- To open a business bank account, you will need your articles of incorporation, employer identification number and personal identification documents.
- You can set up a business checking and savings account.
- A business bank account is necessary to keep your business and personal finances separate.
- This article is for small business owners who are interested in opening a business bank account and want to know what they need to get started.
Business bank accounts help you manage your business finances in a professional manner and separate those funds from your personal finances. Opening a business bank account requires more effort than opening a personal account. There are documents to gather, names to be determined and licenses to get in order. Learn why you should have a business bank account and what you need to do to open one.
Benefits of a business bank account
Establishing a separate business bank account is an essential step in running your small business. While you may only have one personal bank account, your business likely needs multiple accounts.
According to the U.S. Small Business Administration, most business bank accounts offer benefits and perks that personal bank accounts do not. Here are four reasons why you need a business bank account.
1. Limited liability protection
Business banking helps limit your personal liability by keeping business funds separate from your personal funds.
“No matter what type of business you own, you should always separate your personal and business finances,” said Chas Rampenthal, general counsel at LegalZoom. “The first and most important step toward successfully separating your finances is to have separate bank accounts.”
2. Purchase protection for customers
Many banks offer merchant accounts as a business banking option. Merchant services are a business advantage, because they provide purchase protection for your customers and also protect their personal information.
A business bank account allows checks to be made out to the business – which is more professional than asking customers to make out checks to your name. Your customers can also pay with credit cards, and employees can handle banking tasks on behalf of the business.
4. Credit options
Some banks provide an option for a line of credit that you can use in an emergency. Many also offer business credit cards that you can use to start building a credit history for your fledgling business.
Key takeaway: A business bank account keeps your business finances separate from your personal funds. The benefits of a business bank account are that it helps limit your personal liability and customers can pay your company directly. Further, the bank may also provide you with a line of credit and a business credit card that you can use to build a credit history.
4 types of business bank accounts to consider
As with personal banking, there are several types of business bank accounts. Depending on your needs, you’ll likely need to open more than one account.
Here are the four common types of business bank accounts:
- Checking account: A business checking account is a great choice for managing payroll, expenses and other basic financial tasks that keep your business running.
- Savings account: In addition to a checking account, you’ll likely need a business savings account to hold your earnings.
- Merchant account: If you plan to accept credit and debit card payments, check with your bank to see if you can set up a merchant account. “Depending on whom you bank with, some banks offer merchant services as well,” said Julia Spahiu, founder and CFO of Edi and Sienna Group. “I suggest to all my clients [that they] shop around before settling for one particular account, and renegotiate your rate at least once a year.”
- Credit card account: You can use a business credit card for emergencies or miscellaneous items for your business. The chief benefit of a credit card for the owners of startups or if one has bad credit is that it can help build or improve your business credit score.
Key takeaway: The four main types of business bank accounts are checking, savings, merchant and credit card accounts.
Things to consider when choosing a bank for your business account
Business owners have many banking options, and every bank offers something a little different. Take your time perusing the various options until you find the right bank for your business.
“Always shop around,” said Mike Swigunski, founder and CEO of Global Career. “Banks are as keen to gain new customers as they are to retain current ones, so use this to your advantage to get better deals.”
Here’s what to consider (and ask about) as you evaluate different banks:
Every bank has different fee structures and features. Business accounts typically have higher fees and minimum balance requirements than personal accounts.
Tracy Odell, vice president of content at FinanceBuzz, recommends asking whether the bank offers any bonuses.
“Sometimes banks offer bonuses for opening a business account with them,” she said. “For example, a bank might offer $300 if you open an account and maintain a certain minimum balance. These offers can be a great way to earn a little extra revenue, but keep in mind that these bonuses are taxable. Don’t be surprised if you get a 1099 for the bonus next tax season.”
Account maintenance requirements
Often, business bank accounts have requirements that you must meet; if you don’t, you can be charged fees. For instance, it’s common for banks to require you to maintain a certain balance – but this minimum amount varies from bank to bank – and it may be a daily minimum or a monthly minimum. If you have multiple accounts, the bank may count all of your accounts toward a combined minimum amount, or they may look at each account separately.
In lieu of maintaining a certain minimum balance, some banks, with their business checking accounts, won’t charge you the fee if you spend a certain minimum on a debit or credit card tied to your account, or if you use one of the bank’s other services.
Carefully consider which account features are must-haves when you’re comparing banks. For instance, do you need a business bank account that includes detailed analytics? Do you want a mobile app that allows you to digitally deposit checks? Do you need a business debit card? Would it be useful to receive alerts when your balance is nearing your minimum?
Key takeaway: When looking for a bank for your business account, take your time researching the different requirements, features, fees and sign-up bonuses.
How to open a business bank account by company type
According to Grant Aldrich, founder and CEO of OnlineDegree.com, opening a business bank account follows the same process regardless of your business type, except for sole proprietorships, as opening a personal savings or checking account.
