SoFi

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a financial metric that can be used to assess the health and earnings potential of a business.

Like regular EBITDA, adjusted EBITDA adds back interest, taxes, and depreciation/amortization to net income. However, it also adds or removes certain non-recurring sources of income or unusual expenses that might temporarily skew earnings. This can help investors, analysts, and business owners more accurately understand how well a company is performing compared to its industry peers.

Read on for a closer look at what adjusted EBITDA is, how it’s calculated, its pros and cons, and what it can tell you about your small business.

What Is Adjusted EBITDA?

Adjusted EBITDA builds on the standard EBITDA formula, which adds back non-operational, non-recurring, and non-cash expenses to net income to get a better sense of a firm’s operational strength. Adjusted EBITDA may also subtract any unusual expenses from net income, since they aren’t likely to occur again.

Definition and Core Concept

Adjusted EBITDA and EBITDA add interest on debt, taxes, and the non-cash expenses depreciation/amortization back to net income to arrive at an earnings number that focuses on a firm’s operational efficiency.

Here’s a look at what EBITDA (and adjusted EBITDA) adds back and why:

•  Interest: This refers to interest on debt, such as small businesses loans. EBITDA excludes this expense because the amount of debt a company takes on depends on the financing structure of a company.

•  Taxes: Because taxes vary by region, companies with similar sales can pay significantly different amounts in taxes. This can skew their net income and make it difficult to accurately compare two companies in different locations.

•  Amortization and depreciation: Depreciation spreads out the cost of a tangible asset over the course of its useful life, while amortization does the same with intangible assets, such as patents, licenses, copyrights, and trademarks. EBITDA adds these non-cash expenses back to net income because they depend on the historical investments the company has made, not on its current operating performance.

Adjusted EBITDA, however, goes one step further than EBITDA by also removing any irregular, one-time, or non-recurring income or expenses (such as redundant assets, bonuses paid to owners, or rentals above or below fair market value) to further zero in on a firm’s performance and earnings potential.

It’s important to note that like EBITDA, adjusted EBITDA is not recognized by Generally Accepted Accounting Principles (GAAP).

Importance in Financial Analysis

Adjusted EBITDA is a crucial metric in financial analysis because it provides a clearer picture of a company’s profitability by excluding non-operational, non-recurring, and non-cash expenses. Unlike standard EBITDA, adjusted EBITDA removes one-time costs, stock-based compensation, and extraordinary expenses, offering investors and analysts a more accurate view of a company’s core financial health.

Recommended: What Are Retained Earnings?

Adjusted EBITDA Formula

The EBITDA formula is:

EBITDA = Net income + Interest + Taxes + Depreciation & Amortization

The formula for adjusted EBITDA is:

Adjusted EBITDA = Standard EBITDA +/- Adjustments

Who Uses Adjusted EBITDA & What Does It Tell You?

Analysts and investors might use adjusted EBITDA when doing a valuation of a company, while lenders might use this metric to better assess the profitability of a business applying for a small business loan.

Because it removes one-off income and expenses, a business owner might use adjusted EBITDA to get a better handle on their firm’s profitability. By excluding certain irregular items that are not likely to recur in future periods, this metric can also help owners with budgeting and forecasting.

Industries Relying on Adjusted EBITDA

Industries that rely on adjusted EBITDA include private equity, real estate, technology, healthcare, and manufacturing. Private equity firms use it to assess acquisition targets, stripping out non-recurring expenses for a clearer profitability picture. Real estate companies adjust for property depreciation, while tech firms exclude stock-based compensation. Healthcare businesses account for regulatory costs, and manufacturers remove fluctuations in raw material prices.

By using adjusted EBITDA, these industries ensure a more accurate reflection of operational performance.

Recommended: What Is Growth Equity?

How Does Adjusted EBITDA Work?

Adjusted EBITDA works by simply removing various one-time charges and irregular income sources from the EBITDA calculation. The goal is to find a normalized earnings figure that is not distorted by unusual activities.

Calculating Adjusted EBITDA

Calculating adjusted EBITDA vs. EBITDA is very similar — the only difference is that adjusted EBITDA adds or subtracts certain non-recurring items.

The items excluded in adjusted EBITDA can vary widely from one business to another, but some of the most common EBITDA adjustments include:

•   Small business start-up costs

•   Litigation costs

•   Special donations

•   One-time gains or losses

•   Investments

•   Maintenance and repairs expenses

•   Foreign exchange income or losses

•   Above-market owners’ compensation (private companies)

•   Real estate expenses

•   New hire expenses

Another version of EBITDA, EBITDAR, adjusts EBITDA only by removing restructuring and rent costs.

