Many business owners opt to create business bank accounts after launching their startups. They can turn to traditional banks, credit unions, and online banks to get started. While you can run a business with a personal bank account, it becomes more complicated as your business grows. Creating a business bank account requires several documents, but once you know the process, it can feel more straightforward to open an account.
Why You Need a Business Bank Account
A business account offers several perks that you can’t get with a personal account. These are the highlights.
Separation of Personal and Business Finances
Keeping your personal finances separate from your business shields you from personal liability. If your limited liability company gets sued, only your business assets are at risk. Meanwhile, your personal assets are safe. It’s also easier to allocate money for small business expenses and personal expenses.
Simplified Taxation and Accounting
Separate bank accounts allow you to track transactions, knowing exactly what they’re for. If you have a personal checking account for your company, you’ll have to decipher which transactions are personal and which ones are business expenses that you can write off. You will save time and money when filing taxes if you keep these accounts separate.
Professional Appearance
Having a business bank account makes your company seem more legitimate. This account can also make it easier to get a business debit card or a credit card, which adds to the professional look. It gives off a strong first impression to potential clients and partners.
Builds Business Credit to Obtain Financing
A business checking account allows you to build business credit, which is essential for obtaining business loans. While personal loans can help small companies or service providers, business financing allows companies to borrow millions of dollars. Business loans and lines of credit offer more versatility and higher amounts than personal loans.
What Do You Need to Open a Business Bank Account?
You will need several documents to open a business bank account. These documents help to verify your ID, your company’s ID, and other details. Some banks may also require a minimum deposit.
Required Documentation
Make sure you have these documents ready to go before you apply for a business bank account. You’ll need a few more documents for a business bank account than you would need for a personal checking account.
Personal Identification
A government-issued photo ID is sufficient personal information for banks to verify your identity. You may also have to provide your Social Security number, especially if your company is set up as a sole proprietor by default.
Business Identification
You will have to provide the name of your business and supporting documents.
Business Licences and Permits
Some companies require licences and permits to operate, especially local businesses. You will have to provide these documents as part of opening a business bank account.
Operating Agreement or Partnership Agreement
The operating agreement outlines the rules and policies that govern a business. Operating agreements are for LLCs, while partnership agreements are for partnerships, but they both provide rules that the business owners must follow.
IRS Employer Identification Number (EIN)
An EIN identifies your business for tax purposes. It’s the corporate equivalent of a Social Security number. Sole proprietors may have the option to use their Social Security number instead of an EIN to open a business bank account.
Ownership Agreements
This agreement lays out the rights and permissions of each owner within the business. You will have to provide this document if you are in a partnership or an LLC with multiple individuals.
Additional Considerations
You’ll need several legal documents to open a business bank account, and it can be a tedious process. That’s why it is important to do your research and choose the right business bank account on the first or second try. These are some of the considerations to keep in mind.
Minimum Deposit Requirements
Some banks require that you make a small minimum deposit for your business, but a few of them ask for large deposits to get started. Make sure the requirement is reasonable for your finances. You can also get started with a bank that has no minimum deposit requirement.
Bank Fees and Charges
Fees and charges are common in the banking industry, but some business bank accounts are excessive with transaction fees once you exceed the bank’s limit. You may also have to contend with a monthly maintenance fee if you do not fulfill a high minimum balance requirement. Check the fees for each business bank account before going through the process of opening one.
Types of Accounts Available
Business owners can choose from several types of business bank accounts, such as checking and savings accounts. Comparing the different types of bank accounts can help you find the right set of accounts for your company.
Steps to Open a Business Bank Account
Ready to open a business bank account? Following these steps will make the process quicker.
Research and Choose the Right Bank
You shouldn’t go with the first business bank account you find. Comparing several options will give you a better idea of what to expect and which features help an account stand out.
Prepare Your Documentation
Once you determine the proper business bank account for your needs, the next step is to gather the necessary documents. It’s a good idea to keep them all in one place so you can easily refer back to them for future applications.
Schedule an Appointment or Visit a Branch
You will have to visit a local branch to schedule an appointment to create your business bank account. It’s good to have a representative walk you through the process anyway.
Fill Out the Application
Business bank accounts have brief application forms that typically take a few minutes to complete.
Deposit the Minimum Required Amount
Some business bank accounts require a minimum deposit to get started. Even if you don’t need to make a minimum deposit, it’s still good to put some money in your account when getting started.
Activate Online Banking and Order Checks
The final step is to download the mobile banking app for your business bank account. You can then order checks so you can write them against your business bank account’s balance.
Conclusion: Using a Business Bank Account to Grow Your Business
A business bank account is a useful financial resource for growing your business. You can separate your personal and business assets while making your company look more professional. A business bank account also allows you to build business credit, which can help you qualify for enticing loans in the future.
Many banks that offer these accounts include several perks, such as a welcome bonus or discounts from various partners. These benefits can help you save and earn money shortly after opening your business bank account. Once you open your first business bank account, it’s possible to quickly open another.
Some business owners like to create checking and savings accounts for their businesses. Creating multiple accounts also allows businesses to distinguish how they want to use funds within their accounts.
Opening a business bank account is a long process for most owners. However, it’s a worthwhile process that will create new possibilities for your company.
FAQs About Business Bank Account Requirements
Yes. It is possible to open a business bank account online. Some financial institutions that offer these accounts operate entirely online.
You typically need to have a registered business to open a business bank account. One notable exception is if you are a sole proprietor and want to open a business bank account. Under that scenario, the bank may allow you to provide a Social Security number in lieu of an Employer Identification Number. Some banks only let you open an account if you have an EIN.
It can take 7-10 business days to open a business bank account after you submit an application. The time frame varies for each financial institution.
