How To Open A Business Bank Account In 2023

Opening a business bank account is an important step for every business owner. No matter how large and complex or how small and simple your business is, you need a business bank account. Follow our step-by-step guidelines to choose the right bank account for your business.

Why is a business bank account so important? Opening a business bank account can save you time and reduce your personal legal liability as a small business owner. And it’s easy to open a business bank account, too. Keep reading to find out more.

Video: How To Open A Business Bank Account In 2023

Opening a business bank account may seem intimidating, but it doesn’t have to be. Check out our video below for a crash course with all the information you need on the key steps to open a business bank account!

Do You Need A Business Bank Account?

While it’s possible to use a personal checking account to run your small business, a business bank account differs from a personal account in several important ways. Separating your personal money from your business funds is a key benefit.

Whether yours is a brand-new startup or a side business you’ve been slowly growing, it’s very common to mingle your personal funds with your business income and expenses as you get your business off the ground. But separating your business and personal funds by opening a business bank account actually protects you financially. Should your business ever run into any legal trouble, like being sued by a customer or supplier, you’ll definitely want clarity to protect your personal assets.

Separating your personal and business funds is also very important for tax purposes. If you’re audited, you don’t want the IRS to note a history of mingling personal and business finances. In fact, it may be worth your time to talk to a professional accountant to ensure you separate your funds completely and correctly. Sure, that will cost you some money now, but you might be glad you did if the IRS decides to audit your business.

In addition to keeping detailed records of your investments in your business, your business income, and your expenses, you may want to start using a separate credit card for as many expenses as possible. Even if you’re not ready to apply for and use a business credit card, you can safely use a personal credit card for business expenses as long as you follow some guidelines, such as using the card only for legitimate business expenses and paying the balance on time.

The 5 Types Of Business Bank Accounts

Before you rush to open a business bank account, it’s worth taking some time to be sure you understand the different types of accounts available. Click on each section to learn more, or check out our summary in the table below.

Business Bank Account Types At A Glance

How Much Does A Business Bank Account Cost?

The cost of a business bank account varies. Many of the available options come with no fees whatsoever. Others charge a range of fees, including a monthly account fee, ATM fees, a fee for dropping below a minimum balance, cash deposit fees, transaction fees, and more.

Even if they advertise “no fees” on their online landing page, we suggest you look up a bank’s fee structure and read any footnotes and fine print you find online. Additionally, it’s smart to check out at least a few different banking options and see how their fees for business services compare.

However, Rob Stephens, a CPA and the founder of CFO Perspective, advises small business owners to look beyond the fees, especially at two factors: convenience and responsiveness.

“Bank fees are tiny compared to your other operating expense,” he says. “Don’t endure poor service because you tried to save a few dollars in fees. Your time is worth more than you can ever save in fees. Convenience may mean a nearby branch, good remote deposit capabilities for your checks, fast loan processing, or robust cash management options for card payments. Find a bank or credit union where you can develop a relationship with branch staff or a loan officer that you can contact when you need help.”

What You Need To Open A Business Bank Account

Opening a business bank account is slightly more complicated than opening a personal account, but not by much. In addition to proof of your address and identity, you’ll need to provide a little information about your business.

The documentation required to open a business bank account depends on how your business is structured. For example, more complicated businesses, such as corporations, need more documentation than a sole proprietorship.

The following is a list of common documentation every business owner should be prepared to provide when opening a business bank account:

• Business name and address
• Personal information (date of birth, government-issued identification, and Social Security number) for everyone listed on the application
• Business tax ID number (EIN if available or Social Security number)
• Business license
• Doing Business As (DBA) documentation if the business operates under a different name

If your business is structured as an LLC or partnership, you’ll be asked for documentation showing the date and location of your business formation (must be US-based) and organizing documents, such as articles or certificates of organization or a copy of your partnership agreement. If your business is a corporation, you’ll need to show articles of incorporation, a corporate charter, your certificate of authority, or your certificate of formation along with the above documents.