Recommended: How to Buy a Business

How Is Adjusted EBITDA Used?

Adjusted EBITDA is used in financial decision-making and for investors and analysts to assess a company’s core earnings.

Financial Decision-Making

Adjusted EBITDA is most often used for determining the value of a company for transactions like mergers, acquisitions, or raising capital. It helps management identify areas for improvement without the distortion of interest, taxes, depreciation, and other non-recurring items.

Investor and Analyst Perspectives

Investors and analysts rely on adjusted EBITDA to gauge a company’s true earning potential and financial stability. By stripping out one-time expenses, they can better compare companies across industries and assess long-term growth prospects, making it a valuable tool for valuation and investment decisions.

Pros and Cons of Adjusted EBITDA

As with any valuation tool, there are advantages and disadvantages to using adjusted EBITDA. Here’s a look at how they stack up.

Adjusted EBITDA Example

We’ll use fictional company ABC to show how to calculate adjusted EBITDA. Here are some of the inputs found on the company’s financial statements.

Net income: $700,000

Taxes: $100,000

Interest expense: $10,000

Depreciation & amortization: $40,000

Adjustments: $50,000

To calculate standard EBITDA:

Standard EBITDA = $700,000 (net income) + $100,000 (taxes) + $10,000 (interest) + $40,000 (depreciation & amortization)

Standard EBITDA = $850,000

The next step is to find adjusted EBITDA by adding back the adjustments. Keep in mind that unusual income sources are subtracted, while unusual expenses would be added back to arrive at adjusted EBITDA. With company ABC, the adjustments are irregular expenses, so they are added back to earnings.

Adjusted EBITDA = $850,000 (standard EBITDA) + $50,000 (adjustments)

Adjusted EBITDA = $900,000

Recommended: Average Business Loan Interest Rates 2025

The Takeaway

Adjusted EBITDA is another earnings measurement of a business. It uses the standard EBITDA formula to gauge earnings from a company’s core operations, then adds or subtracts certain anomalies so that income is normalized.

While not a GAAP or small business loan requirement, knowing your company’s adjusted EBITDA can offer important clues into its financial health. It can also help you forecast future earnings and make important business decisions, such as whether or not to seek out financing to help expedite growth.

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

Is adjusted EBITDA the same thing as net income?

No. Adjusted EBITDA starts with net income, then adds interest on debt, taxes, and depreciation/amortization expenses to come up with EBITDA (earnings before interest, taxes, depreciation, and amortization). It then adds or subtracts unusual expenses or income (so-called “adjustments”) to arrive at adjusted EBITDA.

What is considered a good adjusted EBITDA margin?

EBITDA (earnings before interest, taxes, depreciation, and amortization) margin gives you a numerical valuation expressed as a percentage:

EBITDA margin = EBITDA / Total revenue

Generally speaking, an adjusted EBITDA margin of 10% or more is considered good.

What does adjusted EBITDA tell you?

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) removes non-recurring, irregular, and one-time items that may distort EBITDA. It helps analysts and investors assess a firm’s earning potential and make comparisons across a variety of companies in the same industry.

How often is adjusted EBITDA calculated?

Adjusted EBITDA is typically calculated on a quarterly and annual basis, aligning with financial reporting periods. However, companies may also calculate it monthly for internal analysis or strategic decision-making. The frequency depends on the company’s needs, industry standards, and investor expectations for tracking financial performance and operational efficiency.

Can adjusted EBITDA be negative?

Yes, adjusted EBITDA can be negative if a company’s operating expenses exceed its revenue, even after adjustments for interest, taxes, depreciation, and amortization. A negative adjusted EBITDA may indicate financial struggles, inefficiencies, or a startup in its growth phase with high initial costs and low revenue generation.

Photo credit: iStock/svetikd

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q225-003

As your small business grows, from time to time you may wish you had a reservoir of cash to draw on to cover unpredictable small needs or help tide you through seasonal lulls. Fortunately, there are at least two options that fit the bill: a business line of credit and a business credit card.

Both can help you cover immediate costs and can also boost your business’s credit history (provided you make your payments on time). Which is the better choice? The answer depends on your company’s individual situation and needs.

