liabilities are Limited Liability Companies, or LLCs. Some business owners choose to form a LLC as a way of limiting the principals’ personal liability.

Unlike a business partnership, an LLC separates the business assets of the company from the personal assets of the owners, insulating the owners from the LLC’s debts and liabilities. A separate business bank account a requirement of an LLC, and having one helps the business owner with many of the practical aspects of running the company, including accounting for expenses, paying business bills and depositing customer payments. And, If you encounter into legal issues with your company at any point, having a separate business bank account can prove that the company is not part of your personal assets.

Which is the best  business bank account?

Small business owners would be well advised to open an account with a bank that had a large amount of branches for greater convenience.

Some of these include Bank of America, Chase Bank, Capital One, HSBC, U.S. Bank, PNC Bank, Wells Fargo, Azlo, BBVA Compass, and TD Bank, among others.

Chase Bank offers free checking with low monthly deposits. Bank of America offers an introductory bonus of up to $450. With Capital One, you get low-cost checking with unlimited free transactions. U.S. Bank is good for businesses with low transaction volume. At PNC Bank, business owners get free introductory checking for three months. TIAA Bank accounts earn interest, but it is online only.

If your company anticipates growth, Wells Fargo accounts offer flexibility when account services are upgraded. If you want to completely avoid banking fees, Azlo Bank may be the way to go.

There is really no one-size-fits-all solution to the decision of where to open a business bank account, and which one may be best for your particular set of circumstances. Every company’s business needs are unique.

As you can see from just this partial summary of banks with business checking accounts, some might be tailored to specific preferences where others are lacking in those areas. Shopping around and doing as much research as possible in order to identify the best fit for your firm is ultimately the best counsel to follow.

How to get instant access to financing

Find more blogs

Find out if you're pre-qualified in seconds

Your information must be verified and accurate in order to qualify.