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Home » Business Bank Account » How to Open a Business Bank Account

How to Open a Business Bank Account

Author: Chandra Dhopatkar
Published: 03/14/2024 2:43 a.m. EST
Last Update: 03/14/2024 2:43 a.m. EST
Edited by: Jennifer Bonilla

Learn how to open a business bank account. Then research banks, prepare your documents, and apply via your preferred method.

Business person opening a business bank account online holding his business formation documents.
Business person opening a business bank account online holding his business formation documents.

Opening a business bank account is an important step for any new business owner. It not only helps in managing your company’s finances separately from personal ones but also plays a role in establishing your business’s financial credibility and helps with building business credit. Here’s what you need to know to get started:

  • Research: Start by researching financial institutions to find one that best fits your business needs. Consider factors like account fees, balance requirements, and whether the bank offers online banking capabilities.
  • Gather Documents: Depending on your business structure, you’ll need to gather necessary documents, such as your employer identification number (EIN), business license, and articles of incorporation.
  • Apply: You can apply for a business bank account online, via an app, or in person at a branch. Be prepared to provide detailed information about your business and the owners.
  • Deposit: Once your account is open, you’ll need to make your first deposit, which may vary from bank to bank. This step officially activates your account.

Why You Need to Open a Business Bank Account

Opening a business bank account is essential for separating personal and business finances. This separation is critical for financial management, legal protection, and tax purposes. Here’s why it’s necessary:

  • Financial Management: You need an account to manage your business income for accounting purposes, running payroll, and paying other expenses. 
  • Build Business Credit: A business checking account helps you pay your net 30 accounts and is needed to build business credit and necessary when applying for many business loans and business credit cards.
  • Professionalism: Accepting payments in your business’s name enhances credibility with customers.
  • Accountability: It simplifies accounting practices and makes tax preparation easier when filing with the IRS and your state and local governments.
  • Protection: Personal asset protection is enhanced when your business finances are distinct from personal ones. Having a separate business account protects you from piercing the corporate veil.

Starting With Business Banking: Bank Choice & Docs

Choosing the right bank and preparing the necessary documents are the first steps in business banking. Here’s how to start:

  • Bank Selection: Look for a bank that understands your industry and offers tailored services, such as merchant accounts for card payments or specific online banking tools.
  • Documentation: Collect the required documents. These will include your EIN, business license, and depending on your business structure, possibly your articles of incorporation or social security number for sole proprietors.

Selecting a Bank for Your Small Business

When selecting a bank for your small business, consider the following:

  • Services Offered: Ensure the bank provides the specific services your business needs, such as online banking, payroll services, and merchant services for accepting credit card payments.
  • Fees and Balance Requirements: Compare account fees and minimum balance requirements. These can vary from bank to bank and can significantly impact your business finances.
  • Customer Service: Access to a knowledgeable and responsive banker can be invaluable, especially for complex business needs or issues.
Recommended: Read our review of the Best Small Business Checking Accounts in 2024.

Necessary Documents to Open a Business Account

The documents required to open a business bank account can include:

  • For All Businesses: Employer Identification Number (EIN), business license, and personal identification for the business owner.
  • Additional Documents: Articles of incorporation for corporations, or a social security number for sole proprietors. Each financial institution may have its list of necessary documents.
Recommended: Read our guide What Do You Need to Open A Business Bank Account?

Docs for Sole Proprietor Business Account

Sole proprietors need to provide:

  • Personal identification (e.g., driver’s license or passport).
  • Social security number (unless you have an EIN).
  • Business license or name filing document, if applicable.

LLCs/Corporations: Account Opening Docs

For LLCs and corporations, the required documents often include:

  • Employer Identification Number (EIN).
  • Articles of incorporation or organization.
  • Business license.
  • Operating agreement for LLCs.

How to Open a Business Bank Account Step-By-Step

To open a business bank account, follow these steps:

  1. Choose a Bank: Select a bank that suits your business needs, considering factors like services offered, fees, and account features.
  2. Gather Documents: Collect all necessary documents, which may include your EIN, business license, and articles of incorporation.
  3. Application: Apply for the account using your chosen method: online, through an app, or in-person.
  4. Deposit: Make the initial deposit required to activate your account.

Application Methods: Online, App, In-Branch

Business owners can apply for a bank account through various methods:

  • Online: Convenient and fast, allowing you to apply from anywhere.
  • App: Many banks offer mobile apps for account application and management.
  • In-Branch: Provides a personal touch and direct access to a banker for any questions.

Completing Your Business Account Application

When completing your application, be prepared to provide:

  • Business information (name, address, industry).
  • Personal information for all owners.
  • Required documents (EIN, business license, etc.).

Making Your First Business Account Deposit

The first deposit:

  • Varies by bank, but is typically a set minimum amount.
  • Officially activates your account.
  • Can often be made by transfer from another account, check, or cash.

Understanding Types of Business Bank Accounts

Types of business bank accounts include:

  • Checking Accounts: Ideal for daily transactions, paying bills, and handling payroll. Many business bank accounts offer purchase protection for your customers, enhancing trust and credibility.
  • Savings Accounts: Essential for setting aside funds separate from your personal and business operating funds, aiding in financial management and preparation for future expenses.
  • Money Market Accounts: Offer higher interest rates than savings accounts, with the flexibility of some checking features, like debit card access to your funds.

