It can be challenging to pinpoint the right time to open a business bank account, especially if you started small as a solo entrepreneur. Once you start using your personal account for company finances, it can be difficult to decide when you need to make the switch.
Although it takes a bit of time and effort, opening a business bank account supports your company's long-term personal and financial health.
In this guide, I’ll explain why you need a business bank account and how to choose the right bank and the right account type. You’ll also learn how to gather all the information you need for a smooth and easy process.
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What Are the Benefits of a Business Bank Account?
When you open a business bank account, you establish a financial profile for your company. Just like you build a personal credit history, you also build a credit history for your business.
As you use credit cards and loans responsibly, you'll be able to qualify for expanded purchasing power that can help your business grow. Access to higher credit lines can help the company overcome challenges like the need for new equipment or a larger space. It can be difficult to qualify for business loans if you only have personal bank accounts.
In addition, you'll appear more professional with a business-specific bank account. Instead of paying you directly, your customers can pay the business. You can also open a merchant services account so your company can accept electronic payments, including debit and credit cards.
You can add team members to your business account so they can perform financial tasks for the company. For example, you can authorize an employee to pay bills or make bank deposits.
Keeping your personal and business finances separate makes it easier to pay taxes and manage your finances. It also shields your personal property from business liability. If someone sues the company and wins, the court can take your personal assets to pay the judgment. You can protect your home, vehicle, and other property by opening a business bank account.
Types of Business Bank Accounts
The main business bank account categories include:
- Credit cards, which work just like personal credit cards. You can use your business credit card to buy equipment and supplies for the company up to your account limit. You have to make a minimum payment toward the balance each month.
- Checking accounts, which let you write and deposit checks on behalf of your business. You can usually withdraw funds from an ATM through business checking as well.
- Savings accounts, which let you set aside funds for unexpected business expenses. Most banks establish a minimum balance for this type of account, and charge fees if you fall under that amount.
- Merchant services accounts to take debit and credit card payments. Some businesses also use payment processing companies for this service.
If you don't have any accounts for your company yet, it's usually best to start with business checking. You can use this account for daily finances and add other products as needed. You'll also need an account with a merchant service provider so you can accept credit and debit cards.
How to Select the Right Bank for Your Business
You can find the best available rates and benefits for your business bank account by shopping around. You might even want to start with the bank you use for personal accounts.
Each bank has its own fees, policies and perks, so it makes sense to explore your options thoroughly. Some of the factors to review include:
- Credit line interest rates
- Checking and savings interest rates
- Fees for falling below the minimum account balance
- Fees for early termination of your account
- Fees for each transaction
- Enrollment incentives such as bonuses
Additional considerations for a merchant services account include:
- Fees for address verification service (AVS)
- Percentage of each transaction charged as a fee
- Discount rate applied to each transaction
- Fees for failing to meet a monthly minimum transaction level
- Batch fees when you settle each day's transactions
In addition to these basics, you should check whether the bank has added benefits for your business. You might be looking for features like integration with your existing software and apps, high-tech mobile banking or fee-free ATM withdrawals, as a few examples.
Documentation Checklist: What You Need to Open a Business Bank Account
Each bank has its own application process for business accounts. You'll usually need to provide:
- Personal identification, such as a passport, driver's license or state ID card
- Your business license
- Ownership documents for your business that show its name, the type of legal entity, the industry and the type of company you operate
- Partnership or ownership agreements if applicable, such as articles of incorporation or articles of organization depending on the type of business
- Your Social Security card or Employer Identification Number (EIN), which you can request from the IRS to pay taxes for your business
- Your "doing business as" certificate if you use a different name than the one under which you registered your company
If your company has multiple owners, the bank will likely require ID for anyone with a share of at least 25%.
3 Steps to Start a Business Bank Account
Once you've done the research to choose a bank, you can either go to a location near you or visit its website to enroll in a business account. The process isn't too different from opening a personal bank account.
These are the general steps required:
- Register your business name with your county or state if you haven't already. In most places, you simply fill out a form and pay a fee of about $100. Remember that you'll need to select a unique name that isn't already used by another company offering similar products or services.
- Gather the necessary documents as described in the document checklist. Confirm you have everything you need before you visit the branch or go online.
- Fill out the bank's online or paper application. Bring a check or arrange an electronic transfer to provide the funds to open the account and cover associated fees.
How Can Your Business Accept Payments?
Both these types of providers provide the software and connectivity required to handle debit and credit card transactions. They also tend to have similar fees.
For example, Pay.com streamlines your payment system from start to finish, with secure authentication and the ability to accept unlimited payment types. You can also access insights about user behavior and adjust your services based on their preferences.
The Bottom Line: Getting Your Business Ready to Receive Payments
Opening a business bank account for a new company shields your personal finances from the start. You'll also be prepared to meet customer needs by accepting online payments. At the same time, you'll build a trustworthy reputation by doing business under a professional name and prioritizing easy, secure online transactions.
When you select a payment service provider like Pay.com that takes care of your payment needs, you can focus on running your business. Now that you know how to start a small business bank account, you're ready to achieve your goals as an entrepreneur.