5 steps to opening a business bank account

March 20, 2023

Cash flow management is crucial for any business. You need to know exactly how much money is coming in and how much is going out. A business bank account can help. But it’s not just a good idea—if you’re registered as a limited liability company (LLC) or corporation, the IRS strongly recommends opening a separate bank account for company finances.. If you’re a sole proprietor, it’s not required but still recommended to help you track your expenses.

Here’s the good news: Opening and maintaining a business bank account is easy, and it can be an exciting step in your journey as a business owner. Read more about how to open a business bank account, its requirements, different types, what to look for, and their benefits to small business owners.

How to open a business bank account in 5 steps

Opening a business bank account is simple and often just takes a few minutes. The process has five steps:

Gather the required documents and information.
Decide on the services you need.
Review your banking options.
Compare your options.
Choose a service provider.

It’s important to be prepared and have all of the information you need. Read on to explore each of these steps in more detail.

1. Gather the required documents and information

You’ll need a few pieces of documentation and information to get started, including your:

Employer Identification Number (EIN)
Social Security number
Business license
Driver’s license

2. Decide on the services you need

Then, consider what type of services will be the most useful to your business. Ask yourself things like:

Will you need to send checks or handle cash?
Do you prefer to visit a physical branch location and work with a teller?
Do you prefer the convenience of online banking?

Identifying what you need from your business bank account will help you determine which type of account is the right fit for you.

3. Review your banking options

Next, determine what kind of bank account is the best option for your business. This can include:

Traditional checking account
Online checking account
Cash management account (CMA)

Narrowing down the type of account you’re looking for will help you find the right service provider.

4. Compare your options

You’ll want to look at customer reviews and shop around to find the best fit for you and your needs. By doing further research, you can avoid signing up for a bank that has unsatisfactory customer service or unexpected fees.

5. Choose a service provider

It’s important to choose the right bank for your business. Start by reaching out to the financial institutions or lenders you know and like. If you have a personal account in good standing, they might be inclined to offer you a better deal on a business account.

Credit unions, financial service providers, and online banking providers tend to offer the same services and protections as traditional banks, so don’t rule them out. As you shop around, keep a few things in mind:

Special offers: Many banks offer enticing introductory offers, cash bonuses, and rewards for new accounts.
Convenience: Look for financial institutions with physical locations in your area, plenty of ATMs, and mobile banking options. If you choose an online-only option, make sure you can contact help when you need it.
Protection: You should feel confident that your business funds are in good hands. Look for banks that offer fund protection and insurance.

Finally, make sure your new account integrates seamlessly with your accounting software to streamline your bookkeeping and organize your expenses.

For further information, read on to learn about the requirements, different types of business bank accounts, and their benefits.

Business bank account requirements

Opening a bank account of any type requires some personal information, and a business bank account is no different. Here’s what any business entity will need:

Your basic contact information, including your company phone number, website, and email address.
Your legal business name as it appears on documents filed with your state or the IRS. If you’re a sole proprietor, you may need a fictitious business name certificate or a doing business as (DBA) certificate.
Your Employer Identification Number (EIN) (if you’re an LLC or corporation). The bank will use this tax id to ensure your business is legitimate.
Your business address. This should be the same address you used to license your business. If you’re a sole proprietor or don’t have a separate business address, you may want to invest in a PO box or alternate address.
Your Social Security number, especially if your business is a sole proprietorship.
Your driver’s license. Your bank will likely make a copy.
Your proof of identification, such as a passport or other form of photo identification.

If your business is registered as an LLC or corporation, the bank may also request copies of the following documents:

A partnership agreement or operating agreement if your business is a partnership
Articles of organization if your business is an LLC
Articles of incorporation if your business is a corporation
Your business license

Having these documents primed and ready can streamline the application process and get your account opened faster.

Business bank account types

When it comes to opening a business account, you have a few options to consider. The main types of business bank accounts are:

Business checking accounts
Interest-bearing checking accounts
Business savings accounts

Ensure you do your research and choose the account that makes the most sense for your business. Let’s take a closer look at the three most common types of business accounts.

Business checking accounts

For most small businesses, a business checking account is a good place to start. Once you’ve started making sales and spending money on business expenses, consider opening a business checking account.

A business checking account allows you to do all the basic financial tasks you need to operate your business, such as:

Writing and depositing checks.
Transferring or receiving money electronically.
Depositing money or performing withdrawals using a business debit card.
Separating your business and personal checking accounts.

Many banks also offer mobile apps. These apps allow you to view your balance, make transfers, pay bills and set up automatic bill pay, and monitor cash flow from anywhere.

Business interest checking accounts

Another option to consider is a business interest checking account. Typically, interest-bearing accounts have the standard features of a regular checking account except:

They allow you to earn an Annual percentage yield on your balance.
Some banks offer free small business checking accounts for new and small businesses. If you’re tight on funds, a free account might get your business on its feet.
Free accounts may come with tighter restrictions on deposits and transactions.

Think about what you need your business checking account to do before making any decisions based on price.

