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How to Open a Business Checking Account
By Stephanie Colestock MONEY RESEARCH COLLECTIVE
Owning a small business means wearing many different hats. As a business owner, your task list typically includes everything from marketing and taxes to supplies, client deliverables and, of course, keeping track of your money.
Having a dedicated bank account for your small business is an important step toward keeping the company’s finances simple and manageable, regardless of whether you’re a sole proprietor working out of your home or you manage an entire office full of employees. And finding and opening a business account is easier if you know what to expect from the process.
- Steps to opening a business checking account
- What are the benefits to opening a business checking account?
- Bottom Line to Opening a Business Checking Accounts
Steps to opening a business checking account
Once you’ve decided to open an account for your sole proprietorship or small business, the process is pretty simple. After providing a few necessary documents and information, you can often open a business bank account in just a few quick steps online or in-branch.
Compare business checking accounts
In order to decide which business checking account is right for you, you should spend some time comparing your options.
Often the best place to start your search is with the financial institutions that you’re already most comfortable with, such as your personal bank or credit union. See if they offer business account options and, if so, what is required in order to open one. Note that some of the best business checking accounts may be offered by online banks, as well. The advantage to having your personal and business accounts in the same bank is that it can make transferring money from one account to another easier than if those accounts are in different financial institutions.
When comparing business checking accounts, consider how you’ll use the account most and which features you truly need. Look at things like:
- Opening deposit requirements
- Minimum balance requirements
- Monthly account fees (and whether they can be waived)
- Any included account services, like free checks, bill pay, mobile banking or ATM fee reimbursement
- Special perks or benefits, such as cashback rewards or a sign-up bonus
Think about your top banking needs: how will you put funds into your account and how do you typically spend money from the account? Will you need a local branch for cash deposits or withdrawals? Do you need a mobile app to check your daily balance, transfer funds and make mobile check deposits?
Lastly, consider how much money you plan to keep in the account on a regular basis, how many transactions you expect to make each month and what you can afford as an opening deposit. This can help you whittle down your list of potential banks and save money on unnecessary fees.
Gather the needed documents and licenses
Once you have an idea of which bank and specific accounts might best meet your business needs, it’s time to gather everything your new bank will need in order to open the account.
The requirements for a business checking account can vary from one institution to the next, and may even differ according to the type of business you have (limited liability company versus sole proprietorship versus partnership, etc.). In general, though, you should be prepared to provide the bank with your:
- Personal identification, such as a driver’s license, passport, state ID card, utility bill, and the like
- Social security number
- Tax ID number, whether this is an EIN (employer identification number) for your business or your own SSN
- Business names and alternatives, such as a DBA (Doing Business As)
- Business license and/or articles of organization
- Trust documents (if applicable)
- Annual sales and revenue
Some banks will want to know where your clients are located and where your products (if applicable) are sold. Other banks will ask you questions about whether any of your income will come from overseas or from businesses such as cannabis dispensaries that aren’t legal in all states. If you plan to add any employees to the account as authorized signers with limited access, you’ll probably also need their names, addresses and dates of birth.
Save up for the minimum deposit
Depending on the account you choose, there may be a minimum deposit required in order to open and fund the account. While some business checking accounts may require a low minimum deposit, others can be thousands of dollars.
Saving up beforehand can make depositing this much cash with a new bank a little less painful, especially if that money will need to sit in the account for a while in order to qualify you for a bonus offer or waived monthly maintenance fee.
Open your account in person or online
Now it’s time to actually open the account. Depending on the institution, you may have the option of visiting a local branch in person or simply opening the account online.
There are benefits and downsides to both. Opening an account in person can take more time, but also gives you a personalized experience where you can ask any questions you may have about the bank or the account. Opening an account online can often be completed in just minutes at any time of day, but it is a non-personalized process and often requires you to upload certain supporting documents and digitally sign your disclosures.
What are the benefits to opening a business checking account?
Small business owners may get by just fine without a dedicated small business checking account – at least, for a little while. At a certain point, though, opening a business checking (and even a business savings) account can be a beneficial and even imperative step in successfully managing your company.
Purchase protection for customers
With a dedicated business checking account, you have more flexibility in the types of payments you’re able to accept from customers. For example, many banks may offer credit card processing and mobile payment options. You may also be able to open a merchant services account, enabling you to process payments through your website or over the phone. This allows your customers to use a credit or debit card rather than requiring them to write checks or pay in cash. They can rest easy using their preferred payment method, such as a credit card that offers purchase protection or even cash back on their purchases.
Limited liability protection
As a small business owner, the lines between personal and business can sometimes get blurred. Products like business insurance can also help to limit your liability, but that isn’t always enough to protect your personal interests and assets.
By separating your business finances into a dedicated small business checking account, however, you can further limit any business-related liability that could occur down the line. This could be beneficial if you’re ever involved in a lawsuit related to your business, to show that there was a clear division between the company and your personal finances.
Unique credit options
Being able to clearly demonstrate the finances of your business can be necessary if you ever want to apply for a business line of credit or even a business credit card. In most cases, potential lenders and creditors will want to see that your company finances are kept separate and managed efficiently before they will extend credit to the business (versus requiring you to personally secure the note).
Having a business checking account can help those efforts. For example, this account can document your company’s cash flow each month, showing everything from business deposits to typical expenses.
Easier transaction management
A dedicated business account can make it simple to track and manage your monthly business expenses — whether we are talking about a checking account, savings account, or even a business credit card. You’ll have a running ledger of all deposits and withdrawals made throughout the month, and can easily reconcile the account without having to sift through personal expenses, too.
Bottom line to opening a business checking account
Opening a business checking account has many advantages, not the least of which can help limit the business owner’s personal liability. These accounts are usually pretty easy to open, too, and can often be done in just a few minutes online or in your local branch.
Stephanie Colestock is a DC-based personal finance writer with nearly 11 years of freelance writing experience. She covers a wide range of finance-related topics and is currently working toward her CFP®️ certification. Her work appears on sites such as Business Insider, MSN, Fox Business, CNET, Investopedia, and more.