Sections of this topic
Effectively managing your finances is essential to running a successful sole proprietorship. Opening a dedicated business bank account helps you track company funds more efficiently and provides access to valuable services that can support the growth of your business. Follow these four simple steps to open your sole proprietorship bank account.
>> Unlock Better Business Banking With Bluevine >>
How to Open a Sole Proprietorship Bank Account In 4 Steps
There are no shortcuts for opening a sole proprietorship bank account. The following steps show you everything you need to set one up quickly.
Step 1. Decide on a Business Bank Account Type
Your sole proprietorship may benefit from a few different bank accounts, depending on your business focus. Here are the most common bank accounts to choose from.
Business Checking Account
A business checking account will likely be the most important account you use as a sole proprietor. This account lets your business freely move funds, accept deposits from outside sources, and make necessary payments.
Whenever you need to withdraw money from your bank, the business checking account is probably the first place you’ll go. It’s essential always to keep enough money here so you don’t end up with an overdraft.
Some banks are more liberal than others in terms of how many transactions you can do in a given month. If faced with limited transactions, you’ll want to plan ahead to avoid fees. Capital One is one of the few institutions that allow unlimited digital transfers.
Business checking accounts may offer interest on the cash you’re keeping within. While a nice perk, such a perk is far from the norm. Bluevine is one of the few to step up here, giving up to 2.0% APY on up to $100,000.
Business Savings Account
If you’re able to maintain a healthy balance in your checking, a business savings account may be an option for you. These accounts work well for unexpected expenses or saving up for a large purchase down the road.
Unless a bank is a real dud, any money kept in a business savings account accrues interest at an advertised rate. You get to do business as usual and have the bank pay you a small amount.
The amount you earn in a savings account often scales depending on how much you have within. Higher amounts increase the interest rate, assuming you can afford to set aside that much cash each month.
You must be careful about taking funds out of your savings account. It’s only possible to withdraw money six times per month, potentially leaving you in a pickle if you don’t plan well. Most banks won’t let you write checks or use a debit card to pull money from your savings.
Business Money Market Account
Business money market accounts function like savings accounts but come with several additional perks. You can usually find higher interest rates here while writing checks or using debit cards to draw out cash as needed.
This flexibility can come with a literal cost, as money market accounts often charge unavoidable fees. If there’s a way to waive fees, it will be through high monthly balance requirements. There’s usually a large initial deposit to open an account in the first place.
Business Certificate of Deposit (CD) Account
Business Certificates of Deposit accounts are the cream of the crop for earning interest but are very rigid by design.
When you open a CD account, you agree to leave that money alone for a certain period. This interval, known as the term of the CD, can range from months to years.
The longer the duration of the CD, the more interest the account will earn. The amount of money you can put in is also a significant factor.
Before using a CD account, ensure you’re setting aside money you won’t need for any reason. You’ll be penalized heavily for withdrawing funds from a CD and likely lose out on whatever benefit the account offered in the first place.
Merchant Account
Sole proprietorships wishing to accept credit or debit card payments from customers will need a merchant account. These accounts act as a temporary holding location for these funds before finding a permanent home among your other accounts.
The bank or point of sale service you choose for your merchant account may have hardware or software you’ll need to install before accepting payments. Check for associated one-time or recurring equipment fees before signing up. In addition, be prepared to have the service take a small transaction fee each time a customer swipes their card.
Contracts for a merchant account typically last one to three years. You can’t take payments from plastic without one, but some point-of-sale options are better than others.
>> Apply for a Bluevine Business Account >>
Step 2. Find the Ideal Bank
With knowledge of the available account types, you can now start looking for the optimal bank for your sole proprietorship. Keep the following factors in mind when searching so you don’t incur unruly expenses or miss out on a feature your business needs.
Fees
Banks earn their keep in different ways, but these always involve fees for the customer. These fees can range from monthly service charges to costs for using certain services.
Don’t be too shocked if most of the banks you look at have regular maintenance fees for account upkeep. The best bank accounts have ways to waive these charges by meeting specific requirements. Lili and Axos are among a few online options that advertise completely free business banking accounts.
Most business checking accounts limit transactions and cash deposits. Exceeding these limits will result in per-transaction fees that can add up quickly. Being mindful of your money flow can help avoid penalties.
Charges can appear for out-of-network ATM use or wire transfers going either way. Banks may offer some business services for free while assigning costs to others. Be sure to read all the fine print so you know what you’re getting yourself into.
Required Minimums
As you start your journey with a bank, you may have to put down an initial deposit. Accounts with higher initial deposit requirements offer better perks, so you may have to save up a bit if you want a particular account.
After you’re up and running, the bank may ask you to keep a minimum monthly balance. If you can’t keep enough money in your account, you’ll have to deal with monthly fees you may not afford. Accounts requiring higher balances may seem appealing, but make sure your sole proprietorship can keep up with demands.
Your balance may also affect the interest rate you’ll earn in your savings, money market, or checking account. More money unlocks higher rates to supplement income from your customers.
Interest Rates
Every penny matters when running a sole proprietorship. If you can set aside a rainy day fund, you can use a savings or money market account to earn some interest on cash you already have.
Interest rates vary from bank to bank, with some offering as low as 0.01% APY for those just starting out. If you shop around, it’s possible to find a higher introductory rate. The national average sits at 0.35%, but many banks require high balances to reach such a number.
