Table of Contents
Business bank accounts can help owners keep professional transactions separate from personal banking and aid in their business cash management. These accounts often come with special conditions and requirements, and they may involve various fees.
Here, we’ll take a closer look at these accounts, their pros and cons, and what it takes to open one. Read on for the details about business bank accounts.
Key Points
• Keeping business and personal finances separate is useful for tax purposes, liability protection, and building a financial record that supports credit growth and future lending opportunities.
• Three main types of business banking accounts exist: checking for everyday transactions, savings for earning higher interest on reserves, and merchant accounts for accepting card payments.
• The application process typically takes just a few minutes when all required information is on hand, though final approval and fund access can take up to seven business days.
• Business bank accounts may carry various fees — including monthly maintenance, transaction, ATM, and wire transfer fees — so making fee structure comparisons a critical step before committing to a new account.
• Choosing the right financial institution depends on business needs — online banks can work well for digital-first operations, while brick-and-mortar branches may better serve businesses making frequent in-person deposits.
What Is a Business Bank Account?
There are three main types of business banking accounts: checking accounts for everyday use, savings accounts for intermediate and long-term savings, and merchant accounts for accepting debit and credit card payments. In this article, we’ll focus on business checking and savings accounts, which are available from both online and brick-and-mortar banks.
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What Is a Business Checking Account?
A business checking account works much the same way a personal checking account does. You use it to deposit payments and make withdrawals. Like personal checking accounts, business checking accounts typically pay low to no interest on your balance.
What Is a Business Savings Account?
A business savings account will typically pay more interest than a checking account, so it can be a good place to park cash on an interim basis. You will likely be limited on how many transactions you can make per month without a penalty (typically six), and there may be a monthly minimum balance to maintain. Many business owners find that using both a business checking account and a business savings account can meet their banking needs.
How Long Does Opening a Business Bank Account Take?
If you open up a bank account — whether it’s checking, savings, or both — the time commitment needed is usually similar to that for opening a personal checking and savings account. It will likely take just a few minutes if you have the necessary information on hand.
• You will need to provide some details about yourself, your business, and any additional business owners involved in your enterprise.
• You’ll deposit funds.
• Keep in mind it can take up to seven business days for final approval before you can actually access funds.
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What Is Needed to Open a Business Bank Account?
Whether you open your bank account online or in person, you’ll need documentation of several personal and business details. Different banks may have their own verification requirements, depending on the type of business you own and the type of account you’re looking to open.
Here is a general list of what you might need to open a bank account for your business:
• Your name, birthdate, and Social Security number
• Mailing address and all contact information
• What percentage you own of the business (anyone who owns 25% of the business or more will likely have to disclose personal details and identification)
• A government-issued photo ID, such as driver’s license or passport
• Business name and DBA (“doing business as” name) or trade name, if applicable
• Business address and employer identification number (EIN), though sometimes Social Security numbers suffice
• Industry/type of business
Depending on the type of business entity you own, you may be asked for the following documents:
• Sole Proprietorships may need the business name registration certificate and the business license.
• Partnerships may need the partnership agreement, business name registration certificate, business license, and the state certificate of partnership.
• Limited Liability Companies (LLCs) may need the articles of organization, LLC operating agreement, and business license.
• Corporations may need articles of incorporation, corporate bylaws, and business licenses.
Recommended: Sole Proprietorship vs LLC: How to Choose
What to Look for in a Business Banking Account
Traditional banks, online banks, and credit unions all offer business bank accounts. All have different fee structures and provide different services. There are many fees and restrictions to consider when choosing a business banking account. But bear in mind this overarching factor: online accounts are usually best for businesses that don’t need to make bank deposits.
Here’s what to compare when you’re looking for an account:
• Monthly fees, such as account maintenance
• Any minimum balance requirements
• No-fee transactions
• ATM access (for deposits and withdrawals)
• Transfer, wiring, and payment capabilities
• Incidental fees (such as, stop payment, overdraft, and nonsufficient funds)
• Online and mobile banking tools
• Additional features, such as invoicing, bill pay, or integrations with other business tools (especially tax reporting software)
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Benefits of Opening a Business Banking Account
A business account can be a smart tool for a variety of reasons. Business owners may need to keep their personal and business accounts separate for tax and liability reasons. A business bank account also helps you establish a banking relationship that you can draw on in the future for lending or other services that may help your business grow. You will also establish a financial record that can come in handy when it’s time to file taxes and help your company establish a good credit rating.
Cons of Opening a Business Banking Account
There are very few cases in which a business banking account is a bad idea. Some sole proprietors with very small businesses may find they don’t need the extra fees and bookkeeping involved. But for most business owners, a separate account can be an efficient tool.
That said, one of the potential drawbacks of a business account is the cost of bank fees. High fees that you may not have anticipated can eat into your business profits. Some fees to look out for include:
• Monthly fees
• Transaction fees
• Monthly balance transfer fees
• Cash deposit fees
• ATM fees
• Wire transfer fees.
These fees can add up fast. Be sure to check accounts you’re considering thoroughly to be sure what fees are involved and compare options from different financial institutions.
| Pros of a Business Bank Account | Cons of a Business Bank Account |
|---|---|
| Keeps professional finances separate from personal | May involve additional fees |
| Establishes a business relationship with a financial institution | May involve more bookkeeping |
| Creates a financial record that can be useful for tax or credit-rating purposes |
Recommended: Business Cash Management: Tips for Managing Cash
Choosing a Business Bank Account
Beyond fees, here are some other factors to consider when you’re selecting your business bank account:
• Banking online: Business bank accounts with online-only banks can be great for virtual businesses or any business that is not handling daily cash transactions. Many online banks do not require a monthly minimum balance.
• Network: If you’re banking in person, you’ll probably want to be sure there’s a conveniently located branch near your business. Also, it can be a good idea to find out how many no-fee ATMs are available in your area.
• Electronic services: Check whether online bill pay, electronic fund transfers, and other electronic services that can support your business are available for low or no fees.
• Electronic payments: Does your bank accept Zelle and Venmo? If so, are there additional fees involved? How long will it take for transactions to post? Electronic payments are increasingly becoming the lifeblood of many businesses.
• Software compatibility: Is the bank account you’re considering compatible with the bookkeeping software you use? That can make life easier when you need to track or get access to cash flow, outstanding receivables, and other items each month.
• Other support: Does the bank offer small business loans, lines of credit, business credit cards, and other financial support for entrepreneurs that you may need in the future?
The Takeaway
Chances are that your small business may find it useful to have access to a banking account, whether it’s a checking account, a savings account, or both. There are a number of features to consider as you look at your options. Comparing and contrasting what’s available to you can help you find an option that fits your needs.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Do I need an EIN to open a business account?
Whether you need an employer identification number (EIN) depends in large part on your business structure. If you’re a solo proprietor or, in some cases, if you have a single-member LLC, you may be able to use your Social Security number. Other types of business entities may require that you provide an EIN to open a business bank account.
Which bank is best for a business account?
The bank that’s best for your business to open an account with depends on your needs. If you’re an all-online business, an online bank might work well for you. If you’ll be making a lot of in-person deposits, you’ll probably want an institution that has a brick-and-mortar branch convenient to you. It may help to make a list of the features you want and use it to compare and contrast your options.
Do you really need a business bank account?
It depends. In some cases, if you’re a sole proprietor, it may not be strictly necessary. However, opening a business account can enhance your company’s credibility and help keep your taxes straightforward, especially as your company grows. What’s more, some banks may not allow personal accounts to be used for business purposes, so it’s a good idea to check.
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