When you’re considering a business line of credit versus a credit card, there are a few differences it may be helpful to take into account. Let’s take a closer look.

💡 Recommended: Invoice Financing vs Factoring

What Is a Business Line of Credit?

A business line of credit, sometimes called a commercial line of credit, is a convenient, flexible way to cover expenses like working capital, bills, inventory, and other small, last-minute expenses.

Unlike a small business loan, a line of credit gives you access to a defined amount of funding with a maximum set by the lender. You’re charged interest only for the amount you borrow, rather than on the entire amount available. Typically, you can withdraw funds from your credit line and repay as needed, as long as you don’t exceed the approved credit limit.

Business lines of credit are highly flexible, so they may be useful for many types of businesses. If your business has seasonal ebbs and flows, a line of credit may help you maintain a healthy cash flow. But even if your business is growing steadily, it can be helpful to have a line of credit to tap into if you spot an unexpected opportunity you haven’t budgeted for but would like to pursue. And if your lender reports to one of the major credit agencies, paying back what you owe on time can benefit your business’s credit rating and possibly your own.

Recommended: Understanding Working Capital Lines of Credit

Pros of a Business Line of Credit

A business line of credit has many potential benefits, including:

•  Easy access to funds: Compared to some other options, such as SBA loans, business lines of credit offer the borrower earlier access to money. Once you secure a line of credit, the money is basically on tap for you to withdraw and use as needed.

•  You use (and pay interest on) only what you need: With a business line of credit, you’re only charged interest on the amount you use. And, as long as you stay within your limit, you can use the funds at will.

•  Flexibility: The funding is not purpose-specific. You are free to spend the funds for business purposes more or less as you see fit, so using the credit line can be a flexible way to address any of your business’s needs.

Cons of a Business Line of Credit

While a line of credit can be beneficial, it may also have drawbacks in some situations, such as:

•  Low maximums: The sum of money you have available to you with a line of credit may be less than you’d get with a small business loan. A business line of credit may not provide enough capital for a large or expensive endeavor.

•  Short terms: A business line of credit also usually has shorter repayment terms than other options — typically three to 18 months. That means that if you withdraw a lot on your credit line, paying back what you borrowed can deplete your monthly funds quickly.

•  Variable payment amounts: The payment amount can fluctuate from month to month based on how much you owe. In addition, some credit lines come with variable interest rates. As a result, you may not have a fixed payment amount to budget for.

•  Impact on your personal credit: Any missed payments may affect your personal credit history, especially if you’ve issued a personal guarantee to secure your business’s line of credit.

What Is a Business Credit Card?

A business credit card is another way a company can get access to funds as needed and pay back only what’s borrowed (plus interest). Much as you would for a personal credit card, you apply with a credit card company, and, if approved, you receive a card (or cards) that you can use to make business-related purchases. You’re then expected to make regular payments until the money you’ve taken out is paid back, with interest. Like a line of credit, a credit card will also come with a maximum, beyond which you can’t withdraw more money.

A business credit card can also be a way for your business to build its business credit (as long as you verify that the credit card company reports to one of the major commercial credit bureaus). Just keep in mind that, even if your business credit card is in your company’s name, it can potentially still affect your personal credit score. Some business credit card issuers will report late payments and serious delinquencies to consumer credit bureaus.

Recommended: Checking and Understanding Your Business Credit Score

Pros of a Business Credit Card

Business credit cards are not just for companies with big storefronts or businesses with multiple employees. Qualifying individuals who have a side hustle, such as photography or tutoring, can also benefit from them. Depending on what card you get, the benefits may vary, but they can include the following:

•  Rewards: Unlike lines of credit, business credit cards may offer perks like sign-up bonuses and/or reward systems that give you things like airline miles for using your card.

•  Relatively easy to get: Since credit card issuers often target small businesses, the cards are typically easily accessible. You may not need a business credit history of even a profit minimum. The main requirement is your personal credit history. So, even in situations where you don’t qualify for a business loan, you might still have the option of a business credit card.

•  Flexibility: Like a line of credit and other types of business loans, a business credit card will let you use the funds for any business expense.

Cons of a Business Credit Card

Business credit cards also have some drawbacks. Here are some you may want to consider:

•  High threshold for sign-up bonuses and/or rewards: While the sign-up bonuses or cash back perks may be tempting, you usually have to spend a significant amount before you can earn them.