Exploring Business Checking Account Options

Business checking accounts are foundational for managing day-to-day financial transactions and banking tasks on behalf of the business. When exploring options, consider:

  • Transaction Limits: Some accounts offer unlimited transactions, crucial as your business grows.
  • Fees and Minimum Balance Requirements: Assess the fees and whether maintaining a minimum balance can waive them.
  • Access and Ease of Use: Online banking, mobile apps, and ATM access are key for convenient money management.

Benefits of Business Savings Accounts

Savings accounts for businesses offer several benefits, including:

  • Helping keep business funds separate from personal accounts, crucial for clear financial records and tax preparation.
  • Providing a reserve for unforeseen expenses or future investments, contributing to the financial health and stability of your business.
  • Some accounts may offer the option for a line of credit based on your savings, which can be beneficial for short-term financing needs.

Money Market Accounts for Businesses

Money market accounts for businesses are an excellent choice for those who seek:

  • Higher interest rates than traditional savings accounts, improving your business deposit balances over time.
  • Flexibility in access to funds, often allowing for debit or credit card transactions, which is not always possible with other types of savings accounts.
  • An optimal mix of saving and spending features, suitable for businesses that require a physical presence and robust financial flexibility.

Selecting Business Account Features for Your Needs

To select the right business account features, consider:

  • Transaction Needs: Whether you need to manage many transactions monthly or just a few, ensuring your account supports your activity level without excessive fees.
  • Online and Mobile Banking: For managing your business finances efficiently, look for robust online banking and mobile app functionalities.
  • Merchant Services: If you accept credit and debit card payments, merchant services accounts are essential for processing these transactions smoothly and offering purchase protection for your customers.

Why Unlimited Transactions Matter

Unlimited transactions in a business checking account can be crucial as:

  • They allow for the flexibility needed as your business grows and transaction volumes increase.
  • This feature helps avoid unexpected fees associated with exceeding transaction limits, which can vary significantly from bank to bank.
  • Unlimited transactions enable businesses to conduct as many banking tasks as necessary without worrying about additional costs.

Merchant Services & Credit Card Acceptance

Merchant services accounts enable businesses to:

  • Accept credit and debit card payments, essential in today’s digital and fast-paced market.
  • Offer secure and efficient payment processing, improving the customer experience.
  • Potentially access additional features like online payment gateways, point-of-sale systems, and more, which can help you manage card transactions and credit history effectively.

Considerations for Additional Account Features

When considering additional account features, evaluate:

  • Credit Options: Lines of credit or credit card accounts can provide vital cash flow support.
  • Digital Tools and Support: Look for banks that offer tools and support to help you manage your business finances, including integration with accounting software.
  • Safety Features: Features like fraud protection and alert systems for unusual activity can protect your business financially.

Benefits of a Business Checking Account

The benefits of having a dedicated business checking account include:

  • Ensuring your business funds are separate from your personal finances, a critical aspect of professional money management and personal liability protection.
  • Providing a centralized place for all business transactions, simplifying accounting practices and tax preparation.
  • Enhancing your business’s professionalism and credibility with customers, vendors, and partners by conducting transactions under the business name.

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FAQs

What do I need to open a business checking account for my small business?

To open an account for your small business, you’ll likely need a business license, identification, and a deposit account agreement. For a sole proprietorship, without an EIN, your SSN might suffice. Ensure to separate from your personal funds according to the Small Business Administration guidelines.

Can I open an account for my business online, or do I need to visit a branch?

You can often open an account online, saving time. However, some banks require in-person visits to verify documents or complete the deposit account agreement. Contact your banker to confirm the process.

What types of accounts include features beneficial for a small business?

Accounts include checking and savings with business tools like online banking, a business debit card, and business credit options. Review what product appears on a page for specifics on how these products we write about could influence our evaluations.

What are the key considerations when selecting a business checking account?

Consider fees, availability of a business debit card, transaction limits, online banking features, customer service, and additional business tools. The account cannot be a misfit for your transaction volume. Taking time to review options is important.

What documentation is required for a sole proprietor to open a business account?

If you’re a sole proprietor you’ll need a photo ID, SSN (without an EIN), and business registration proof. A deposit account agreement is also necessary for both checking and savings accounts. Banks may request more documents to verify your business.

How can a business checking account help manage my small business finances?

A business checking account keeps business transactions separate from your personal funds, aiding in financial tracking, tax preparation, and legal clarity. Features like online banking and a business debit card support effective financial management.

Does my business need an EIN to open a checking account?

While many banks require an EIN for corporations and partnerships, a sole proprietor can sometimes open an account within certain banks without an EIN, using their SSN. However, obtaining an EIN is beneficial for tax and credibility reasons. Contact your banker for specific requirements.

Chandra Dhopatakar
Chandra Dhopatkar, MBA

Chandra, founder of “Build Business Credit in 30 Days,” specializes in increasing business valuations by helping companies build strong business credit.