Business checking accounts are the foundation of a small business's financial planning efforts: 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 several business-specific features, such as the ability to wire funds or make unlimited deposits.
There are tons of business checking options available to small business owners, and for the most part, they offer many of the same features, but a few really stand out.
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, having 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 doing this unenviable task.
A dedicated business bank account also gives you greater visibility into how your business is doing. You always 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, comingling 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.
What do you need to open a business checking account?
You'll need some documentation handy to open a business checking account. Some of the specific items you will need include:
- An Employer Identification Number or Social Security number: You can use your Social Security number with some banks if you're a sole proprietor, but 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: Your driver's license or passport that proves you are who you say you are.
- Business license: A license from your city or state that has the name of the business and the owner's name (i.e., your name).
- A certificate of assumed name ("doing business as"): You'll need a "doing business as" or DBA name, which is the name you operate under (for example, Tim's Bakery, rather than Tim's Bakery LLC).
- Partnership agreement: If your business has multiple owners, you need to present the founding agreement that outlines who the partners are, and their rights and responsibilities.
- Organizing documents: Each state has different requirements for organizing documents; almost all of them have information such as the business's name, the address, who the owners are, registered agents, the management structure and what kind of business you're engaged in. These documents may be known as articles of incorporation or articles of organization.
When you have all of this information in hand, you can approach your local and/or favorite bank to discuss opening a business checking account. You also have an increasing number of options for online accounts where you can open and operate your account 100% digitally. If you've got an online business such as an e-commerce store and don't deal at all in cash, this is a great option.
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. [See related article: Opening a Business Account When You Have Bad Credit]
How much does it cost to open a business checking account?
Technically, it doesn't cost anything to open a business checking account. You aren't "buying" anything. And, in fact, some 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.
9 things to look for in a business checking account
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 $300 as an introductory bonus to customers who deposit $1,000, maintain that balance for 60 days and conduct a few qualifying transactions during the introductory period.
An extra hundred dollars or so shouldn't be the driving factor when choosing a bank account, but what if all other factors are equal and one bank offers you extra spending money as an incentive for choosing them? Well, it can certainly be tempting.
More likely than not, your business checking account will come with some kind of monthly charge that the bank assesses as a "service fee."
Most service fees range from $12 to $30 each month. Banks that offer business checking accounts with more robust features are likely to charge a higher service fee. A few extra bucks each month may not seem like it makes a huge difference, but unless you're going to use those extra features (e.g., no-fee transactions and deposits, wire transfers, payroll services, etc.), it's usually not worth paying the extra fees to maintain your account.
Some banks will waive the service fee if you meet certain criteria, such as maintaining a minimum daily balance or signing up for another finance product from the same bank. Never hesitate to ask if the bank can waive the fee or what you can do to get your fee waived.
Minimum account balance fees
Some banks may not have a minimum balance requirement; others may condition this fee (or the monthly service fee) on certain requirements like maintaining a set minimum daily balance. Further, some banks require a minimum first deposit in order to activate your account and make yourself eligible for bonuses. Again, check with the bank representative, and read the terms and conditions thoroughly.
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, specifically inquire if the checking account allows for unlimited free transactions. If it doesn't, find out how many transactions are free before you're charged by the bank. If the bank you're considering offers 500 free transactions per month and you rarely eclipse that number, the post-500 fee is negligible. If, however, you routinely post more than 500 transactions per month, look for another bank.
Deposits fall under the umbrella of transactions, and some banks with their business checking 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.
Sending money from one bank to another banking institution electronically is known as a "wire transfer." These types of 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.
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, of course, 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 isn't a critical deciding factor. Plus, a bank that is online-only may offer perks like higher interest rates than brick-and-mortar banks.
Also, check with your business checking account provider to see if they offer robust online banking features, such as an app you can use to check your financials at any time.
Ease of integration
More small businesses are using cloud-based software to help with accounting, invoicing, expensing, and other financial matters. While 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.
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.