•  Fees: There may also be a complicated fee system tied to your card. Annual fees, transactional fees, and foreign currency purchasing fees can all be included in the card’s terms and conditions, depending on which card you choose. While lines of credit may also have fees, typically credit card fees are higher.

•  High APRs: In general, business credit cards tend to have higher annual percentage rates (APRs) than many other kinds of funding, including lines of credit.

•  Payment problems could impact your personal credit score: Business credit card issuers will often report negative payment history to both commercial and consumer credit bureaus. If your business fails, the credit card company will likely view you as personally liable for unpaid debt, especially since many of them ask you for a personal guarantee.

Key Differences Between Line of Credit and Credit Card for Businesses

Both lines of credit and business credit cards are types of revolving debt that can provide your business with the option to spend money up to a set limit. However, there are a number of key differences between them that you should be aware of. Understanding these differences can point you towards the right fit for you.

Maximums

Typically, both lines of credit and business credit cards provide smaller amounts of money than many other kinds of loans. However, business credit cards tend to have lower maximums than business lines of credit. If you’re looking for a larger amount of money, a business line of credit might be a better bet.

Interest Rates

In general, interest rates tend to be lower for business lines of credit than for credit cards. If you think you’ll end up carrying a balance, that can be an important distinction, since you’ll likely end up paying more in interest on a credit card.

Collateral

Business credit cards are typically unsecured, meaning you don’t have to provide any collateral to “secure” your debt. Business lines of credit, on the other hand, can be secured (require collateral) or unsecured (no collateral required). If you don’t have collateral to put up or don’t wish to put up collateral — and can’t qualify for an unsecured line of credit — you may want to consider whether a credit card could work for you.

Annual Fees

Both business lines of credit and business credit cards generally come with annual fees. Typically, business credit cards charge higher annual fees than business lines of credit, but that’s not always the case. Some banks offer business credit cards with no annual fees.

Cash Advances

You can usually use either a credit line or a credit card to access a cash advance. However, cash advances with a credit card tend to involve higher fees and higher APRs than advances from a line of credit. Also, you can typically get a larger cash advance from a line of credit than you can from a credit card.

Rewards

Business credit cards may offer rewards for spending money on your card, while lines of credit typically don’t offer rewards. Different cards will have different types of rewards. You might find a business credit card that offers extra cash back for spending money in certain categories (like office supplies), for example, or one that offers extra points for business travel.

While rewards can be appealing, some reward cards come with high annual fees, so you will want to make sure the rewards you’ll earn by using the card will more than make up for the fee.

The Takeaway

Business line of credit versus business credit card — which is best? No answer fits every company across the board. Both business lines of credit and business credit cards can be valuable credit tools. Credit lines generally offer higher credit limits and lower APRs, but credit cards often come with valuable rewards and some have a 0% APR introductory period.

Whichever loan product you’re leaning toward, it can be a good idea to shop around and compare different financing options to find the best fit for your business.

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

What is the main difference between a line of credit and a credit card?

A line of credit offers a pool of funds that can be drawn upon for larger, short-term financial needs with flexible repayment options. A credit card is designed for everyday expenses, offering convenience and rewards but often with higher interest rates if balances aren’t paid in full.

Which option is better for managing irregular cash flow?

A line of credit is better for managing irregular cash flow, such as covering payroll or seasonal expenses, due to its typically larger limits and lower interest rates. Credit cards are less suitable for such purposes because of their smaller limits and higher interest.

Can a business have both a line of credit and a credit card?

Yes, a business can benefit from having both. A line of credit provides backup for larger cash flow needs, while a credit card is useful for day-to-day transactions and earning rewards on purchases.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOSMB-Q424-089

If you’re interested in exploring your entrepreneurial side and breaking free of the traditional 9-to-5, you might consider starting a small business. But it’s not something to venture into without mapping out a strategy for success first.

There’s some groundwork that needs to be laid when you’re working toward owning a business. That includes refining your concept, taking care of the legal aspects of starting a new company, and getting your finances in order.

If you’re looking for a checklist of steps to follow when you’re starting your new business, this guide can help. Keep reading for 10 steps on how to start a business.

💡 Recommended: How to Get a Loan to Buy a Business

1. Research Your Idea

At the core of every successful business is a great idea. Depending on the type of business you’re interested in starting, you may have what you believe is a winning concept for a product or service you’d like to offer.

Before you get too far along in the process of starting your new business, however, it’s important to do some market research. Specifically, you should be thinking about these questions.

•   How original or unique is this concept?

•   Are there other businesses with a similar product or service?

