Business checking accounts are the foundation of a small business’s financial planning. Once you have one, you can build out everything else your venture needs to succeed.
The best business checking accounts combine quality customer service and software integrations with business-specific features. For instance, you may need the ability to wire funds or make unlimited deposits.
Tons of business checking options are available to small business owners. For the most part, they offer the same features, but a few really stand out.
How to open a business checking account
The right business bank account will help you manage your finances and simplify your annual tax filing. And getting started is easy as long as you have the correct documents and information. Here are three steps you’ll take to open a business checking account.
Gather the necessary paperwork.
Here are the specific items you’ll need on hand to open a business checking account:
- EIN: You can use your Social Security number to open an account if you’re a sole proprietor, but businesses need an employer identification number (EIN). An EIN establishes your business’s tax presence and is another crucial step in establishing credit. It’s easy to apply for an EIN online.
- Personal identification: You can use your driver’s license or passport to confirm your identity with the bank.
- Business license: You’ll also need a license from your city or state that has the name of the business as well as your name.
- Certificate of assumed name: If your business operates under a fictitious or trade name, you’ll need a “doing business as” (DBA) certification. For instance, say your company’s name is Tim’s Bakery LLC, but you operate as Tim’s Bakery.
- Partnership agreement: If your business has multiple owners, present the founding agreement that outlines who the partners are and lists their rights and responsibilities.
- Organizing documents: Each state has different requirements for organizing documents, but almost all include the business’s name, address, owners, registered agents and management structure. These documents may be known as articles of incorporation or articles of organization.
Choose a bank.
Once you have the necessary information on hand, approach a local bank about opening a business checking account. You also have an increasing number of options for online accounts where you can open and operate your account entirely digitally. If you own an online business such as an e-commerce store and don’t deal at all in cash, this is a great choice.
Compare your options.
It’s a good idea to look into several different banks, and compare the services offered by each. The one that’s the best choice for you depends on your banking preferences.
For instance, if you prefer to be able to visit a branch in person, then online banking may not be the best option for you. If you’re looking to avoid fees as much as possible, you may want to choose an online bank. Online banks tend to charge fewer fees since they have less overhead.
Think about any additional features that are important to you, such as online banking or bill pay. It’s also a good idea to see if the bank integrates with your current accounting software.
In addition to opening a business checking account, top accounting software can make it easier for you to manage your business finances. If you’re not sure where to start, be sure to check out our best picks for accounting software.
Why do you need a business checking account?
There are a few important reasons why you should get a dedicated business checking account rather than relying on your personal checking or savings account to hold your company’s earnings.
First, a business checking account separates your business finances from your personal funds. Intermingling your personal and business spending creates a financial nightmare.
Come tax time each quarter, you’ll spend hours separating business expenses from personal ones. Worse, you may have to pay an accountant or bookkeeper extra for the time they spend accomplishing this unenviable task.
A dedicated business bank account also gives you greater visibility into how your business is doing. You’ll know exactly how much money your business has on hand rather than a mishmash of how you think your business is doing plus or minus various personal purchases and deposits.
Additionally, small business owners who don’t use a dedicated business checking account open themselves up to legal issues. If your business is an LLC or corporation, commingling your finances “pierces the corporate veil,” meaning that you can be held personally liable if your business is the subject of a lawsuit.
Can you use a personal checking account for your business?
Many small business owners wonder whether it’s acceptable to open a separate personal bank account to hold company finances.
This is a no-no for two reasons. One, many banks won’t allow you to use personal bank accounts for business earnings — if the bank finds out you’re using a personal checking account to hold and move funds for your business, they will close the account and ask you to open a business account.
And, two, opening a business checking account is one of the first steps in establishing and building credit for your business. A credit history is necessary if you want to qualify for low-cost financing for your company down the line.
How much does it cost to open a business checking account?
Technically, it doesn’t cost anything to open a business checking account. Certain business bank accounts have no monthly fees, require no minimums to open the account, and offer an unlimited number of free transactions each month. Some even offer you a sign-up bonus for choosing their product.
