Now that you’ve launched your business, you’ve already taken the first leap. You may now want to consider opening a business bank account to help separate your funds from those of your business. But what’s the procedure for opening a business bank account? What documents and requirements do you need?
This post will help prepare you with all the information you need to know before heading out to the bank. Take a couple of minutes to look over the steps to open a business bank account.
Opening a Business Bank Account
Before you open a business bank account, it’s essential that you first register your entity with the state. Most banks will demand proof that you are a registered entity, among other requirements. You may also have to acquire an EIN from the IRS, although it depends on your business structure.
You may also want to set up your bank account as soon as you register your entity and begin operations. This is because some lenders assume your bank account setup date is the date you started your business. For example, say you started your business in 2021 then opened your business bank account in 2022. Some lenders may assume that your business started in 2022. Let’s look at the steps to follow when opening a business bank account.
1. Choose a Bank
Take some time to research and find the best bank for opening a bank account. The United States has an enormous selection of banks that you can choose. Some operate locally while others globally. The registration fees payable may also vary from one bank to another. Go for a bank geared to helping small businesses grow.
Here is a list of the best banks for small businesses:
- Wells Fargo
- Regions Bank
- Bank of America
There are other good banks that you can select for your bank account. Take a day or two to do your research and ask around about banks ideal for a small business. Here are a few other tips to help you choose a bank:
- Check the fees associated with opening and using the business bank account.
- Check the termination fees should you decide to close the account.
- Assess the minimum required deposit.
- Check the interest rate if the account is a savings or a certificate of deposits account.
- Go for a bank with reliable and professional customer support.
2. Gather Required Documentation
Once you choose your ideal bank, the next step will be to gather all the requirements and documents. As mentioned above, most banks will require you to have a federal EIN and show proof of business registration before opening a business bank account. You may also be required to issue documents to verify your identity. Here are the documents your bank may ask for:
- Owner’s photo(s)
- Business registration documents
- Federal EIN (Employer Identification Number)
- SSN (Social Security Number) if your entity is a sole proprietorship
- Business license
- Your state-issued driver’s license
- Your United States passport
- Credit card revenue details (if you are opening a merchant account)
We will go over these requirements in a later section.
3. Go to the Bank’s Location or Website
Once you gather all the necessary documents, it’s time to apply for a business bank account. You can either set up an account online on the bank’s website or go physically to one of the bank’s branches. It depends on your bank and business type. For example, some banks may require you to open an account physically if your business has multiple owners.
4. Fill In the Required Documentation
Your bank will, in most cases, issue you paperwork for you to fill in. The information that you may need to complete includes:
- Business name
- Business address
- Business federal EIN
- Type of business structure
- Industry or product or service offered
- Date of application
- Date of entity establishment
- Country and state of business formation
- Owner’s information and address
- Contact information
- Owner’s signature(s)
5. Deposit the Minimum Required Amount
After filling in the required paperwork for opening an account, the last step is to deposit funds. You can put in an initial deposit through an electronic fund transfer, written check, or a cash deposit. The minimum amount that you need to deposit depends on your bank.
Types of Business Bank Accounts
There are several types of business bank accounts that you can open, and they all have their distinguishing characteristics and purpose. It’s crucial that you select the one that meets your business needs. Let’s go over the types one by one:
Business Checking Account
Checking accounts are the most common bank accounts available. You can use them to deposit funds, make withdrawals and payments and transfer money from your account to another. This bank account is suitable if funds constantly move in and out of your business account. Business checking accounts have a low opening deposit. There is also no limit to how many times you can check or access your funds.
Business Savings Account
Business savings accounts are ideal if you want to store funds over a long period. This account, however, comes with certain limitations. You can’t withdraw funds through an ATM, and nor can you write checks. You are also limited to six withdrawals per month.
Business savings accounts are not suitable for a business that constantly moves funds. They are only ideal if you want your funds to stay for long periods and accrue interest. Business saving accounts have a higher opening deposit.
You need a merchant service account to accept credit card payments. When a customer pays you using a debit or credit card, the funds initially go to your merchant account before transferring to your business bank account.
A merchant account is ideal if you run an online business or want your customer to pay via credit card. Setting up a merchant account on top of your business bank account may attract additional monthly and transactional fees.
Foreign Currency Accounts
Foreign currency accounts are suitable if you receive funds in different currencies. This account also allows you to send funds in multiple currencies. One disadvantage of a foreign currency account is that the minimum deposit is high and your total balance fluctuates depending on the exchange rates.