•   How successful are those businesses and who are the biggest competitors?

•   What’s the long-term outlook for this product or service like?

•   How much demand is there overall for what I plan to offer?

At this stage, the goal is to determine whether owning your own business is viable, based on what you envision for your products or services.

Recommended: 23 Small Business Ideas

2. Identify Your Target Customers

Part of conducting market research when starting a small business involves finding your target customers. These are the people who are most likely to buy your product or service.

Creating an avatar that embodies your ideal customer can help. As you create your avatar, try to paint as clear a picture as possible and consider things like:

•   Basic demographics, such as age or gender

•   Income and employment

•   Education level

•   Geographic location

•   Hobbies or interests

It’s also important to consider what problems your ideal customers are facing that your business can help to solve. Being able to solve problems and offer solutions is one of the keys to owning a business that has staying power.

Recommended: Business Growth Strategies

3. Draft a Business Plan

A business plan is an important document to have when starting a new business. This is essentially a roadmap or playbook of how you plan to start, run, and grow the business over time.

There are different formats business plans can take, depending on the scale of the company you’re trying to start. A traditional business plan includes an executive summary and description of the company. But it also covers things like:

•   Market research and analysis

•   Organization and management structure

•   Details about the products or services you plan to offer

•   Marketing and how you plan to promote the business

•   Estimated startup and operational costs

•   Key financial ratios, such as estimated profit and loss

Broadly speaking, your business plan should identify what your goals for the business are and how you plan to go about achieving them. Writing a business plan can help you get organized in the early stages of starting a small business and give you a reference that you can check your progress against.

💡 Recommended: Stages of Business Growth

4. Plan Your New Business Budget

One of the most important steps in how to set up a business involves estimating your costs. The cost to start a business has two dimensions: estimating how much money you’ll need to get the business up and running and how much you’ll have to spend on an ongoing basis to maintain it.

When calculating startup costs, consider everything you may need to spend to get off the ground. That may include things like:

•   Leasing a space if you’re starting a brick-and-mortar business

•   Utility, cellphone, and internet service deposits

•   Purchasing or leasing equipment

•   Hiring and training staff if you plan to have employees

•   Purchasing necessary business licenses and/or paying registration fees

•   Marketing and promotion costs

•   Production costs to create your products

•   Website hosting and/or ecommerce setup

Those are the bigger expenses you may need to plan for when starting a new business. Once the business is open, your small business accounting will include ongoing costs such as:

•   Rent or lease payments

•   Utilities

•   Payroll if you have employees

•   Supplies and equipment

•   Marketing and advertising costs

•   Basic living expenses

If you plan to stick with your current job while owning your own business in the early stages, then you may have steady income that can cover your living expenses. But those may not be enough to cover your business expenses until your venture begins turning a profit. For that reason, it’s important to consider the next step in the process.

5. Weigh Financing Options

When deciding how to start your own business, finances are a focal point. You need to know what you’re set to spend — and how you plan to pay for it.

Bootstrapping could be a possibility if you have a sizable amount of cash tucked away in savings that you could tap into. But that may not be a reality, in which case you’ll need to explore other options for small business financing. There are two broad categories of business financing: equity and debt.

Equity Financing Explained

With equity financing, you exchange an ownership stake in the business for funds from investors. This is typically how angel investing or venture capital investing works.

The upside of this type of business financing is that there’s nothing to pay back. This can be a real advantage as you’re attempting to achieve a positive cash flow while you get your startup off the ground. And whether the business succeeds or fails, with equity you’re not obligated to make investors whole financially. So the investor shoulders much of the risk in this financing equation.

The trade-off, however, is that each equity investor owns part of your business and as such, can have a say in how it’s run. That may not be ideal if you’d prefer to have complete control over business decision-making.

Debt Financing Explained

Debt financing is just what it sounds like: debt you take on to fund your business. For example, that can mean:

•   Small business loans

•   Small business lines of credit

•   Small business credit cards

•   Personal business loan or lines of credit

You borrow a set amount of money and agree to pay it back to a lender, typically with interest. Small business loans can be found at traditional banks and credit unions or through online lenders.

Starting a small business with debt may not be a perfect solution, but you don’t have to give up any of your ownership. And you can compare loans for small businesses or personal loan options to find one that fits your budget and offers the best repayment terms, based on your credit profile.

