What Is Business Banking?
Wondering if it's worth opening a separate bank account for your business? Business bank accounts deliver benefits you won't want to miss.
Business banking is an essential part of building out your business. As your business income grows, you’ll need a place to store your business funds and keep that money separate from your personal cash.
The best business bank accounts make it easy to manage your business finances. Look for no-fee business checking and savings accounts and integrations for eCommerce and accounting software that tie all your business finances together.
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What Is Business Banking?
Business banking is a way to separate your business and personal finances. That’s important to do for legal reasons and to protect your assets from business risk. Business banking can also help you access credit in the form of a bank loan or credit card, as well as merchant services.
Checking and savings aren’t the only types of business bank accounts, however. You can also open a certificate of deposit or money market account for your business.
Business VS Personal Banking
Although it’s possible to use your personal accounts to run your business, separating your personal and business finances delivers important benefits:
- Legal and fiscal protections
- FDIC security for your money
- Reduced risk of IRS audit
- Business credit profile
By separating your business funds from your personal finances, you legally protect your personal assets. If your business is sued, the injured party cannot lay claim to your personal property. And if your business incurs debts it cannot pay off, your business creditors will not be able to come after your personal assets to clear the debt.
Mingled personal and business finances can also be a red flag for the IRS that triggers an audit. Separating your business and personal finances doesn’t guarantee that neither will be audited by the IRS. However, if you are audited, you’ll fare much better if you can show a clear line between your personal and business funds.
How Does Business Banking Work?
Business banking works almost the same as personal banking. You will find a few differences between business and personal bank accounts, of course.
The most important of these differences is the legal and financial protections that come with using a separate bank account for your business. If you mingle personal and business money, you could be held personally liable for any legal judgments against your business. That includes bankruptcy. You could also run into trouble with the IRS if you cannot show a clear separation of business and personal money and expenses.
When you open a business bank account, the account will be in the business name, not your name. You may need to bring some paperwork to open a business bank account. Be sure to have personal identification for every person you want to have access to your business bank account.
Types Of Business Bank Accounts
Business bank accounts come in a variety of combinations, or you can open a single account. Here’s a rundown of what you can choose from:
Do I Need A Business Bank Account?
Every business can benefit from using business banking services. Unless you’re operating your business as the sole proprietor, you’re legally required to have a separate bank account for your business.
In any case, there’s little reason not to open a business bank account. In the next section, we’ll break down some of the most common reasons people give for avoiding business banking.
Reasons To Not Open A Business Bank Account
People who continue operating their businesses using their personal bank accounts may not realize what they’re risking. Here are some common reasons for continuing to use personal banking for business, debunked.
- My Business Is Too Small For Its Own Bank Account: Trust us, no business is too small for business banking and the financial and legal protections it offers. We highlight some of the best bank accounts for freelancers to help you evaluate options designed for self-employed business owners. Even if you’re only operating a side hustle or working part-time, your business deserves its own bank account
- Business Banking Is Too Expensive: You can find business bank accounts with $0 fees and $0 minimum balance requirements. Look for a good match in our list of the best business bank accounts, linked in the first paragraph of this post.
- It’s Too Hard To Open A Business Bank Account: If you want to save time and skip the hassle, it’s easy to open a business bank account from the comfort of your home or office. Most online banks allow you to apply online, with quick responses from the banks. You may even be able to access a virtual debit card as soon as your account is approved, so you can start using it for purchases and bills right away.
- I Don’t Know What To Look For In A Business Bank Account: Check out our post on how to open a business bank account. You’ll find step-by-step instructions to follow, as well as a list of tips that will help you know what to look for and make the right choice for your business.
The Bottom Line On Business Banking
Opening a business bank account is one of the best decisions you can make for your small business. As you have learned from this post, there’s no downside to business banking.
A business bank account protects your finances and shields you personally from legal and financial liability. Business bank accounts are easy to open and easy to use.
So what’s stopping you? Today is a great day to open a bank account for your business!