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Sole Trader Business Bank Account: Best Review & Guide

Author: Chandra Dhopatkar
Published: 03/24/2024 1:18 a.m. EST
Last Update: 03/24/2024 1:18 p.m. EST
Edited by: Jennifer Bonilla

While not mandatory, a sole trader business bank account offers cleaner bookkeeping, smoother taxes, and a professional image. Weigh factors like monthly fees, online features, and branch access to find the right fit for your business needs.

This review and guide will help you understand the advantages of having a separate business bank account and will guide you through the process of choosing the right one for your sole trader business.

Best Sole Trader Business Bank Accounts

We reviewed the best business bank accounts for sole proprietorships. We specifically focused on banks that offered a sole trader bank account.

These accounts differ from a personal bank account, helping you to keep business and personal finances separated.

Here are the banks that top our list. 

1. Axos Bank:

As a sole trader, keeping your personal and business finances separate is crucial. Axos Bank offers a sole proprietorship bank account, the Basic Business Checking, with no monthly fees and unlimited transactions, allowing you to focus on running your business. You can open a business bank account online quickly and easily.

Pros:

• No monthly fees with their Basic Business Checking account.
• User-friendly online banking platform.
• High-yield savings account option.

Cons:

• Limited physical branch access (mostly online).
• May not be ideal for businesses needing frequent cash deposits.

Notes:

• Axos offers various business financial products besides checking accounts.

2. LendingClub:

Need a business bank account to manage your sole proprietorship’s income and expenses? LendingClub offers options designed for sole proprietors. Explore their offerings to find the best account for your business needs and open an account online.

Pros:

• Tailored Checking Account offers interest on deposited funds.
• Potential access to lines of credit.
• Relatively low monthly fee ($10) compared to some competitors.

Cons:

• Newer player in the banking scene compared to established institutions.
• Limited physical branch access, similar to Axos.

Notes:

• Considers factors beyond just credit score when evaluating loan applications.

3. Wells Fargo:

Sole traders, take note! Wells Fargo provides a variety of business bank accounts, including options for sole proprietorships. Choose a bank that understands your business needs. Visit their website to learn more about their bank accounts for sole proprietors.

Pros:

• Widespread branch network for easy access and cash deposits.
• Offers various business banking features like merchant services.
• May be familiar to those already using Wells Fargo for personal banking.

Cons:

• Monthly fees can be higher than some online options.
• Recent controversies may influence some sole proprietors.

Notes:

• Consider minimum balance requirements to avoid monthly fees.

4. Chase Business Complete Banking:

Opening a business as a sole trader? Chase Business Complete Banking offers a suite of services to help you manage your finances. Look for a business account that simplifies managing your business income and expenses. They cater to many business types, so you can choose a bank that fits your needs.

Pros:

• Comprehensive suite of business banking services.
• Large ATM network and branch access.
• Potential for perks like sign-up bonuses and rewards programs.

Cons:

• Monthly service fee with no easy waiver option for sole proprietors with low volumes.
• Might be overwhelming for those just needing basic banking features.

Notes:

• Consider if the bundled features justify the monthly fee for your business needs.

5. Bluevine:

Sole trader running a business? Bluevine offers solutions for you. Separate your personal and business finances with a dedicated business bank account. They understand the needs of sole proprietors and offer a streamlined process to open a sole proprietorship bank account.

Pros:

• High-yield interest on checking accounts.
• 24/7 customer support.
• Rebates ATM fees, potentially saving on cash access costs.

Cons:

• Not a traditional bank (fintech platform with bank partnerships).
• Limited check-writing capabilities compared to some banks.

Notes:

• Ensure the check limitations align with your business needs.

Choosing the right bank depends on your specific needs:

• Consider factors like monthly fees, minimum balance requirements, branch access, online banking features, and potential for interest or rewards.
• Sole proprietors with mostly online transactions might prioritize low fees and online banking tools, while those needing frequent cash deposits might value physical branches.

What is a Sole Trader Business Bank Account?

A sole trader business bank account is a financial account for self-employed individuals conducting business under their own name. This specialized account separates personal and professional finances, ensuring clarity in financial transactions.

For the sole proprietor, a dedicated business bank account simplifies tax reporting and accounting processes while fostering credibility with clients and suppliers alike. 