Recommended: How to Apply for a Small Business Loan

Small Business Grants

There’s also a third potential funding option you may consider in lieu of debt or equity financing. Small business grants can provide funding to start a new business with no repayment required. Getting small business grants can be time-consuming and competitive, however, so if you need money to start a new business quickly you may want to explore loans instead.

6. Choose a Business Name

When selecting a name for your small business, consider what kind of brand reputation you want to build and what you want to be known for. You may choose your own name or something that embodies what your business is all about.

Before finalizing your choice of name, do your homework. Specifically, make sure the name isn’t trademarked or otherwise being used by any other business entity, as this could create legal headaches later. If you plan to launch a website or social media accounts for your business, you’ll also want to check to see if your business domain name and social media handles are available.

Recommended: Commercial Real Estate Loans

7. Determine Your Business Structure

Choosing a legal structure is next on the list of steps to starting a business. A legal structure is how your business will operate. The most common business structures are:

•   Sole proprietorship

•   Partnership

•   S-corporation

•   C-corporation

•   Limited liability company (LLC)

Your choice of business structure matters for a few reasons. First, it determines what kind of liability you have in situations where your business is sued. With a sole proprietorship, for example, you and the business are treated as one and the same. So if you’re sued by a customer or supplier, then your personal assets could be attached if a judgment is entered against you in civil court. An LLC, on the other hand, shields your personal assets.

Your choice of business structure can also affect taxation and how you pay taxes. Again, with a sole proprietorship, you and the business are treated as one and the same for tax purposes. Corporations, however, are taxed differently. So, depending on how much profit you anticipate the business generating, one structure may be better than another.

A third consideration has to do with getting business funding. If you plan to take out one or more business loans, then your business structure may influence what type of financing you’re able to qualify for and how much you can borrow.

Recommended: EBITDA Explained

8. Make Your Business Legal

If you have a business name and structure, the next step is making your business legal. This may include:

•   Registering your business with state and local agencies

•   Obtaining an Employer Identification Number (EIN) from the IRS and a state tax ID if needed

•   Securing any licenses or certifications required to operate

•   Filing trademark or patent applications for business names or products, if applicable

What, if any of these steps, are required for starting a small business will depend largely on where you plan to do business. Some states may require a separate tax ID to go along with your federal tax ID, while others don’t, for instance. Depending on what type of business you plan to operate, you may need a special license before you can open your doors.

If you’re unsure what you need to do to register, contacting your local chamber of commerce or your state’s business development agency can be good places to start. Keep in mind that you may need to pay certain fees to register or obtain necessary licenses when starting a small business.

Recommended: Amortization vs. Depreciation

9. Open a Business Bank Account

Once you’ve registered your business and made it legal, you can open a business bank account. Having a separate bank account can make sense when owning your own business for a few reasons.

First, this is a good way to keep business and personal expenses separate. When you’re paying your household bills and business expenses out of the same account, it can get confusing as to which funds are going where. It’s easier to keep track of business cash flow and personal cash flow when they’re in separate accounts.

Next, having a business bank account can make filing taxes easier. If you plan to deduct certain business expenses, then having all of those expenses linked to a single account can minimize headaches when filing taxes. Separate business and personal bank accounts may also be necessary if you want to avoid mingling funds because you’ve chosen something other than a sole proprietorship as a business structure.

When comparing business bank accounts, pay attention to fees you may pay, as well as minimum deposit or minimum balance requirements. Also consider whether the account offers access to merchant services if you need help with things like payroll or accounting.

10. Hire Staff and Plan Workload

Not all startups will require employees, especially in the beginning. But if yours does, it’s a good idea to figure out what areas you’ll need help in and for how many hours you want employees to work. If you’re running a coffee shop, for example, you will likely need at least one other barista to help you.

At this point, you may be able to start figuring out what tasks will need to be done each day and each week, how long they’ll take, and who can do them. In your coffee shop, someone will have to get there early to prepare the tables, make the coffee, and set up. And at the end of the day, someone will have to stay late to clean up and close down the shop.

Depending on how much project management is involved in your particular startup, you may want to use task management software to track what needs to be done and who will do it. You should already have budgeted for payroll, but it’s also important to figure out when and how often each employee will be coming in and what exactly each will be working on.

Additional Considerations

When starting a business, beyond the basics of writing a business plan and figuring out funding, several crucial factors can impact your long-term success. Paying attention to areas like accounting software, marketing strategies, and legal compliance can streamline operations and protect your business from costly mistakes.

