Opening a business bank account is a crucial step at the start of your small business, and can help improve cash flow and expense management. Choosing the right one can help you manage your finances with total control, taking advantage of all the perks with very little maintenance.
We’re here to offer support as you set up a business bank account with a bank or credit union so you’re ready to make the best financial decisions for your growing company.
Why do you need a business bank account?
A 2017 study by TD Bank found that more than 27% of business owners use the same bank account for personal and business purposes. Oftentimes, founders who bootstrap their companies start by pulling from their own funds. However, as time goes on it becomes more and more critical to separate personal and business finances—to protect both.
Mixing personal and business finances complicates the cash flow, spend visibility, deductions, and tax preparation, not to mention leaving you vulnerable to theft, fraud, and improper use of funds. A business bank account helps you avoid some dangerous consequences, but there are also plenty of positive benefits that can boost your business.
Benefits of business bank accounts
- Secure personal information for client transactions
- Increased professionalism and trust
- Easier business expense tracking
- Allowing banking access to employees safely
- Better interest on savings and checking accounts
- Ability to access a line of credit or apply for a business loan if need arises
- Strengthening credit history
- Ability to take full advantage of tax deductions
- Business-specific incentives like easier ACH payroll payments or higher interest yields
Opening a business bank account in 6 steps
1. Choose a type of bank account
When it comes to choosing a bank account for your business you’ll have a few options. Choose the type of business banking account that best meets the needs of your business, or try a combination of two or more.
Types of business bank accounts
- Free business checking: no fees, or fees waived if you meet a monthly minimum balance or transaction limits.
- Traditional business checking: may feature monthly or annual fees, but offers more favorable APY and services like wire transfers or bill pay.
- Online business checking: for businesses who don’t deal in cash and prioritize speed
- Business savings account: best for money that won’t be touched for a while to earn interest but remain accessible.
2. Find the right bank
The quality of service can vary widely from one financial institution to another. Compare the offerings of many different banks, credit unions, and other financial institutions to determine which fits your goals.
See our detailed guide for choosing the right business bank account.
Combine services
As a business owner, you may find that it’s more convenient and affordable to center all of your banking in one place. Many banks or credit unions provide incentives for bundling a business checking account and a business savings account, or might offer merchant services at more competitive rates for their existing customers. Some banks may include access to a business credit card or faster loan processing alongside business bank accounts.
Consider convenience
What convenience factors are essential for your business? Local branches or daily accounting might be critical to one business, while online banking and integrations is all that matters to another. Also consider mobile banking and the user-friendliness of their apps.
Traditional bank vs. Credit union
The main difference between a bank and a credit union is that banks are for-profit. Credit unions are nonprofit. Banks and credit unions often offer the same products and features, though credit unions may be able to provide more favorable pricing and fees, as well as the local and personal concerns you often miss in a corporate bank. Many business owners crave the accessibility and speed of technology, so a modern tech-savvy institution might be the right bank.
You may be able to get the best of both worlds with a community bank or smaller bank that can still provide the personal touch you need in a financial institution. There are pros and cons to each choice, so consider the following to determine if a traditional bank or a credit union might be right for you.
Traditional bank pros
- Better mobile applications
- Extra tools such as bill pay, ACH batching, etc.
- More options for nationwide financing
Traditional bank cons
- Higher interest rates for borrowing
- Higher transaction fees
- More eligibility requirements
Credit union pros
- Lower interest on loans
- Higher interest on savings accounts
- More resources for financial education
- Typically better customer service
Credit union cons
- Fewer options and branches
- Fewer tools available
- May not offer business-specific incentives
3. Assess account fees
In the era of online and free banking, many small business owners want to avoid fees at all costs. However, even “free” bank accounts might surprise you with fees for certain functions. When evaluating business bank accounts, be sure to research the following types of fees:
- Monthly maintenance fee
- ATM fees
- Deposit fees
- Overdraft fees
- Minimum or maximum transaction penalties
- Fees for additional cards and checks
- Wire transfer fees
Fees aren’t always bad, as you can easily live within the limits to avoid them, and some are paired with higher interest. Simulate the conditions with your latest month of expenses to see what the fees might actually look like for your company.
4. Prepare necessary documentation
What do you need to open a business bank account? There are often different business bank account requirements in order to successfully open an account. . Whether you apply in person or online you’ll want to begin assembling the following documentation to provide verification of your business:
- Your legal business name
- Employee identification number (EIN)
- Business address
- Business phone number, email address, website, etc.
- Drivers License (for ID number and photo)
- Second photo identification, such as a passport
- Business license, partnership documents, or articles of incorporation or organization depending on your business structure
- Account information for other accounts at the same or other financial institutions
- Names of individuals being issued cards, if necessary
In most cases you will not need every single item on this list to open a business banking account—it will be some combination of documents based on your organization size and structure. For example, a sole proprietorship will need to provide a Social Security number and two forms of personal ID, but an LLC won’t.
5. Apply online or in person
Online applications and approvals are growing more commonplace. It allows a business owner to request banking services immediately, no matter time or place. This way also makes it easier for small business owners that are online-only or may have a storefront that isn’t close to a physical bank location.
However, the tradeoff is that your customer service will be via phone or live chat, versus the personal touch of face-to-face communication if you choose to bank in person. It all comes down to what your chosen bank offers and your personal preference.
6. Deposit funds into your account
Once approved, you can deposit funds to your new business bank account. Cash deposits at a physical bank location, a check written from another bank account, or an online draft can supply your account and prepare you for spending. Be mindful of deposit limits and the availability of remote deposits of checks.
Alternatives to traditional business bank accounts
Though the traditional banking option is still a great way to get your small business off the ground, many new entrepreneurs are looking for a refreshing, modern approach to business banking. One way small businesses are managing their finances is through a cash management account or CMA.
CMA’s are a cash account that combines services and features similar to checking, savings and/or investment accounts all in a single product or software. CMAs are typically offered by nonbank financial service providers, and some are able to provide above-average interest rates and reasonable or no fees thanks to the low overhead of online-only services.
This alternative to traditional business bank accounts is perfect for a business owner that does not mind doing all their banking online and wants a seamless, modern way to handle their finances and spend.
No matter where you decide to start, it’s best practice for any business owner to research both the traditional banking and alternative banking solutions in order to find themselves the best rates, customer service, and cutting edge technologies that meet your needs. Modern small businesses require modern banking solutions that can keep up with you.
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