“If you’re a sole proprietor, you need to bring your Social Security card instead of your EIN,” Aldrich said.
Sole proprietors still need to bring their business license, DBA certificate and personal identification documents.
What documentation do you need to open a business bank account?
Before you open a business bank account, you should have the following documentation prepared:
- Articles of incorporation
- Business licenses
- Doing business as (DBA) certificate
- Employer identification number (EIN)
- Identification documents
“There are various factors business owners should consider when opening a business bank account,” said Rampenthal. “It’s essential to prepare all necessary documents from the get-go in order to facilitate a painless process.”
Here’s more information about each of the documents you’ll need to open a business bank account.
Articles of incorporation
Your articles of incorporation show the bank how your business is structured, and you use these legal documents to register your business with the state and other entities.
“If you form a business as an LLC, limited partnership, corporation or other separate legal entity, to open a bank account, you will need the articles of incorporation that you filed with the state if you are the sole owner,” said Tiffany Wright, president of The Resourceful CEO, a financing advisory firm for small and midsize businesses, and project director at Cogent Analytics.
Rampenthal said that banks will likely ask for your current business license to prove you are legally permitted to conduct business in your region.
“This also ensures that your business is accountable for all actions taken – including taxes and finances,” he said. “Check with your state, county and local governments to determine if you need any licenses to operate your business.”
Doing business as (DBA) certificate
A DBA, often referred to as a “fictitious name,” allows you to conduct business “like marketing or advertising, or accept money, under a name that differs from the existing name of your business,” said Deborah Sweeney, CEO of MyCorporation.
Sweeney added that most banks require a certified copy of a DBA to open a business bank account, since entrepreneurs aren’t allowed to use their personal bank account under their business name.
“Filing for a DBA allows entities to do business under another name without having to form a new organization,” Sweeney said. “For example, imagine an entrepreneur named Tom Johnson. Tom is a sole proprietor who runs his own business and wants to open up a sandwich shop called Subs ‘n Chips. Tom wants this business to operate under the Subs ‘n Chips name and not under his own name, Tom Johnson. As such, he would need to register for a DBA so he could do business under this name, including accepting and signing checks made out to and on behalf of Subs ‘n Chips.”
Employer identification number (EIN)
If you’re a sole proprietor, you will need an EIN, your Social Security number, and a driver’s license or passport, according to Levi King, co-founder and CEO of credit solutions and monitoring firm Nav.
EINs are also used to prevent identity theft, fraud and money laundering. King added that while some banks allow a sole proprietorship to open accounts without an EIN, it’s still beneficial to create one.
Rampenthal said that the EIN is essential for managing taxes and paying employees.
“Sole proprietors may use their Social Security number for business tax purposes in lieu of an EIN,” he added. “You can obtain an EIN for your business by filing with the IRS.”
Finally, you’ll need to provide documents proving your identity.
Forms of proof “can include a government-issued picture ID, such as a driver’s license or passport,” Rampenthal said. “This is used in order to corroborate [that] the business owner is indeed the person who owns and/or runs the corresponding business.”
Key takeaway: To open a business bank account, you’ll need to present documents that prove your identity and the legitimacy of your business.
When should you open a business bank account?
The best time to open a business bank account is before you accept the first payment for your company’s goods or services. Typically, a business bank account is opened during the incorporation process. A bank account cannot be opened until the business has a license to operate and an identifying tax number (which will be an employer identification number or a Social Security number for a sole proprietorship).
What is the difference between a bank and a credit union?
Banks and credit unions primarily offer the same services to customers and members. Both are designed to provide money management (such as checking and savings accounts), loan services, and other financial services.
The differences stem from the organization, classification and regulation surrounding each type of financial institution. Banks are for-profit businesses that can be singly or publicly owned. Credit unions are, by definition, nonprofit institutions. They are collectively owned by union members, so no credit union can ever be a sole proprietorship.
The difference in classification has led to differences in regulations for the two types of institutions. Many of the rules that were instituted after the 2008 financial crisis were not applied to credit unions. Services at banks and credit unions might have different fees or interest rates attached to their services, and approval processes will vary. Credit unions, for example, may have requirements pertaining to who can be members of the credit union. For example, many credit unions limit membership to residents of the county where the credit union is located.
Is it better to apply in person or online?
Rampenthal said that some banks do not offer the option of opening a business account online, either to reduce the risk of identity theft or due to the nature of certain businesses.
Banks that do offer the option of applying for a business bank account online may take more time to review your documents and set up the account than they would if you applied in person.
If the bank you choose offers both application options, you’ll need to decide which option (and trade-off) is more preferable: the convenience of applying online but waiting longer for your account to be set up or applying in person and having your account set up the same day.
Matt D’Angelo and Simone Johnson contributed to the reporting and writing in this article. Some interviews were conducted for a previous version of this article.