Online Banking
Long gone are the days of stuffy traditional banks with sparse locations and long queues. Today’s institutions embrace the ability to perform most, if not all, of your financial operations online.
Whether via the web or an intuitive mobile app, it only takes a few button presses to send money, request a transfer, or view your account balances. Many banks allow you to deposit checks using your phone’s camera.
Some online banks lower fees by eliminating physical locations. If you need to locate an ATM or a branch, the mobile app can help.
Having this flexibility with your finances enables you to bank on your time, allowing you to focus on your business instead. If a bank doesn’t dabble in online banking, it may not be worth doing business with.
Business Services
Banks use business services to stand out among the competition. Top offerings include fraud protection on your account, payroll solutions, or lending options to lock in that big purchase. The sky’s the limit, so look around for features that work for your sole proprietorship.
Others may hand out sign-on bonuses for becoming a member or a rewards system with perks depending on how often you bank. If you run an e-commerce business, banks like Novo integrate with Shopify and Etsy to facilitate your cash flow.
Ease of Use
Lastly, don’t forget to consider how easy a bank is to work with. Check customer service hours and read reviews to understand how a bank operates. Clunky or outdated web interfaces or apps can wreak havoc when you’re trying to shift funds before a big expense hits.
>> Bluevine for Better Business Banking >>
Step 3: Gather Your Documentation
After selecting a bank, you must gather your business’s documentation to open your account. No two banks are the same for paperwork, but bringing the following for a sole proprietorship should suffice:
Business Name and Address: You must show the bank your sole proprietorship’s legal name and the address where you do business.
Doing Business As Certificate: Sole proprietorships use the owner’s first and last name as the company’s legal business name. If you want to do business under a different name, you must request permission from the local governing body. You’ll receive a “doing business as” certificate allowing you to run your store under another name.
Social Security Number or Employer Identification Number: Sole proprietors can open a bank account using their Social Security number (SSN) for tax purposes. Alternatively, you can request an Employer Identification Number (EIN) for free from the IRS. Using an EIN helps differentiate business dealings from your personal assets.
Business License: Once your business becomes official, you’ll receive a business license permitting you to operate in a particular area.
Government-Issued Photo ID: You’ll need to prove you’re the legitimate owner of your sole proprietorship with a photo ID. This can be a passport, driver’s license, or the like.
Personal Information: Alongside your ID, you’ll need a certificate with your name and date of birth.
Step 4: Apply for an Account
With research complete and documents in hand, it’s time to apply for your account. Most of the time, the process is relatively painless and can sometimes be completed online.
Otherwise, you must visit a local branch with your documents in tow. A banker will pore over your application and make sure everything checks out. It’s worth contacting the bank before you arrive to ensure they’re not looking for out-of-the-ordinary paperwork.
Most banks will set up your account right on the spot, but others may take a few business days to complete the process. Although uncommon, some institutions may request a credit report.
If signing up online is an option, you must submit all your documents through the bank’s secure portal. FinTech companies like Lili cut the processing time down to a few minutes so you can start doing business right away.
You’ll also want to bring a check or have the means to transfer funds into your account if a bank requires an initial deposit.
>> Manage Your Business Finances With Bluevine >>
Why Sole Proprietorships Should Open Business Bank Accounts
No law requires a sole proprietorship to open a business bank account, but it’s still a good idea. Here are some of the top reasons to have an account solely for your business.
Access to Financing
Your sole proprietorship may need a loan or other form of business financing. Lenders typically require you to have a business checking account to verify how much money flows through your venture in a given month. If you can’t prove you can repay your loan over time, you won’t receive one.
Professionalism
Having a business bank account in your company’s name looks very professional in the eyes of potential customers or business partners. With so much distrust on the internet, shoppers may think twice about sending money to a personal bank account. You can also use business dealings to promote your company instead of just your name.
Simplifying Tax Time
Preparing your business taxes is a challenging process, and not having clear lines between personal and business expenses just complicates things more. Knowing what you owe will be much simpler when all your sole proprietorship’s dealings pass through one account. Any grey areas won’t look good on paper and could give the IRS a reason to audit your finances.
Proper Bookkeeping
As a business owner, you must track all incoming and outgoing funds to see how your company is doing. Not knowing whether your business is in the red or black is a recipe for disaster. A separate bank account for your business allows you to track all this data in one place.
Credit Card Payments
With a business bank account, you can accept credit and debit card payments from your customers. You’ll have to devise other payment methods for your products or services without one.
>> Apply for a Bluevine Business Account >>
Open a Sole Proprietorship Bank Account Frequently Asked Questions (FAQs)
Want to learn more about opening a sole proprietorship bank account? This FAQ may have the answers you’re looking for.
Bottom Line on Opening a Sole Proprietorship Bank Account
Although it’s not mandatory, opening a bank account for your sole proprietorship is a smart business move. Separating your business transactions from personal finances can benefit you greatly. Fortunately, the process is straightforward: determine the type of account you need, select a bank that meets your requirements, and then gather your business documents to sign up online or in person.
>> Manage Your Business Finances With Bluevine >>
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.
Noah is an American copywriter on a mission to help clarify the nuances of the business world through unique insights stemming from backgrounds in both engineering and the medical field. When not working, you’ll likely find him running or traveling.
