How to Open a Business Bank Account

When is the right time to establish a business bank account? As soon as your small business is ready to accept or receive money, a business bank account separates your business and personal finances, which will help protect the business and keep it legally compliant. A small business bank account also adds an extra layer of professionalism to your new business that will make a positive impact on potential clients and customers while providing them with additional perks and protection from doing business with you.

By opening a business account, small business owners are better equipped to plan their budgets, process and deposit payments, manage payroll and other business expenses and deduct from their taxes.

So, what steps are involved in establishing a small business bank account? Read on for the ultimate guide to opening business bank accounts.

7 Steps to Open a Small Business Bank Account

Opening a business bank account can be done in just a few minutes, but it requires a bit of preparation to gather the necessary documents. Additionally, you’ll need to decide on the type of account that best suits your needs, whether it’s a straightforward business checking account, a business savings account, or a business credit card account. Understanding how to open a business bank account involves considering these factors carefully.

Follow these seven steps to open a small business bank account:

1. Work Out How Many Accounts You Need

How many bank accounts will best serve your business? Small businesses open bank accounts for a variety of reasons, and sometimes, it’s easier to organize one budgetary category from another by using a separate business account. For example, a small business might want a separate bank account for each of the following purposes:

• Payroll
• Taxes
• Income
• Expenses
• Savings
• Credit

The more complex your business, the more bank accounts you will probably need to accurately track your budget and business finances. If in doubt, consult a professional accountant before meeting with the bank.

2. Choose the Best Account Type for Your Business

What types of business bank accounts do you need to open? A variety of account types are available for different functions and purposes. At the minimum, a small business needs a business checking account to make and receive payments, but many will utilize the following three types of business bank accounts:

Business Checking Account

A business checking account isn’t all that different from a personal account. Both allow users to draft checks, make ACH electronic payments, make purchases with a debit card, and make deposits and withdrawals. While many personal checking accounts are free, many business checking accounts carry associated fees.

Business Savings Account

A small business owner utilizes business savings accounts to save earnings for future business use. Just as consumers are encouraged to save for a rainy day, experts recommend small business owners save 10% of their profits and deposit the money into a business savings account as part of their business budgets. In the event of an emergency or financial difficulty, the money is readily available to withdraw. In the meantime, it will earn interest and grow.

Merchant Services Account

Only 10% of consumers used cash for all their purchases in 2021, making it essential for most small businesses to accept alternative payment methods. A merchant services account enables a business to process credit card and debit card transactions. Additionally, various merchant accounts offer other payment processing services, including online payments through platforms like PayPal and Shopify, as well as point-of-sale solutions such as Square.

3. Select a Bank

A new small business owner may feel inclined to open a business bank account with the same financial institution they use for personal banking. However, there may be better options available. It’s important to explore the range of services provided by different banks, and consider those that specialize in financial services tailored for small businesses or specific industries. These specialized offerings could lead to improved access to credit, higher profits, and overall enhanced financial operations for your business. If you’re wondering how to open a business bank account, take the time to research your options thoroughly.

According to the Small Business Administration, the following factors are important when choosing a bank for business accounts:

• Competitive interest rates for checking and savings accounts
• Fair early termination fees
• Competitive interest rates for business lines of credit and business loans
• No monthly fees if the minimum balance is maintained
• Competitive transaction and introductory fees
• Competitive introductory offers

4 . Research the Fees Associated with Business Bank Accounts

How much does a business bank account typically cost? While most banks charge various fees, many will waive some of these fees if certain conditions, such as maintaining a minimum balance, are fulfilled. Before you learn how to open a business bank account, it’s important to understand the potential costs involved, including interest on loans and credit card transaction fees. Common fees associated with most business bank accounts include:

• Monthly fees, often waived when a minimum balance is kept
• Transaction fees
• Deposit fees
• ATM fees
• Wire transfer fees
• Balance transfer fees
• Interest

5. Make Sure You Meet the Business Bank Account Requirements

Requirements to open a business bank account vary by institution, bank account type, business type and even location. Some banks will require a deposit to open an account, often ranging from $5 to $1,000, while others will allow an account to be opened with no balance. Before opening business credit cards or a business lines of credit, the applicants will also need to be able to demonstrate a positive credit history.

Small business owners typically must provide basic details about themselves and their businesses in order to open a business bank account. Documents and information like business licenses, government-issued IDs and Social Security number are also required. If the business has more than one owner, banks will ask for the personal information and identification of anyone with at least 25% ownership in the business.

6. Open Your Account

Are you prepared to open a business bank account? Generally, you can open a business bank account either in person at a local bank branch or online. Some individuals prefer the personalized service that comes with face-to-face interactions, while others appreciate the convenience of applying online from their home computers. It’s worth noting that business online banking typically allows you to open a small business bank account exclusively through the web, although most banks provide telephone support as well. No matter which method you decide to use for your application, ensure that all necessary documents are organized and ready for either presentation to a banker or submission on the bank’s website. And keep in mind you should not be using a business account for personal use.

7. Deposit Money into Your New Account

Once you’ve opened your business bank account, you are ready to deposit funds. Funds can be deposited into a bank account in a few different ways. A small business owner might write a check to their business from another account, they might deposit cash, or they even might electronically transfer funds from another account into their new one. Once the money is in the account, it is ready to use.

What do you need to open a business bank account?

Always consult the specific bank for a detailed list of requirements needed to prepare for opening a business checking account. Additionally, consider what to look for in a small business bank account. Typically, the information and documentation required for how to open a business bank account includes:

• Account holder’s name, date of birth, and Social Security number
• Mailing address and contact information
• Ownership of the business
• Government-issued photo ID like a passport or a driver’s license
• Credit history
• Business name or trade name
• Business address
• Employer identification number (EIN)
• Industry or business type
• Business License
• Partnership agreement if the business is a partnership
• For an LLC, you will need to provide articles of organization and a Limited Liability Company operating agreement.
• Articles of incorporation if the business is a corporation, along with corporate bylaws

How Much Money do you need to open a business bank account?

The minimum deposit needed to open a business bank account differs among financial institutions. While some banks may allow you to establish a new account with a $0 balance, others could require an initial deposit ranging from $5 to $1,000, depending on the specific type of bank account.

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This article, "How to Open a Business Bank Account" was first published on Small Business Trends