Business savings accounts

Once you’ve got your business checking account up and running, a business savings account is a smart second step. Use a savings account in conjunction with your checking account to separate your savings from your working capital. Here are some benefits:

A business savings account allows you to save a portion of your earned revenue and earn interest on the funds you set aside.
Most business owners admit they don’t have enough cash in reserve to survive a long run without revenue or cover an unexpected cost.
A savings account can help mitigate financial hardship. In the event of an emergency, you won’t be left empty-handed.

Look for a high-yield savings account with low fees and high interest rates. Some savings accounts require a minimum deposit to open, and some come with monthly balance requirements. Many come with small monthly maintenance fees that your bank may waive if you meet other requirements. Remember: The goal is to save money, not spend it on unnecessary banking fees.

Finally, the FDIC insures most savings accounts, but it’s always a good idea to double-check.

Business cash management accounts

When it comes to managing your business finances, banks aren’t your only option. There are plenty of financial institutions and cash management services to choose from.

Alternative banking: CMAs are an all-in-one alternative to traditional bank accounts.
Online only: CMAs are online accounts that provide services similar to checking, savings, and investment accounts.
High interest offered: CMAs offer high-interest rates for savings accounts, lower account fees than traditional banks, and business lines of credit.

Business owners looking to simplify their finance management could benefit from a CMA. With a CMA, you can conduct all your business transactions from a single account—you won’t have to use separate accounts for separate functions. But a CMA has its drawbacks.

Since CMAs are exclusively online, you won’t get face-to-face customer service or the option to visit a physical branch. CMAs might also offer lower interest rates on savings accounts than banks or credit unions.

Business bank account features to look for

As you research your options, look for a business checking account with a strong introductory offer and low fees. Some common checking account and service fees include:

Maintenance fees: Banks may waive these fees if you meet minimum balance requirements each month. Many banks make these requirements easy to meet for small businesses.
Transaction fees: Many banks issue small fees if you go over your monthly transaction allotment. Typically, the transaction allotment is high and difficult to exceed.
Early termination fees: If you close your account early for any reason, such as closing your business or switching financial institutions, your bank may charge you.
ATM fees: Most banks allow you to withdraw from in-network ATMs without fees, but many will charge a flat fee for withdrawing funds from another bank’s ATM.
Deposit fees: Some banks have limits on how much you can deposit each day, week, or month.

When considering a business checking account, make sure you understand the fees, requirements, and restrictions. If you think you’ll have a high number of checking account transactions each month, look for an account with a high transaction limit.

If you plan on withdrawing cash from an ATM frequently, make sure you have in-network ATMs in your area to avoid unnecessary fees.

Typically, business checking accounts promise lower fees and more convenience, but there are a few drawbacks. Most don’t allow cash deposits, so it may not be a good fit for a business that handles cash transactions. And because the account is online-only, you won’t find a physical branch.

Note: If you like to bank face-to-face, online-only accounts may not be the right fit.

Benefits of a business bank account

A business bank account makes it easy to keep track of business expenses, and it can help you take full advantage of tax deductions and credits available to small business owners or startups. It’s a simple, low-cost investment that comes with a plethora of perks and protections for businesses. Among them, it separates your business and personal bank account, protecting your personal identification.

Let’s take a look at some of the biggest benefits of a business bank account.

Safeguard your funds

A business bank account keeps your personal finances separate from your business funds. This protects your personal liability. If your business can’t pay its debts, for example, your personal assets won’t be at stake.

On the flip side, if you have an unexpected personal financial crisis, it won’t affect your business’s credit score.

Track expenses and income more efficiently

Separating your personal and business accounts allows you to track expenses, monitor spending, and create a more realistic budget for your business. Avoid accidental overspending and write off your business purchases with ease.

Promote better bookkeeping

Accounting is easier when you have a clear spending trail. A separate business bank account keeps your accounts and finances organized, so it’s easy to pull financial reports, prepare taxes, and generate accurate financial statements.

Build credit

When the time is right (especially for a new business), you can open a business credit card attached to your business bank account. A business line of credit is a secure low-interest small business loan.

Includes tools and features

Many banks now offer a variety of tools and features to assist you with your business finances. A few of these include online check cashing, online payments, and interest accrual.

Outweighs the cost with benefits

While some banks still charge a monthly fee to use their bank accounts, you need to weigh all the pros and cons before deciding to opt out. Many times, the ability to protect your personal assets and the features included are easily worth the small fee per month.

Plus, you may be able to avoid paying the fee if you deposit a certain amount each month.

Business bank accounts FAQs

Opening a business bank account is a relatively simple process. However, there are always some outstanding questions that many will have in the beginning.

What information is required to open a business bank account?

It doesn’t take much to get going with a business bank account. Here is the general info many banks will require:

Driver’s license
Social Security number
Basic contact information
Business address
Employee Identification Number
Legal business name

How much do you need to open a business bank account?

This is dependent on the institution you choose, and most of them are very forthcoming about how much is required to get started. You’ll usually need to have between $10 and $20 but check with your provider for the exact startup cost.

Can I open a business bank account online?

While it’s rare not to see an online application, it depends on the provider. Some institutions only allow in-person applications, but a vast majority offer online applications for a quick sign-up.

When should you open a business bank account?

You should consider opening a business bank account as soon as you start handling business transactions. This helps protect you and your personal assets from mingling with business assets.

This article originally appeared on the Quickbooks Resource Center and was syndicated by MediaFeed.org.