How to Open a Business Bank Account

Most first-time entrepreneurs tend to use their personal bank account for business use as well. This is a mistake that you should avoid at all costs.

Separating the business finances from your personal finances in the long-run of your business is a nightmare and you will regret not separating them from the start.

Having a separate bank account for your business allows you to track business expenses, manage payroll, pay investors and plan your budget more efficiently. This way, you will know what’s going on in regards to your business’s cash inflow and outflow.

Businesses involved in telemarketing, gambling and money lending services are required to maintain a business bank account. Also keep in mind that IRS requires you to have a bank account for your business if tax deductions are involved.

I am a sole proprietor. Do I still need a business bank account?

Yes, it is highly recommended to have a separate bank account for your business regardless of its size and structure. It just makes sense to have a barrier between your personal and business finances. Trust me, it will help you a lot in the long run.

How many bank accounts will my business really need?

One is enough for now but, as your business grows over time, it will become hard to manage and keep track of all income, expenses, taxes, payrolls and other finances with just one bank account.

So creating separate bank accounts for each of those finances may be a good idea depending on the volume of your business.

Please consult a banker for more information regarding this.

What are the fees associated with a business bank account?

A business bank account usually comes with a lot of fees and limitations in place. When you exceed a certain limitation in your account, a fee will be charged. Some common fees that you will encounter while maintaining a business bank account are given below.

• Monthly or Yearly Service Fee – This flat fee is common for all business accounts in a particular bank.

• Minimum Balance Fee – The fee that’s charged when the minimum daily account balance is not met.

• Transaction Fee – The fee that’s charged when a certain number of monthly transactions are exceeded.

• Cash Deposit Fee – The fee that’s charged when your account exceeds a certain amount of monthly cash deposits.

• ATM Fee – The fee that’s charged when using an out-of-network ATM.

• Wire Transfer Fee – A flat fee that’s charged for all incoming and outgoing wire transfers.

The fee amount will differ from one bank to another.

Are there banks that offer free business accounts?

Well, yes. Most of the banks that claim to provide free business accounts only cut down the monthly/yearly service fee. All other account limitations will still be in place.

However, banks such as Capital One provides free business accounts with zero limitations. There will be no monthly fee, minimum balance, transaction limit or cash deposit limit.

What paperwork will I need to submit?

It’s good to know what paperwork you will need to open a business account before going to the bank. The requirements depend on the structure of your business. If you are a sole proprietor, all you need is a Business Tax ID.

The bank won’t accept your Social Security Number when opening an account for a sole proprietorship. You will be required to provide your business Tax ID. If you don’t already have one, you can apply for one from the IRS website.

But if you own a Corporation or LLC, you will need articles of incorporation or articles of organization, along with a certificate of good standing with the state.

If the name of your business is different from your personal name, in other words, if your business has a fictitious business name, the bank may ask you to provide the business name filing document.

Some banks may even ask for proof of address where you have to submit a copy of a bill that your business received to its official address.

How do I apply for a business bank account?

Choose a bank

Don’t limit your search to the banks you already have a connection with in your personal life. Compare the fees and rates of the banks you are familiar with and see whether they offer what you are looking for.

Keep in mind that different banks are specialized in providing different services. For example, some banks are specialized in providing loans for large companies while other banks focus more on smaller businesses.

If you still can’t find the right bank, expand your search and talk to banks you are not familiar with.

I recommend you to open a business account in a bank which is familiar with the industry you are in so that you can ask for tips and suggestions on how to further improve your business.

You may already know this but please avoid signing up for services that won’t really help your business. Bankers may try to get you in on those services but don’t fall for it.

Some banks even allow you to create a business account online without having to meet the bank in person.

Credit Unions

Credit Unions offer business bank accounts for much cheaper rates than commercial banks so it’s definitely worth considering.

Bank cards

When you open a business bank account, you will get a free debit card for business use. Once you are in a good standing with the bank, you can apply for a business credit card which can help you when you are low on funds and require new machinery, equipment and etc.

Merchant account

After you open a business bank account, set up a credit card merchant account in order to accept and process credit card payments.

Now what?

Now that you have a bank account for your business you should make it a practice to keep track of tax payments, cash inflow and outflow, donations made on behalf of the business and last but not least, payroll expenses.