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Having a separate bank account streamlines your business finances, making tracking transactions and managing funds easier. Our comprehensive guide will help you discover the benefits and learn how to open a business bank account.
Easily open your business bank account online with Bluevine. Start your application.
Key Takeaways on How to Open a Business Bank Account
- A business bank account holds company funds and allows transactions related to the business
- You’ll need personal and company identification, licensing, and tax documents to open a business account
- There are different types of business bank accounts, each providing different services and benefits to companies
- You can easily open a business bank account with Bluevine, the best bank for startups. Apply online. It only takes a few minutes.
How to Open a Business Account – Step-By-Step Guide
Here are five steps to opening a business account:
- Choose a business bank account type
- Choose the best business bank
- Gather required documents
- Open your business bank account
- Deposit funds
Step 1 – Choose a Business Bank Account Type
The first step in opening a business bank account is choosing the type of account you need. Each business model has certain needs that can only be met by a particular account. For instance, the best business bank accounts for LLCs might be less favorable for a sole proprietorship.
When choosing an account, it’s crucial to factor in your business’s specific needs. Are you looking for a place to stash away your business profits for the long term? A savings or certificate of deposit account an excellent option.
Are you interested in an account where you can deposit daily earnings and make frequent withdrawals? A business checking account is more suitable.
Settling on the ideal account for your business protects you from paying unnecessary monthly fees or penalties during transactions.
Step 2 – Choose the Right Business Bank
After choosing an account, look for a bank with the best offer. Most credit unions and banks offer multiple types of business accounts. However, each account’s features and monthly service fees vary from one financial institution to the other.
For instance, some banks have minimum balance limits while others don’t. Also, banks offering online business checking accounts usually have no monthly maintenance fee, unlike traditional banks. Therefore, comparing different institutions is essential to ensure you get the best deal.
Other factors to consider when comparing banks include available transaction methods, mobile banking app services, bill pay, and whether they can offer credit in the future.
It’s also wise to opt for a bank providing various small business resources. If you want to open multiple business bank accounts, using the same bank to access personalized services is recommended. Don’t forget that when choosing the right business banks, it helps if you first read their reviews. We have reviews that might help you choose the right bank for your business, like Axos Review, Lili Review, and Capital One Review.
Step 3 – Gather Required Documents
Once you’ve identified which bank account you will open, it’ll be easy to determine what kind of documents you’ll need to open a business bank account. Banks provide related details on their websites, so check the business bank account requirements before proceeding to the next step.
You’ll need identification documents and documents verifying your business’s legitimacy and identity. If you have a limited liability company, ensure that you provide the LLC operating agreement document. Ownership agreements are necessary for partnerships.
Step 4 – Open Your Business Bank Account
You’ll need to visit a branch location or use an online portal, if provided, to open an account. The process will involve submitting information and documents required for a business account. If you meet the requirements, you’ll have your new business bank account opened within minutes. You can even open your business account online with Bluevine.
Step 5 – Deposit Funds
Depositing funds into your account is the last step of the process. You can do this through cash deposits, wire transfers from a personal checking account, or writing a check to your business. Once you’re through with this, your new account will activate and be ready for transactions.
What Is a Business Bank Account?
A business bank account is a transaction account that enables you to make transactions and receive money in your company’s name.
With a business bank account, you can receive client payments, pay your employees, save profits, and withdraw cash for day-to-day business expenses.
Banks and credit unions design business accounts to cater to businesses’ specific needs. They achieve this by including features such as invoicing and payroll.
Types of Business Bank Accounts
There are several types of business bank accounts, each suitable for particular businesses and needs, including:
- Business checking accounts
- Business savings accounts
- Merchant accounts
- Business certificate of deposit accounts
Business Checking Account
A small business checking account is designed for day-to-day cash deposits and withdrawals. Business checking accounts typically have monthly account fees. When you open a business checking account for your company, you’ll have access to a myriad of deposit and withdrawal options, including:
- Wire transfers
- Electronic transfers
- Mobile check deposit
- ATM transactions
- Checks
- Debit card transactions
The various withdrawal and deposit methods make it easy to access funds for daily small business expenses and safely transfer earnings to your account. Some of the best business checking accounts integrate with tools such as accounting software to simplify bookkeeping.
Business Savings Account
If you have company funds that you don’t intend to use for recurring business expenses, it’s best to put them in a savings account. Business savings accounts hold funds that earn competitive interest.
While a business checking account allows unlimited withdrawals, you can only make six fee-free withdrawals from your savings account each month. The savings bank account model isn’t meant for constant withdrawals. Once you exceed six withdrawals, your bank will charge you transaction fees for every additional withdrawal.
Banks make money by loaning your savings to others at high interest rates, then paying you a lower interest. Exceeding transaction limits affects the bank’s ability to make a profit, paving the way for fees and penalties.