Accounting Software

One item a new small business should consider investing in is accounting software. Proper financial management is essential for tracking expenses, monitoring cash flow, and filing taxes accurately.

Marketing Agency

A well-executed marketing strategy is key to attracting and retaining customers. If you lack in-house expertise, hiring a marketing agency can be a smart investment. Working with professionals ensures that your marketing campaigns are data-driven and optimized for performance, leading to better brand visibility and customer engagement.

Legal and Regulatory Compliance

Ensuring legal and regulatory compliance is crucial for avoiding penalties and legal issues. Depending on your business type and location, you may need permits, licenses, or registrations. Consulting with a business attorney can help you navigate contracts, intellectual property, and local business laws.

The Takeaway

After reading through this list of steps to starting a business, it can seem like a lot. But breaking down each step into smaller, actionable tasks can make the process less daunting.

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

What is the easiest small business to start?

The easiest small business to start typically requires low startup costs and minimal specialized skills, such as freelance services (writing, graphic design, virtual assistance), online retail, or consulting in a field of expertise. These businesses can be started from home with flexible hours.

What type of small business is most successful?

Service-based small businesses, like accounting, IT support, and digital marketing, tend to be the most successful due to low overhead and consistent demand. Businesses in healthcare, home improvement, and e-commerce also perform well, as they address essential or growing market needs, leading to higher profitability and long-term stability.

Do I need a business license?

Yes, most businesses require a business license to operate legally. The need for a license depends on your industry, location, and business type. Local, state, or federal authorities may issue the required licenses, ensuring your business complies with regulations, taxation, and zoning laws. Always check specific local requirements.

When should I hire employees?

You should hire employees when your workload exceeds your capacity, hindering growth or customer satisfaction. Signs include consistently missing deadlines, turning away clients, or lacking specialized skills. Hiring can help scale your business, improve efficiency, and allow you to focus on high-value tasks that drive growth and profitability.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOSMB-Q324-045

The main difference between retail vs. corporate banking lies in what type of services they provide and to whom. Retail banking is consumer-focused while corporate banking, also referred to as business banking, is designed to meet the needs of businesses.

Banks can offer both retail and business banking services to attract both types of clients. Understanding how each one works makes it easier to distinguish between retail vs. corporate banking.

What Is Retail Banking?

Retail banking refers to banking services and products offered to retail customers, meaning individuals. Retail banking can also be referred to as consumer banking or personal banking. The kinds of products and services offered by retail banks are designed for personal money management — such as checking and savings accounts, certificates of deposit (CDs), debit cards, and more.

In the U.S., the Office of the Comptroller of the Currency (OCC) is responsible for overseeing banks at the national level. Banks with assets in excess of $10 billion are also regulated by the Consumer Financial Protection Bureau (CFPB). In addition to federal regulation, retail banks can also be subject to regulation and oversight at the state level. These organizations help ensure that services are being provided in keeping with the law and that charges are not excessive.

Recommended: How Do Retail Banks Make Money?

Services Offered Under Retail Banking

Retail banks typically offer products and services that are designed to help everyday people manage their finances. This is the key distinguishing factor between retail vs. business banking. For example, some of the services retail banks may offer include:

•   Deposit account services: Retail banks can allow consumers to open checking accounts, savings accounts, money market accounts, and other deposit accounts to hold their money safely and securely.

•   Mortgage lending: Homeowners often require a loan to purchase a home, and many retail banks provide mortgages to qualified borrowers.

•   Secured and unsecured loans: In addition to home loans, retail banks can issue other types of loans, including auto loans, personal loans, home equity loans, and lines of credit.

•   Credit cards: Credit cards offer convenience for making purchases; many of them also offer rewards to consumers for using them. Retail banks may issue credit cards to creditworthy customers.

•   Certificates of deposit: Certificates of deposit (or CD accounts) are special types of deposit accounts that allow you to earn interest on your money for a set term.

Banks may also offer insurance to their retail clients. Private banking may also be available for higher net-worth customers.

Retail banks usually make money by accruing interest on the money they lend via loans and other vehicles. They may also charge various fees for banking services, including overdraft fees, loan origination fees, and checking account fees. Some retail banks have physical branches, while others operate exclusively online.

What Is Corporate Banking?

Corporate banking is the branch of banking that offers its services and products to business entities. That includes large corporations as well as small and medium-sized business operations. Corporate banks may also serve government agencies and entities. While services may include deposit accounts, these banks also may offer credit and asset management, lines of credit, payment processing, and tools that facilitate international trade.