By maintaining distinct accounts, solopreneurs can better track cash flow, monitor expenses, and manage revenue streams effectively.

Moreover, having a sole trader business bank account allows entrepreneurs to build a solid credit history for their venture. Lenders often scrutinize these accounts when considering loan applications or lines of credit for small businesses. 

A well-maintained business bank account reflects financial responsibility and competence in managing company finances, which can be instrumental in securing favorable lending terms. 

Ultimately, establishing a separate banking identity as a sole trader signifies professionalism and commitment to success in the competitive entrepreneurial landscape.

Should You Open a Separate Business Bank Account?

So, you understand what a sole trader business bank account is, but is it really necessary? While it’s not mandatory to have a separate account, there are some advantages to consider. Let’s explore the pros and cons of opening a dedicated business bank account as a sole trader.

The Advantages of a Separate Business Bank Account

Keeping your business finances separate from your personal life offers several benefits. Here are some key advantages of opening a sole trader business bank account:

• Simpler Accounting: Having a separate account for your business transactions makes it easier to track income and expenses, simplifying your accounting process.
  
• Tax Preparation: It becomes much more straightforward to identify deductible expenses and report income for tax purposes.
  
• Professionalism: A business bank account can enhance your credibility and professionalism in the eyes of clients and suppliers.
  
• Access to Business Services: Banks often provide additional services to business account holders, such as merchant services, credit lines, and business advice.
  
• Free business bank account for sole proprietorship: Many business bank account for business offerings are free. Opening a business checking account using the above list of the best sole proprietorship business bank accounts you’ll find some free options. Most of these banks offer a business bank account to keep your personal and business finances separated and the account has no monthly fees providing you maintain the minimum balance requirements.

Potential Drawbacks

While there are clear advantages, it’s important to consider all aspects. There might be some potential drawbacks to consider, like:

• Additional Fees: Some business bank accounts come with higher fees compared to personal accounts, which can eat into your profits.
  
• Minimum Balance Requirements: You might be required to maintain a minimum balance, which can be a challenge for businesses with fluctuating income.
  
• Complexity: Managing multiple accounts can add an extra layer of complexity to your financial management.
  

Making the Decision: Separate Account or Not?

We’ve explored the pros and cons, but the decision ultimately depends on your specific situation. Here’s a framework to help you decide whether a separate business bank account is right for you as a sole trader:

• Assess Your Business Finances: Consider the volume of transactions and whether separating them could simplify your accounting and tax preparation.
  
• Evaluate the Costs: Compare the fees and requirements of business accounts against the benefits they offer to determine if it’s worth it for you.
  
• Consider Your Business Goals: If you’re planning to grow your business or apply for loans, a separate account could present a more professional image.
  

Next Steps: Choosing a Sole Trader Business Bank Account

If you’ve decided to open a separate business bank account, congratulations! Now comes the fun part of choosing the right one for your needs. Here are some key factors to consider when selecting a sole trader business bank account:

• Monthly fees: Compare monthly maintenance fees and minimum balance requirements to avoid unnecessary charges. Some banks offer fee-waiver options if you maintain a certain balance.
• Transaction fees: Be aware of per-transaction charges for things like check deposits, ATM withdrawals (especially if using out-of-network ATMs), and wire transfers. These can add up quickly depending on your business activity.
• Branch access (physical or online): Consider how important physical branch access is for your business. Online banks may offer lower fees but limited in-person services.
• Online banking features: Evaluate the online banking platform’s functionality for features important to you, such as mobile banking, bill pay, and ease of money transfers.
• Interest on deposited funds: If you plan to keep a buffer of funds in your business account, look for an account that offers interest on your deposits.
• Customer service: Consider the bank’s customer service reputation and availability (phone, online chat, etc.) This can be crucial if you encounter issues or have questions.

Building Business Credit as a Sole Trader (Bonus Section)

For sole traders considering a separate business bank account, the move can be a strategic step towards building business credit. Although the account itself doesn’t directly contribute to credit building, it plays a role in setting a professional foundation. 

A distinct business account ensures your financial activities are neatly separated, simplifying audits and demonstrating fiscal responsibility—a key to establishing a solid credit history.

Furthermore, having a dedicated business account improves your chances of qualifying for business credit cards, which report to credit bureaus. This reporting is vital for developing a healthy business credit score, especially as you handle credit responsibly. 

