What products, features and services should you be looking out for when thinking of opening a business bank account. There’s lots to consider and you’ll want to make sure you choose a bank that works for you. Read our guide below to help with your decision making process so that you make the right choice.
Why would you open a business bank account?
There are multiple reasons for opening a business bank account including establishing business credit and very importantly, protecting yourself from business debt liability, an important aspect for small business owners and indeed all businesses.
One key advantage of establishing your business as a corporation or a limited liability company (LLC) is the fact that, should your company become unable to pay a debt, the creditor can’t legally come after your personal assets unless you did something to incur liability, such as break the law.
However, if you mix your business assets with your personal assets by, for example, not keeping a separate business bank account, then your liability protection is essentially nil. This means a judge could hold you personally liable for business debts incurred.
Other key benefits include making it easier to apply for a loan or government support, automating your bookkeeping, making tax preparation easier, automating your bookkeeping and in general, it simply looks more professional.
Who can open a business bank account?
Almost anyone can open a business bank account once you’ve gotten your federal EIN. Opening a business bank account will also require proof of identification for both you and your business. Examples include your state-issued driver’s license or passport, your business license or your partnership agreements.
Your business also may need to provide other additional materials.
- Sole proprietor: You will need to present your Social Security number. If your business has a DBA (doing business as) or assumed names, you will need to provide a certificate that shows the other name or names.
- LLC: You may need to present the EIN and business registration. If you are the sole owner, your name should be listed as such.
- Limited liability partnership: You will need to provide an agreement that shows the names of all the partners as well as the name of the business.
Have your business’s paperwork ready when you go to open a bank account. If you have filed documents or licenses on the state level, you might need to bring them as well. When speaking with a business banker, make sure to ask which documents the financial institution requires to open a business checking account.
Choosing a business bank account: 7 things to consider
Select the right bank account type
There are three main types of business bank accounts:
- Business checking account: For everyday business transactions
- Business savings account: Store surplus cash and build interest
- Merchant services account: If your business accepts credit card payments. Merchant account providers front you payment for your sales before the customer pays their credit card company. You need to have a business checking account before you can open a merchant account.
Most bank accounts come with a number of fees, including monthly maintenance fees, overdraft fees, and wire transfer fees. These fees can seem unnecessary to most customers, but they’re used to help the bank pay for its branch locations, customer support, and other bank services you enjoy.
If you find a bank you like that charges fees, ask them if there’s a way to waive the fees. For instance, some banks offer overdraft protection or give you a way to avoid monthly maintenance fees.
Minimum balance requirements
Some banks require that you deposit a minimum amount of money when opening the account. They may also require you to maintain a minimum balance every month; and if you don’t, you’ll have to pay a low monthly fee.
For instance, you may need to maintain an average balance of $5,000 throughout the month or pay a $20 fee. You should find out what the minimum balance requirements are and consider whether they’re realistic for you.
If your checking account is used primarily for cash flow, maintaining a certain balance may not be realistic. Fortunately, many banks are willing to forgo these requirements.
One example of other services to look for are the mobile apps that many banks now offer. You can use these apps to monitor your balance, transfer funds between accounts, pay bills (individually or via an autopay function) and check on your cash flow – from anywhere – with a mobile device like a smartphone or tablet.
A mobile banking app isn’t essential, but the anytime, anyplace convenience of access to your business bank account makes it more than worthwhile to have.
Additionally, while you are in the early stages of launching a business, you’ll probably want to open a business credit card account for business purchases and, possibly, cash advances. You may want to establish a business line of credit (a source of funds you can access on an as-needed basis) or obtain a small business loan.
Doing so will likely be easier if these options are available from the bank where you have a business checking account. If you plan to accept credit and debit card payments from your customers, you’ll need merchant services so you can process these transactions.
Third-party processors offer this service (and usually have lower rates), but it may be more convenient and efficient to use a bank that does so as well.
If you plan on opening a business savings account, you might look for a high-yield savings account. Finding a bank with the best possible rates will allow you to earn a little money as your savings grow.
You’ll likely find the best interest rates through an online bank. For instance, Axos Bank and Capital One offer high-interest savings accounts with low monthly fees.
You’ll likely use your business bank account in combination with a number of other business tools. For instance, you might use QuickBooks to send invoices and track your expenses. So, you want to look for a bank account that will integrate with the features you use every day.
Before signing up for a bank account, find out what that bank’s capabilities are and whether it syncs with your current accounting software. Accessing the right integrations will help you streamline your business finances.
Businesses tend to have many transactions each month, and cash-based businesses even more than most. If you’ll be running to the bank every day to get change, make deposits, or otherwise conduct business, make sure that your business bank is close to your establishment to cut down on travel time and hassle.
Requirements for opening a business bank account
The requirements to open a business bank account can vary based on the type of business you have, the type of bank account you want to open, and which bank you use.
- Personal identification, such as a passport or driver’s license
- Social security number or employer identification number (EIN)
- Business license with the name of the business and the owner’s name(s)
- Partnership agreement with the name of the business and its partners (if a business with multiple owners)
- Certificate of assumed name/DBA
- Organizing documents filed with the state
- Monthly credit card revenue (for merchant accounts)
If your business is an LLC or corporation, the bank may also require you to provide:
- Your business’s partnership agreement, if you operate a partnership
- Your business’s articles of organization, if it’s an LLC
- Your business’s articles of incorporation, if it’s a corporation
- Your business license
You can open an account online or make an appointment with the bank to do it in person. If you feel like you will have a lot of questions or need some extra guidance, an in-person meeting is always a good idea.
Some bank applications including Novo are reviewed within 24 hours; however, the process can take anywhere from 3 – 5 business days. After you receive your bank approval, you’ll need to accept the account agreement and then you’ll be able to fund and access your account.
How do I choose a business bank account?
Choosing a business bank account involves carefully thinking through the various bank account and services features that are important to your business including the bank’s fees, minimum balance requirements, offers, location, account features, interest rates and integrations.
What is the best type of account for a small business?
There are many banks that work well for small businesses and depending on your requirements, Novo bank may be a good choice for you due to its excellent user interface, easy application process, no monthly fees and ability to make digital payments.
What documents do you need to open a business bank account?
The documents you’ll need to open a business bank account include an Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship), business formation document, ownership agreements and a business license.
Tom is the founder of Gottagrow.io. He reads the offers, deciphers the details including features, pricing, included services and more to find you the best products and services.