If you plan to open a business merchant account as well, you’ll need to show your company’s structure, including information about your directors and owners and up to two years of financial statements showing profit and loss. You may be asked to show your live business website, too.

Different banks sometimes require different documents to open a business bank account, too, so while this information can serve as a guide, it’s smart to check with your bank to confirm.

Opening A Business Bank Account With Bad Credit

Can you open a business bank account if you have a bad personal credit rating? Yes!

A bad personal credit score should not affect your plans to open a business bank account. Banks do not typically check an applicant’s credit score when opening a business bank account. However, your credit history will probably be checked if you apply for a business loan, business credit card, merchant services, or a business line of credit with your bank.

How To Open A Business Bank Account In 6 Steps

Choosing a business bank is an important decision. Follow these steps to make sure you make the right choice!

1) Evaluate Your Business Banking Needs

When it comes to business banking, some perks and functions are not optional, such as the ability to make deposits, pay bills, and receive good customer service. But do you really need support for wire transfers, a point of sale (POS) system, check-writing services, unlimited balance transfers and transactions, and access to a line of credit?

All those things can be valuable business services you want your bank to offer. But if you don’t need those tools at this point in your business development, you shouldn’t pay higher fees to a bank that offers them right now.

2) Consider Your Potential Business Growth

At the same time, don’t box yourself in by choosing a bank that fits you now but will limit your options later. That means looking at how a bank fits your needs not just now but also as you grow.

Business finance expert Imani Francies of FreeAdvice.com highlights transaction fees as one example. You may not anticipate many daily transactions right now, but if you sign up with a bank that imposes strict and costly limits, you may regret your choice later.

“Look for any transaction limitations imposed by the bank. Banks may limit the number of transactions that can be posted to your account in a single day,” Francies says. “Alternatively, you may be limited to a certain number of transactions before being charged a fee for any more. If you normally have a high amount of transactions, finding a business checking account that allows for limitless transactions may be great for minimizing costs.”

Francies suggests you also consider interest rates, the bank’s branch and ATM availability, minimum account balances, any introductory or promotional offers, and how easy it will be to integrate your banking with accounting software, whether you use it now or plan to as your business grows.

If you intend to use your business bank account’s merchant services to process credit cards, you’ll want to look at a few other considerations, according to the US Small Business Administration. These include:

• The discount rate, or the percentage the bank charges for each transaction
• Transaction fees, or the amount you’ll be charged for every credit card transaction
• Address Verification Service (AVS) fees
• ACH daily batch fees, or the amount you’ll be charged when you settle your credit card transactions each day
• Monthly minimum fees, or the amount you’ll be charged if your business does not hit the minimum number of required transactions

3) Shop Around For The Right Business Bank Account

Your first question might be how to open a business bank account. The next one is usually, where should I open my business bank account?

Your first idea might be to choose the bank you already use for your personal accounts. That might be the easiest move, but is it the best?

Don’t be too quick to make this leap. Business and personal banking are very different, and oftentimes business accounts charge higher fees, including penalties for excessive transactions or balances that dip below minimums.

That’s not to say that your current bank is necessarily a bad choice. It’s actually a good idea to talk to someone there about the business banking services available to you. You can use what you learn as a benchmark when comparing other banks, making sure you choose whichever has the best fees and services for your needs.

4) Explore Online Banking Options

While you might think first of brick-and-mortar options for your business banking needs, you can find a number of reputable online banks too. And many of them offer the same business services you can find at an in-person bank near you. The only difference you may see is that you’ll apply online and do all your banking through your computer instead of at your local branch.

Do your research and compare the services, fees, and more from online banks to the other banks you’ve looked into. You may find that online banks offer a little more, including higher interest rates and more convenient access, with lower fees.

Remember that most online banks are as safe as any physical branch. Just make sure that the online bank you’re interested in advertises its accounts as FDIC-insured. If they don’t, that’s definitely not a good bank to choose.