Merchant Account
Do you intend to accept credit cards and debit card payments from your customers? If so, you’ll need a merchant account.
A merchant services account accepts and processes credit card payments and debit card transactions. You must first open a checking account to use this type of account. When customers pay using cards, the funds go to the merchant account before being transferred to your other business bank account.
Merchant services accounts come with fees separate from the business bank account you’ll be transferring your money to. These include fees for credit card transactions, address verification fees (AVS) and monthly minimum fees. Before opening a merchant account, it’s crucial to determine whether your small business earnings are worth the costs.
Learn about what a Merchant Cash Advance is and how it can benefit you if you accept both credit cards and debit card payments.
Business Certificate of Deposit Account
A business certificate of deposit (CD) account allows you to save money while earning you more interest than a basic savings bank account.
When you deposit money into a CD account, you agree not to make a withdrawal within a specified period. The longer you keep your money untouched in your CD account, the higher the interest you’ll earn.
Withdrawing money from your CD account before maturity leads to steep penalties. If you need to access your savings before the set period, it’s best to consider opening a standard savings account instead.
What Do I Need to Open a Business Bank Account
Here are the most common requirements for opening a business bank account.
- Employer Identification Number (EIN) or Social Security number (SSN)
- Personal Identification
- Business Licenses
- Certificate of Assumed Name
- Organization Documents
Employer Identification Number or Social Security Number
The Internal Revenue Service assigns you an Employer Identification Number (EIN) for identification. You’ll apply for an EIN when starting your business.
An Employer Identification Number is required to prove your company’s identity when opening an account. Some banks allow sole proprietorships to use the owner’s Social Security number in place of an EIN. Here’s how you can open a business account with EIN only.
Personal Identification
You’ll need to submit documents proving your identity, usually a driver’s license or passport. Banks check identification documents to ascertain your identity and connection to the business you’re representing.
Business Licenses
When you start your small business, you must apply for business licenses from your local or state government to show that you’re authorized to operate. Banks will need to see your business licenses to prove the existence and legitimacy of your company. A business license also holds vital identification details such as the owner’s name and the business name.
Certificate of Assumed Name or DBA
An assumed name is a term that your business trades as but differs from the legal business name.
For instance, let’s say your business’s legal name is XYZ Spa, but you decide to trade as XYZ’s. In this case, XYZ’s is your assumed business name, and you’ll need to file it with your state. Officially, it’s referred to as a “doing business as” (DBA) name.
If you apply for a DBA, you’ll be required to provide a copy of the filing documents to your bank when opening business bank accounts. Find out more about opening a DBA checking account here.
Organization Documents
Before a bank or credit union allows you to open an account for your business, they’ll need information regarding the following:
- The activities your company participates in
- The managerial structure
- Owners
- Business address
- Registered agents
When registering your company, various organization documents you’ll file with your state or the local government will include these details. Therefore, you must gather all the documents to register your bank account.
Benefits of Opening a Business Account
Opening a business bank account comes with many benefits, including:
- Easier accounting of business funds
- Builds your business’s credit history
- Provides convenient access to company funds
Easier Accounting of Business Funds
As a sole proprietor, you can use your personal accounts for your business needs. However this presents several challenges.
For starters, when doing tax reports, you’ll have a more challenging time separating your personal and business finances. This could prevent you from enjoying business tax deductions that you qualify for.
Secondly, mixing up personal and business finances makes it difficult to track company cash flow and determine your business’s financial status.
A business bank account for sole proprietors that only holds your company’s funds makes accounting and tax reporting a breeze.
Builds Your Business’s Credit History
Lenders will check your company’s credit score for certain business loans instead of your personal credit. Opening a business account allows you to build your company’s creditworthiness to improve your chances of credit approval in the future. Also, some lenders will require you to have a business account to access loans or apply for a business credit card.
In case you have poor credit but need a loan, having a business checking bank account allows creditors who offer bad credit business loans to create cash flow projections to determine whether to approve your request.
Provides Convenient Access to Company Funds
If another person at the company, perhaps a partner, has access to business funds, it’s inconvenient to use your personal bank accounts for business purposes. A business bank account is a safer arrangement.
Also, with a business bank account, you can apply for business debit cards that authorized staff can use for ATM transactions and purchases. This is more convenient than making withdrawals at a branch whenever you need cash.
Frequently Asked Questions (FAQs) for How to Open a Business Account
Final Thoughts on How to Open a Business Bank Account
Opening a bank account for your small business is crucial for effective cash management and will be invaluable when applying for business loans or business lines of credit in the future. Before choosing a bank, take the time to read reviews and make an informed decision.
To help you get started, check out our Novo review, Bluevine review, and Bank of America review. Always prioritize finding a bank that aligns with your business’s unique needs.
Best Business Bank Accounts by State
Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.
