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
It only takes minutes to open a business bank account, but a few steps are needed to organize documents and prepare. You’ll also need to consider what type of account you should get, whether that be a simple business checking account, business savings account or a business credit card account.
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 account 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 account:
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 make all their purchases with cash in 2021, so accepting alternate forms of payment is vital to most small businesses’ success. A merchant services account allows an organization to accept credit card payments and debit card transactions. Other alternative payment processing services available through various merchant accounts include online payments through systems like PayPal and Shopify, as well as point-of-sale options like Square.
3. Select a Bank
A new small business owner might be tempted automatically to open their business bank accounts with whatever financial institution they use for their personal bank account, but there might be better options available. Be sure and check out the various services offered by different banks, and possibly consider banks that specialize in financial services for small businesses or companies within your industry. More specialized offerings could turn into better access to credit, increased profits and overall better business financial operations.
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 minimum balance is maintained
- Competitive transaction and introductory fees
- Competitive introductory offers
4 . Research the Fees Associated with Business Bank Accounts
How much will the business bank account cost? Most banks charge fees, although many waive some of them when certain criteria like minimum balances are met. Before opening a small business bank account, be sure and understand what sort of costs, including items like interest on loans and credit card transaction fees, are attached to it. Common fees billed to 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 for anyone with at least 25% ownership in the business.
6. Open Your Account
Are you ready to open your business bank account? Typically, a business bank account can be opened in person at a local bank branch or online. Some people prefer the extra service provided through face-to-face interactions, while others like the convenience of applying for their business bank account online from their home computers. Obviously, business online banking will only have the option to open a small business bank account on the web, although most offer telephone assistance. Regardless of which method you choose to apply for your account, be sure to have all of your required documents organized and ready to either present to a banker or submit on the bank’s website. And remember, you shouldn’t 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 money is in the account, it is ready to use.
What do you need to open a business bank account?
Always check with the individual bank for a list of requirements to prepare for opening a business checking account. Similarly, you should also ask yourself what to look for in a small business bank account. Common information and documentation required for opening 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
- Articles of organization if the business is an LLC, along with 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 required to open a business bank account varies by institution. Some banks will open a new account with a $0 balance, while others might require an initial deposit varying from $5 to $1,000, depending on the type of bank account.
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