Bad credit, for the most part, shouldn’t be a barrier to opening an account. Some banks may not include certain features like overdraft protection or business credit cards. It’s up to you to improve your credit by following responsible spending practices.
9 things to look for in a business checking account
1. Introductory offers and bonuses
It’s common for major banks to entice new customers with an introductory bonus, which is typically predicated on the customer depositing and maintaining a certain balance in their new account. Chase Bank, for example, offers $100 to new customers who complete 10 qualifying transactions within 60 days of enrollment.
Of course, an extra hundred dollars or so shouldn’t be the driving factor when choosing a bank account. But if all other factors are equal, you may want to choose a bank that offers a sign-up bonus.
2. Service fees
Your business checking account will likely come with some kind of monthly charge that the bank assesses as a service fee. Most service fees range from $12 to $30 per month.
Banks that offer business checking accounts with more robust features often charge a higher service fee. If you aren’t going to take advantage of those features, there’s no point paying for them.
Some banks will waive the service fee if you meet certain criteria, like maintaining a minimum daily balance or signing up for another account. Always ask if the bank can waive the fee or what you can do to get your fee waived.
3. Minimum account balance fees
Some banks may not have a minimum balance requirement, while others will set a minimum daily balance.
Some banks also require a minimum first deposit to activate your account and make yourself eligible for bonuses. Check with the bank representative and read the terms and conditions thoroughly.
4. Transaction allowances
Your business bank account is primarily designed to hold your money and help facilitate financial transactions for your small business. A transaction could be cash or check deposits, withdrawals, transfers, and electronic payments.
As you investigate banks, ask if the checking account allows for unlimited free transactions. If it doesn’t, find out how many transactions are free before the bank starts charging you. If the bank you’re considering offers 500 free transactions per month and you rarely eclipse that number, the fee will be negligible. If, however, you routinely post more than 500 transactions per month, look for another bank.
5. Deposit allowances
Deposits fall under the umbrella of transactions, and some bank accounts track the number of cash deposits, only allowing a certain number each month before levying a fee. Keep this in mind if you run a cash-heavy business and/or make frequent deposits. There are plenty of brick-and-mortar banks and online banks that don’t charge fees if you exceed a certain number of deposits each month.
6. Wiring allowances
Sending money from one bank to another banking institution electronically is known as a wire transfer. These transactions have waned in recent years with the advent of digital payments. If your business receives funds via a wire transfer or plans to send wires, ask the banking representative how many free wire transfers the bank allows each month and what fees you may be charged.
7. In-person vs. online services
Do you want a bank that has physical branches you can visit, or do you conduct most of your banking online? Another factor that will significantly influence this decision is the type of business you run.
A business that deals heavily in cash and needs to make in-person deposits at convenient locations will need a bank with a local branch. If you have an e-commerce business and conduct all of your transactions online, access to a physical branch won’t be a critical deciding factor. Plus, an online-only bank may offer perks like higher interest rates than brick-and-mortar banks.
Ask your business checking account provider if they offer robust online banking features, such as an app you can use to review your financials at any time.
8. Ease of integration
More small businesses than ever use cloud-based software to help with accounting, invoicing, expenses and other financial matters. Internet-only banks tend to allow for seamless integration with these other platforms. If you’re considering a brick-and-mortar bank, check to see if they offer integrations with modern software apps, especially if you’re already using a variety of financial software apps.
9. Interest rates
Interest-generating business checking accounts have become a common tool that allows business owners to rack up interest on their business profits. A business savings account may offer higher overall interest rates, but it doesn’t hurt to earn more interest where you can.
No business checking account will excel at delivering on every feature above, but not doing your research by thoroughly vetting banks could result in some unexpected fees that you could have otherwise avoided.
Once you are set up with a business checking account, you can explore savings accounts, credit cards, and other financial tools that will pave the way toward more flexibility and greater financial stability.
Additional reporting by Jamie Johnson.