Moreover, the professional image a separate account projects can enhance your credibility with lenders, potentially easing the path to securing business loans, thereby supporting your credit profile.

Key actions like monitoring your credit score, ensuring timely bill payments, establishing trade lines with suppliers who report to credit bureaus, and judicious credit use, are instrumental in building and maintaining a strong credit score. 

These practices both aid day-to-day management and also prepare your business for future credit opportunities and growth.

Another aspect to consider is the transition from operating as a sole proprietor, where you might use your Social Security Number (SSN) for business transactions, to forming a Limited Liability Company (LLC) and obtaining an Employer Identification Number (EIN). 

This legal businses formation transition raises important questions about the continuity of your business credit history.

Transitioning from Sole Proprietor to LLC: Impact on Business Credit

Transitioning from a sole proprietorship to an LLC impacts business credit significantly. As a sole proprietor, your business credit is linked to your personal SSN, making initial credit building straightforward. 

However, forming an LLC and acquiring an EIN marks your business as a separate legal entity, complicating the transfer of your sole proprietorship’s credit history to the LLC. 

Credit agencies usually view an LLC as distinct from a sole proprietor, potentially resetting your credit history.

To prevent this, engage with suppliers and vendors that report to credit bureaus early on, ensuring these relationships can transfer to your LLC. 

Also, discuss transferring your business credit card to your LLC with your card issuer to maintain credit history continuity. 

Update your business information with credit bureaus when you transition to an LLC to link your established credit history to your new EIN.

Given these issues, and the points below, we recommend starting as an LLC and not starting a sole proprietorship (sole trader business). 

An LLC provides personal liability protection, tax flexibility, and a smoother credit-building process since all credit activities are associated with the business’s EIN from inception. 

Despite the appeal of starting simple as a sole proprietor, the benefits of initiating as an LLC—such as easier credit building and enhanced legal protections—might outweigh the simplicity for those planning significant business growth. 

Conclusions Drawn

Let’s recap the key takeaways we discussed about sole trader business bank accounts. Remember, having a separate account can offer significant benefits for managing your business finances and projecting a professional image. Now is the time to take control and make an informed decision about your business banking.

What’s more though, you’ll want to consider starting an LLC to begin with to protect your personal assets and to build separate business credit. We have a special review that we’ve written specifically for general business bank accounts, which we recommend reading through if you plan on starting an LLC.

FAQs

What do you need to open a business bank account for a sole proprietorship?

To open a business bank account for a sole proprietorship, you typically need to provide your personal identification, business address, and EIN (if applicable). Some banks may also require documents to open a business account, such as a business license or registration proof. It’s essential to register your business if required by your jurisdiction.

How can a business bank account help a small sole proprietorship?

A business bank account can help a small sole proprietorship by simplifying tax reporting, enhancing professionalism, and keeping personal and business finances separate. This separation allows for clearer financial management and can provide a business advantage in tracking expenses and income.

What are the benefits of business savings accounts for sole proprietorships?

Business savings accounts offer sole proprietorships the ability to earn interest on surplus funds, providing a financial buffer and resource for future business investments or unexpected expenses. These accounts often come with features like account fee waivers or tiered interest rates to benefit the business owner.

Is it possible to set up a sole trader account online, and what are the steps?

Yes, you can set up a sole trader account online with many banks. The process typically involves filling out an application with your personal and business information, verifying your identity, and submitting documents to open a business account. Always ensure you have all necessary information and documents ready to open the account efficiently.

Why might a business owner need a business checking account in addition to a business savings account?

A business owner might need a business checking account to handle day-to-day transactions, such as paying bills and receiving payments, while a business savings account is better suited for holding funds not immediately needed, earning interest, and helping with cash flow management.

What makes the best business bank account for sole proprietors?

The best business bank account for sole proprietors typically has low or no account fees, offers easy online banking, provides access to business savings and checking options, and supports the specific needs of the type of business. Bank of America’s Business Advantage account is often recommended for its comprehensive services.

Can you use a personal bank account for your business as a sole proprietor, and what are the implications?

While you can technically use a personal bank account for your business as a sole proprietor, it’s not recommended. Using a separate business bank account helps to keep personal and business finances distinct, simplifies accounting, and provides a business advantage during tax time.