Like retail banks, corporate banks can charge fees for the various services they provide. Banking services can be directed toward a corporate audience in general or be tailored to target the needs of specific industries, such as healthcare or companies that operate in the tech space.

Recommended: When Would I Need a Business Bank Account?

Services Offered Under Corporate Banking

The services offered by corporate banks are designed to suit the needs of businesses large and small. The kinds of services a corporate bank can offer include:

•   Deposit account: Business banking can include many of the same deposit options as retail banking, such as checking accounts, savings accounts, and money market accounts.

•   Debt financing: Corporate banks can offer debt financing options to startups and established businesses that need capital to fund expansion projects and growth.

•   Trade lines of credit: Trade financing can make it easier for businesses to cover day-to-day operating expenses. Examples of trade financing that corporate banks may offer include merchant cash advances, purchase order financing, and accounts receivable processing.

•   Payments processing: Corporate banks can act as payment processors to help businesses complete financial transactions when providing products or services to their customers.

•   Treasury management: Treasury management services can help businesses keep cash flowing steadily and smoothly.

•   Global banking: Businesses that are interested in expanding into foreign markets may rely on business banking services to reach their goal.

Key Differences Between Retail and Corporate Banking

Retail and corporate banking both have the same goal: serving the needs of their customers. But the way they achieve this goal differs. Here are some of the most noteworthy differences between retail banking vs. business banking.

Business Model

Retail banking’s business model is built around meeting the needs of retail banking clients. Banks that operate in the retail space are primarily concerned with three things: deposits, money management, and consumer credit.

Corporate banks, on the other hand, base their business models around products and services that are utilized by business entities. That includes offering business bank accounts, providing avenues for securing capital, and offering financial advice.

Customer Base

Retail banks are geared toward consumers who rely on financial products like personal checking accounts, savings accounts, or unsecured loans. A retail bank can offer accounts to different types of consumers, including specialized accounts for kids, teens, students, or seniors. But generally, they’re consumer-facing and work with everyday people to help them manage their money.

That’s a difference between retail vs. corporate banking: The latter is business-centric. For example, a corporate bank may offer services to companies with a valuation in the millions. Or it may cater to smaller businesses that need help with things like payment processing or cash flow management. Some business banks may serve companies both large and small.

Processing Costs

As mentioned, both retail and corporate banks can charge fees for the services they provide. These fees are designed to make up for the bank’s own handling costs for processing transactions. Both types of banks can also charge interest on loans, lines of credit, and credit cards. These are some of the ways that banks earn money.

In general, retail banks tend to have lower handling costs which means lower fees for consumers. Corporate banks, on the other hand, typically have higher processing costs which means their clients pay more for their products and services.

Value of Transactions

Since retail banks serve everyday consumers, the average value of transactions processed tends to be lower compared to that of corporate banks. A corporate bank, for example, might process a transaction valued at several million dollars for a single customer. Someone who’s adding money to their personal checking account vs. a business checking account, meanwhile, may be depositing a few hundred or few thousand dollars.

Profitability

Here’s another key difference between business banking vs. retail banking: Business banking tends to generate more profits. That’s because corporate banks typically deal in higher value transactions than retail banks.

The Takeaway

The difference between retail vs. business banking is quite straightforward: Retail banking serves individual customers’ needs, while corporate banking serves the needs of companies of all sizes, as well as other organizations.

For most people, retail banking is a good choice to manage and optimize their financial lives. For instance, you can use a retail bank account to pay bills, deposit your paychecks, transfer money to savings, and make purchases or withdrawals using your debit card.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is corporate banking better than retail?

Corporate banking is not necessarily better than retail banking; they’re designed to serve different audiences. Corporate banking is usually a wise choice for a business entity, while retail banking is designed to serve individuals with their personal banking needs.

Is a current account retail or corporate?

Current accounts can be offered by retail and corporate banks. Generally speaking, a current account is a bank account that allows you to make deposits and withdrawals. A checking account, either personal or business, is an example of a current account.

Why do banks focus on retail banking?

Banks focus on retail banking because there’s a need for it among consumers; many adults might be interested in a checking account, a debit card, and a credit card, for example. The demand for retail banking also allows banks to generate revenue by charging fees for deposit accounts and interest on loans and lines of credit. That said, corporate banking also serves an important need and generates income for banks as well.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.80% APY
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBK-Q224-1927395-V1