5) Determine Opening Deposit Requirements

You’ll certainly be wondering, what else do I need to open a business bank account? Beyond the documentation we’ve covered, you’ll also need to know about deposit requirements.

Each bank has its own requirements regarding how much money you’ll need for an initial deposit when you open your business bank account. Some banks allow you to open an account without adding any money at all right away, while others require a set amount. If an amount is required, it’s usually less than $100, but it could be higher. Regardless, you’ll want to ask so that you can be prepared.

Also, ask about how you can make that opening deposit. Your business bank may allow you to deposit a check, make a cash deposit, or send money via wire or ACH. Whatever the amount and method, make sure they’ll work for you.

6) Start The Application Process

Many business bank accounts will let you start the application process online. You might not need to visit a branch to get started!

Whether you want an in-person visit or feel comfortable online, make sure you’ve got all your required documents together before you start the application process. If you don’t have a business license yet, you will probably need to wait until you have that.

Overall, you’ll probably find that applying for a business bank account is similar to opening a personal account.

Tips For Choosing A Business Bank Account

As important as it is to take advantage of business banking services, rather than using personal accounts to run your small business, it’s better to proceed carefully than to rush into a banking relationship that won’t serve you well in the long run.

Here are some practical strategies you can use to help ensure you make the right choice:

• Talk to other small business owners you know. Ask them what bank they use for their businesses, what they like about where they bank, and what they wish they had known when they started their accounts.
• Read the fine print. If you are looking online for business banking services, you’ll probably see that most prominently advertise “no fee” services. Be sure to look beyond the headlines, including a quick read-through of the fine print and the asterisks posted at the bottom of the page. You’ll learn about hidden fees and whether your accounts would be protected by FDIC insurance.
• Consider credit unions. Online banks aren’t the only alternative to traditional brick-and-mortar banks. Take a look at credit unions, too. Rob Stephens, the founder of CFO Perspective, says, “Credit unions continue to increase their business banking capabilities. They often offer lower loan rates and higher deposit rates than banks.”
• Take your top choice for a test drive. Before committing to a bank, consider your experience as a potential customer. If you visited a branch in person, was it easy to get there? Did the staff make you feel welcome and answer all your questions? If you’re looking online, was the website easy to navigate? If there’s a mobile app, is it well-reviewed on the app store, or are most of the comments posted complaining about how hard it is to use the app?
• Make sure the bank you choose offers everything you need. Choosing a business bank account involves many factors and small decisions. So many, in fact, that it can feel overwhelming. Let’s narrow down some key factors to keep you from feeling paralyzed by too many choices. Rank them in order of importance, or simply label them as Necessary, Nice, or Not Important. Then use this list to make sure the bank you choose will meet your needs.

Here are the elements many business bank accounts commonly include:

• FDIC insurance
• Checking account
• Savings options
• High APY
• ATM access
• Bill payment
• Debit card
• Virtual cards
• Mobile check deposit
• Payment apps (such as CashApp, Zelle, and Venmo)
• Digital wallet
• Branch access
• Telephone support
• No monthly fees or fees that can easily be waived by meeting minimum balance requirements
• No or low account balance requirements
• Unlimited free transactions
• Wire transfers
• No-fee ACH transfers
• Foreign transaction fees
• Cash deposits
• Overdraft protection
• Linked credit cards
• Loans and lines of credit
• SBA loans
• Merchant services
• Rewards
• Integrations
• Promotional offers from partners

The Bottom Line On How To Choose A Business Bank Account

Opening a business bank account is not just a smart move; it’s also necessary for any legitimate business. If you haven’t already opened a business bank account, it’s definitely time to take that step.

Because there are so many options, choosing a bank can feel overwhelming. To help you, we’ve highlighted some of the best business bank accounts we’ve encountered during our research on the topic.

Compare your options, then start your application. This is one business decision you won’t regret making.

FAQs On How To Open A Business Bank Account