30/05/2024

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How to open a business checking account

How to open a business checking account

Business checking accounts are an essential part of the operation because they provide a place to record daily transactions and keep up with cash flow. It’s important to have your business finances separate from your personal finances. This will help with taxes, liability and everyday management of your business.

Getting a business checking account

The best time to get a business checking account is as soon as you have established your business as an official entity. This is the account you will use to pay business-related bills and deposit your revenue. What you don’t want to do is use your personal checking account to handle business transactions.

This is different than a merchant account, which is an account that lets you accept credit and debit cards.

Why you need a business checking account

The main reason to open a business checking account is that it lets you keep your business transactions separate from your personal transactions. This not only makes it easier to track business transactions — it will also simplify things come tax time.

Here are some other reasons you need a business checking account:

  • Provides an official record of your business transactions.
  • Makes it easier to monitor your cash flow.
  • Lets you track payments to suppliers, contractors, associates and others on your payable list.
  • May offer liability protection by keeping your business funds separate from your personal funds.
  • Allows customers to make payments to your business instead of directly to you.
  • Gives you the option of authorizing employees to handle day-to-day banking tasks related to your business.
  • Makes it easier to qualify for lines of credit and other bank perks.

Choosing the right bank for your business

Before you begin researching banks, you’ll want to determine how you will use the account.

For example, if you are in a cash business, then you’ll probably want a local bank with physical branches nearby so you can make daily cash deposits.

On the other hand, if having access to a physical branch is not important to your business, then you might want to use an online bank to save money on fees. Online banks tend to have fewer fees because they have less overhead.

Choosing the right bank for your business checking account also means looking into some of the perks offered to businesses. Here are some things to consider:

  • Monthly fees
  • Minimum account balance requirements
  • Transaction limits
  • Transaction fees, such as wire fees or ATM fees
  • Interest-earning options
  • Access to lines of credit
  • Welcome offers

Business bank accounts sometimes come with limits on how many free transactions you can process each month. There may also be limits how much cash you can deposit each month before you incur a fee.

This is different than personal checking accounts, so if you have a business with a lot of transactions or a lot of cash, you’ll want to choose a bank that won’t charge extra for that.

Required documents for opening a business checking account

As with any type of bank account, you’ll need to provide certain documents to open a business checking account. The requirements vary by bank, but here are some of the common documents you might need to provide:

  • Employer Identification Number (EIN) or a Social Security number if you’re a sole proprietorship
  • Business formation documents
  • Ownership/partnership agreements
  • Business license
  • Personal identification such as a driver’s license or passport
  • DBA certificate, or Tradename certificate, if your business has a name that is different from your own name
  • Business mailing address
  • Personal address and contact information

Fees associated with business checking accounts

The fees you pay for a business checking account will vary depending on the bank and even the account.

In some cases banks might offer more than one business checking account — a standard account with no fees and a premium account with advanced features that does charge fees. In many cases you might have monthly fees that can be waived for meeting certain balance or activity requirements.

Following are some fees you might encounter with a business checking account:

Monthly service fees

Many business checking accounts have some kind of monthly service fee. These typically range from $10 to $30 a month, though you might face higher fees on accounts with premium features. Check with the bank to find out whether and how the fees can be waived.

Transaction fees

Some banks charge business customers a fee for any transactions over a certain limit.

Cash deposit fee

If your bank restricts the amount of cash you can deposit each month, you will face a fee for exceeding that amount. If your business deals in a lot of cash you should avoid banks that charge a cash deposit fee.

Wire transfer fees

This fee is charged when you send money from one bank to another. It might range from $0 to $40, depending on the bank. If you will be sending or receiving wire transfers, this is something to consider.

Managing your business checking account

Managing your business checking account may take a little more work than managing your personal checking account. Part of keeping good business records is categorizing your expenses. This helps your accountant and the IRS know what expenses you are deducting from your income and why.

Categorizing your expenses also helps you know how much you are so you’ll know how much you are spending on different items, such as advertising or office supplies.

You can use accounting or bookkeeping software to help you do this, and some online banks offer categorizing transactions as a feature of your account. This may feel like a tedious task, but if you keep up with it on a daily or weekly basis, it will go smoothly.

Reconciling your account monthly will also help make sure you didn’t miss any transactions and ensure your books are in good shape.

Online business checking accounts vs. physical banks

The type of business you run will determine whether you should open a checking account at a traditional bank with branch locations or an online-only bank.

If you have a want in-person banking or need to frequently deposit cash, then you’ll want to choose a bank with locations near your business. Just about all traditional banks also offer online and mobile banking options.

If you don’t need to bank at a physical branch, then online only banks are a great option. They tend to have lower fees and higher interest rates than traditional banks.

Switching from a personal to a business checking account

If you’ve been using your personal checking account for your business it might be a bit daunting to consider moving your business finances over to their own account.

Here are the steps to take to make the process as smooth as possible:

  1. Open your new business account.
  2. Fund your business account. This may mean taking some money out of your personal account and putting into your business account
  3. Move any automatic transfers, payments or deposits. If you have clients who pay you with ACH you’ll need to notify them of your new account. You may also need to add your new account to PayPal or Venmo if you get paid that way. Of course, any bills you pay automatically will need to be switched over as well.
  4. Begin using your new business account for all transactions relating to your business.

You may also want to consider setting up accounting software for your new checking account.

Security features of business checking accounts

All checking accounts should have security features to protect your money and information, but it’s especially important with business accounts because of the damage security breaches could do to your business relationships.

Here are some security features you should expect:

  • Data encryption: This encodes your information into a format only the bank can read
  • Multi-factor authentication: Multi-factor authentication is when you get a text or email with a code that you need to enter when you log in. This helps verify your identify.
  • Fraud prevention training for employees: Employees should be trained on how to best protect your data.
  • Strong password requirements: Having character limits and guidelines helps customers create strong passwords.
  • Account monitoring: Monitoring your account helps identify if your account has been compromised.
  • Suspicious activity alerts: Alerts help customers keep tabs on their account and assist in identifying unauthorized transactions right away.

FDIC insurance is also something to look for. It’s not a security feature, per se, but it does protect your funds should the bank go bankrupt.

Frequently asked questions (FAQs)

Yes, just about all banks and credit unions let you open accounts online as well as at physical branches.

Many business checking accounts require a minimum deposit to open, though the amount varies by bank and account. You can also find accounts that do not have any minimum balance requirements at all.

Technically, you could use a personal checking account for your business if you are a sole proprietor. If you do choose this route you should still only use the account for business, this helps keep everything separate and will make tax time much easier.

However, if you have an LLC you will need to open a business checking account since the business is its own legal entity. Having your business have its own account will also provide some legal protections should you ever get sued.

If you see unauthorized transactions on your account call your bank immediately to report the problem. You should also change your password and other security information.

There is no limit on how many business checking accounts you can have. If you have more than one business, you’ll want a separate account for each one. However, you don’t want to have to juggle too many accounts because that can create complications from an operational standpoint.