Business banking is a financial service for business owners, one that allows them to keep their business transactions and finances separate from their personal transactions and finances. Business accounts often come with specific conditions and requirements, and they may offer special benefits.
Key Points
• Business banking provides financial services that can allow business owners to keep company transactions and finances separate from personal accounts, addressing specific business needs.
• Available account types include business checking accounts, business savings accounts, certificates of deposit, merchant accounts, and business money market accounts for various financial needs.
• Separating business and personal finances can simplify tax preparation, protect personal assets for LLCs and corporations, and help build business credit for future loan applications.
• Business accounts typically permit larger ATM withdrawals and ACH transfers than personal accounts, though personal accounts generally offer more competitive interest rates on deposits.
• Opening a business bank account requires providing legal identification, Social Security number, business name, business address, establishment date, and relevant legal documents or licenses.
How Business Banking Works
Banks, credit unions, fintech companies, and other institutions can provide services to owners for their business banking. There are a variety of services available to businesses of all sizes, such as checking and savings accounts, financing, cash management, payroll services, and fraud protection.
Types of Business Bank Accounts
There are several types of business bank accounts, including business checking accounts, business savings accounts, business certificates of deposit (CDs), merchant accounts, and business money market accounts.
Business checking accounts are used for everyday transactions, similar to a personal checking account. Business savings accounts are used for saving money that is not needed for everyday use, but is still accessible when needed. Business savings accounts usually earn interest, though interest on these accounts can be relatively low.
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Business Banking vs. Personal Banking
Business banking and personal banking function very similarly. Both business and personal banking accounts usually offer features like debit cards, checks, ATM access, ACH transfers and wire transfers.
However, business bank accounts usually let you withdraw more cash at ATMs or send larger ACH transfers than personal accounts because banks expect businesses to spend and receive more money than personal banking customers. Also, personal bank accounts tend to offer more competitive interest rates than business bank accounts.
Why Business Banking Is Important
If you are a business owner, it is important to separate your business and personal finances. While you can technically use a personal account for your business, it is not advisable, as there are tax implications and legal implications in using a personal account for a business.
A business bank account lets you separate your personal and business finances, which makes tax preparations easier. Having a separate business bank account can also protect personal assets for businesses that are structured as LLCs or corporations. Plus, having a business bank account can help build your business credit, making it easier to get approved for small business loans in the future.
Before applying for a business loan, try using a SBA Loan Calculator to estimate your monthly payments, total interest, and overall loan cost.
Common Business Banking Services
Banks provide services to businesses that bank with them as an incentive to start and continue doing business with the bank. Some common business banking services could include cash management tools for the business, fraud protection for the business account and payroll services for paying employees.
Many banks also offer one or several small business credit card options that businesses can apply for. These small business credit cards often come with benefits like the ability to earn and redeem points, purchase protection, and more. However, it is important to note that business credit cards have fewer consumer protections. Business credit cards aren’t required to provide some of the consumer protections that personal credit cards have to.
How to Open a Business Bank Account
How to open a business bank account? It is similar to opening a personal bank account.
Business bank accounts can be opened at many brick-and-mortar banks, credit unions, and online financial institutions. The process of opening a business bank account can be quick, as long as you have the necessary documents and information.
Documents Needed for Business Banking
When opening a business bank account, you will need to provide a variety of documents. You will likely need to provide your full legal name, address, a government-issued photo ID (like a driver’s license or passport) and a Social Security number. You will also likely need to provide the business name or name of the sole proprietor, the business address, the date that the business was established and any legal documents or business licenses that are required.
After applying, it can take several business days for final approval.
Choosing the Right Business Bank
Selecting the right business bank is a personal decision. Banks provide different services and have different fee structures. When comparing business banks, you should look at things like monthly fees, ATM fees, incidental fees, minimum balance requirements, online and mobile banking tools and transfer, wiring and payment capabilities.
Additional features, like bill pay, invoicing or integrations with other business tools like tax reporting software, or tools offering business financial projections, might be important for your business as well.
How Business Banking Supports Growth and Cash Flow
Business banking allows businesses to efficiently manage their cash flow and growth by providing services like automatic collection systems, invoicing, spending controls, tax-planning tools, separated bank statements for easier bookkeeping and accounting software integrations. If certain tools or benefits are important to your business, be sure to inquire about them while comparing business banking options.
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Online and Mobile Business Banking Options
Online-only banking options can be a good fit for virtual businesses or businesses that don’t handle daily cash transactions. Many online banks don’t require a monthly minimum balance, so these can be a good option for small startup businesses as well. Some may offer startup business loans, but you may need to apply for a startup business loan with a brick-and-mortar bank. Even many brick-and-mortar banks offer online and mobile services to their business banking customers. Many have mobile apps and most have websites for online services for their customers.
The Takeaway
Business banking can be useful for businesses who need to manage their finances, pay employees, have access to credit or loans, keep financial records or have fraud protection. While personal bank accounts and business bank accounts have a lot in common, it may be wise to open a separate bank account if you are operating a business. Plus, doing so can help build a relationship with the bank or financial institution in case you need a loan, like for equipment financing.
No matter how small your business is, opening a business bank account can be beneficial for your business, as long as you find the right one for you.
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 included in business banking?
Each business banking account offers different features, benefits, and fees. Many business banking accounts come with cash management services, payroll services and fraud protection.
Can I use a personal account for my business?
You can technically use a personal account for your business, but it may not be recommended. There are tax implications and legal implications in using a personal account for a business.
What are the benefits of a business bank account?
A business bank account can let you separate your personal and business finances, which makes tax preparations easier. Having a separate business bank account can also protect personal assets for businesses that are structured as LLCs or corporations. Plus, having a business bank account can help build your business credit, making it easier to get approved for small business loans or a business line of credit in the future.
How much money do you need to open a business bank account?
The amount of money that you often need to open a business bank account varies from $0 to up to $1,000. The initial deposit amount varies by bank and type of account (checking, savings, etc.).
Do business bank accounts have fees?
Some banks charge monthly maintenance fees for business accounts, though sometimes those fees are waived if you maintain a minimum balance in the account. Business banks and other institutions may also charge ATM fees, overdraft fees, or overdraft fees.
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