As soon as you decide to start spending or accepting money as a business, you should open a business bank account, which is an essential step in managing your finances. Common types of business accounts include a checking account, a savings account, and a merchant account, the latter of which allows you to accept debit and credit card payments from customers.
While there are a few steps involved in opening a business account, the application process is usually straightforward and you can open an account in a matter of minutes (although it may take several business days to receive debit and credit cards and checks). Some major financial institutions, like Bank of America, let you apply and submit your documents online. Choosing a bank that allows for an online application can speed up the process and help you open a business bank account as soon as you need it.
Learn more about business bank accounts, types of business accounts, the benefits of business banking, and the steps you’ll take to actually open an account.
Key Takeaways
- Types of business bank accounts include checking, savings, and merchant accounts.
- A business bank account can protect you from liability, improve your cash flow, allow debit and credit transactions from customers, provide tax benefits, and give you purchasing power.
- Many banks allow you to open a business account online in a matter of minutes.
- Steps to open a business account include choosing a type of account, providing necessary information and paperwork, and making a deposit.
Types of Business Bank Accounts
Business Checking Accounts
Small business checking accounts are ideal for businesses that need to write checks, withdraw money with a debit card, and receive or transfer money electronically.
Note
Business checking accounts may be the most versatile bank accounts for businesses as they have fewer restrictions on how you can handle your money and give you several ways to withdraw funds.
You can deposit money into a business checking account with electronic transfers, wire transfers, check deposits, and ATM deposits. Checking accounts can also integrate with popular business tools and accounting software to make reports and transactions easy to manage. Some banks also offer Positive Pay, a cash-management tool helps prevent check fraud.
Business Savings Accounts
Business savings accounts are ideal if you want to save for major purchases like equipment, create an emergency fund for unexpected events, or earn interest. Many banks typically offer competitive interest rates on high-yield savings accounts with little to no monthly fee depending on your account balance. Minimum requirements for opening deposit amounts may vary.
Merchant Services Accounts
If you plan on accepting debit and credit card payments from customers, you’ll need a business merchant account. When a customer pays with a card, the money goes directly into your merchant account and then gets transferred automatically to your business account. Merchant accounts have their own fee structure, so make sure you familiarize yourself with the costs before you sign up.
The Benefits of a Business Bank Account
Small business bank accounts can help you separate your personal and business finances, keep your business records organized, give you limited liability protection, and add a level of professionalism and credibility to your business. Merchant accounts, for example, allow your customers to pay for goods and services with a credit or debit card and can offer purchase protection for customers, ensuring that their personal information remains secure.
Here are some other benefits that business bank accounts can provide:
- Accurate taxes: Your business account can help you file accurate tax returns as business transactions are separated from personal transactions.
- Higher interest: With a business savings account, you can earn more interest on the account balance compared to a checking account. This can help maximize your cash flow over time.
- Purchasing power: A business credit card account can help your business make larger purchases and establish a credit history.
- Preparedness: If your business bank account comes with a line of credit, you can use this for new business equipment or in the event of an emergency.
- Business expense deductions: You can deduct business expenses from your business’s tax return and this is easier to do with a business account statement that can serve as proof of expenses.1
Who Needs a Business Bank Account?
While sole proprietors, freelancers, contractors, and limited liability companies aren’t legally required to open a business bank account, it can be beneficial during tax season. A separate business account can allow you to clearly identify capital expenditures, rent expenses, insurance costs, and any interest on business loans, which can make it easier to find deductions and file returns.
Business accounts are also critical for entities that want to build their credit history or apply for a line of credit.
Note
Opening a business bank account that includes a business credit card and establishing credit with vendors and suppliers are some of the key ways to generate a business credit score. Once you have established a credit score, you can check with a credit reporting agency such as Experian whether your business has a credit file and, if so, you can obtain a credit report.
How To Open a Business Bank Account
Start by choosing where you want to bank. Some business owners choose to open a business account at the same bank they use for their personal bank accounts. As you compare different banks and financial institutions, be mindful of account restrictions and the fees associated with the account.
When you open a business bank account, you will need to provide certified documentation to verify your business. If you’re a sole proprietor, for instance, a business license and a registration of your trade name might be required, while partnerships may need to bring in partnership agreements or a statement of qualification depending on the type of partnership.
Below are some general guidelines to opening an account.
Visit the Bank Website or Branch
The easiest way to open a business bank account is to visit the financial institution’s website. The advantage of opening an account online is that you can do it at any time and from anywhere. If you prefer to do this in person, you can visit the bank’s branch during business hours.
Choose Your Account
Compare the different types of bank accounts available and choose the one you need. Choose a traditional business checking account if you are looking for more flexibility with your finances, or a business savings account if you plan on setting business profits aside for the future.
Note
If you want to open a merchant account, you first need to have a business bank account.
Depending on what your business goals are, you may need just one account or all three, so take the time to solidify your business plan before you open a business bank account.
Provide Your Information
Opening a business bank account is easy once you’ve chosen the type of account you need. The next step in the process will require you to provide specific details such as:
- Your business formation documents
- Your business license
- Your employer identification number (EIN)
- Your Social Security number (if you are a sole proprietorship)
- Partnership agreement (if your business is a partnership)
Make a Deposit
Once you’ve opened your business account, you’ll need to deposit funds. You can do this by an electronic funds transfer, writing a check, or depositing cash.
Note
Some banks offer a remote deposit capture option (also called remote deposit) that allows you to deposit checks by capturing the image of the check on your mobile device so you don’t even have to leave your home or office.
Frequently Asked Questions (FAQs)
How do you open a U.S. bank account from overseas?
Although it’s possible to open a U.S. bank account as a non-resident or foreigner, the process is not as easy, as most banks require you to have a U.S. address and a Social Security number (or an Individual Taxpayer Identification Number if you are a resident or nonresident alien). The requirements may differ from state to state so it’s best to inquire with your desired bank before applying. To open a business bank account as a nonresident your business must be registered in the U.S. and have an EIN.
How long does it take a business account to open?
You can open a business account online in a few minutes although the bank may take several business days to review your documentation and send out the necessary checks and cards.
How much money do you need to open a business account?
Minimum deposits to open a business bank account can vary. Wells Fargo, for example, requires a $25 minimum deposit, while other banks may not need any deposit to start—though certain restrictions like keeping a daily minimum balance may apply.2 Be sure to read the fine print on a bank’s website.