Business Certificate of Deposit Accounts (CDs)
Business certificate of deposit accounts is an excellent alternative to business savings accounts. It offers a high-interest rate, often higher than a money market or savings account. The only disadvantage is that your money stays locked in for a specified amount of time, ranging from a few months to a couple of years. You may be subject to paying steep penalties if you withdraw the funds earlier than the set time.
Business Money Market Accounts
Business money market accounts are like a hybrid of checking and saving accounts. They are interest-bearing and allow you to write checks and make ATM withdrawals using debit cards. These accounts, however, require a minimum deposit. There is also a limit on the number of transactions and withdrawals you can make.
Why You Need a Business Bank Account
The key reason why you should open a business bank account is to separate your business funds from your personal finances. The commingling of finances makes it difficult to distinguish business transactions from personal ones. It essentially makes running your business more challenging. Let’s look at a few other reasons why you should have a business bank account:
Your Business Will Look More Professional
The way you present yourself to customers, investors, and partners matters in business. Having a business bank account shows all your stakeholders that you are serious about being in business. It builds confidence with your clients, investors, and suppliers, making you come off as more professional. A business bank account also shows that your business is here to stay.
You Can Accept Credit Card Transactions
As mentioned above, you can’t accept credit cards without a merchant account. This type of business bank account acts as a holding account for payments made via a credit card. Most customers now consider credit card payments the norm. Without this payment method, you’ll be limiting the number of clients who want to conduct business with you.
It Simplifies Expense and Revenue Tracking and Preparing Tax Reports
Having a business bank account makes it easier for your accountant or bookkeeper to track your business expenses and revenue. Since the bank account is purely for business purposes, they won’t have to keep asking whether a transaction was personal or for business intentions. Your accountant won’t have to sort all transactions to distinguish personal ones from those of the business.
Your accountant or bookkeeper will spend less time creating financial statements for your business. They can also prepare tax reports quickly and more efficiently.
Building a Business Credit Profile
With a business bank account, you can begin building a credit profile for your business. Having a good business credit profile will enable you to take loans, mortgages, and lines of credit in your business’s name. The bank will feel more confident lending funds to your business.
Documents Required Depending on Business Structure
Your bank may require you to submit various documents depending on your business structure. Let’s look at some of the requirements in each business structure.
The requirements for opening a business bank account for a sole proprietorship include:
- SSN – If your business is a sole proprietorship with no employees, you can use your SSN to open a business bank account.
- DBA certificate – The bank may ask for a DBA certificate if you’ve registered your business as a DBA. A DBA certificate allows you to conduct business in a trade or fictitious name.
- Personal identification documents – Your bank may also request personal identification documents such as a driver’s license and passport to verify your identity.
Here are the requirements for opening a business bank account for a partnership:
- Partnership agreement documents – The bank may request a partnership agreement or any other documents to prove the legal existence of your business.
- Federal EIN – You will need a federal EIN to set up a business bank account for your partnership.
- Business license – You may need to provide your business license to show the legitimacy of your business. This requirement depends on your industry.
- DBA certificate – If your entity is a general partnership operating with a fictitious business name, you may have to submit a DBA certificate.
Limited Liability Company (LLC)
- Federal EIN – Your bank will ask for your federal EIN to verify your business’s identity.
- Articles of organization – Your bank may request business formation documents like articles of organization to show your LLC’s legal existence.
- DBA certificate – If your LLC conducts operations with a name other than that registered with the state, you may have to provide a DBA certificate to verify your business name.
- Articles of incorporation – When opening a business bank account for a corporation, the bank may request certified articles of incorporation or a corporate charter.
- Corporate resolution – The bank may also ask for a corporate resolution signed by owners or managers who will become signatories in opening the bank account.
Other documents required for setting up a business bank account for a corporation include:
- Federal EIN
- Business licenses
- Signatories information
Can You Open a Business Bank Account with Bad Credit?
Yes, you can set up a business bank account if you have bad credit. However, there might be a limitation to the number of banks that will allow you to open an account. Some banks run a credit check when opening a business bank account. Even though you are not asking for a loan, they may still consider your business a potential risk.
How Long to Open a Business Bank Account?
The process of opening a business bank account may take a day to a couple of weeks, depending on the bank and the business structure. The more complex the entity structure, the more time it may take to verify all the information and set up the bank account.
Opening a business bank account is a crucial step that comes after forming and registering a business. The steps to follow when setting up the account include choosing a bank, gathering required documents, and applying online or at one of the bank’s local branches. The bank will open your business bank account once you fill in the paperwork and make the minimum initial deposit.
There are six types of business bank accounts that you can set up. They all have their distinguishing features or characteristics. You need to go for the one that enables your business to meet its financial needs and obligations. The documents required to open a business bank account include business registration and personal details, federal EIN, and business licenses.