- It can help simplify your taxes and protect your assets
- Makes bookkeeping easier
- Can help increase your business’s credibility—and access to credit
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As its name suggests, a business checking account is a checking account designed for business use. It can help small business owners separate their income and expenses from personal ones. It can also help simplify your life come tax time.
At a nuts and bolts level, a business checking account is similar to a personal checking account, but you’ll need to jump through some extra hoops to open one. Below, we’ll take a closer look at business checking accounts and explore who needs them, why they can be helpful, and how to get started if you’re ready to open one.
Business checking accounts aren’t that different from personal checking accounts. Like a personal account, a business checking account allows the account holder—who must be or be associated with a business entity—to store and use money securely and conveniently.
For instance, a business checking account will allow you to:
Remember that there are differences between a business checking account and a personal one. For one thing, business checking accounts are specifically and exclusively for business entities, so you’ll need to provide documentation proving your business exists to open one.
Additionally, business accounts are often subject to transaction limitations (or per-cost transactions over a certain monthly threshold), and their maintenance fees may not be as easy to waive.
Business checking accounts are for business owners, including sole proprietors. If you have a structured business, like a limited liability company (LLC), S-corp, or C-corp, you should be able to open a business checking account using your EIN (employer identification number). If you’re a sole proprietor, you should be able to use your Social Security number instead.
Like personal accounts, you can choose from several types of business bank accounts, depending on your company’s needs.
Business checking accounts allow you to store, access, and use your business’s funds. You can receive payments, withdraw cash, and pay bills, staff, and vendors.
Business checking accounts should not be used for personal expenses, even if your business is a sole proprietorship. The whole point of having a business and personal checking account is to separate business and personal funds. To gain the benefits of separate checking accounts, it’s important to pay yourself and transfer those funds to your personal account.
Operating a separate business savings account can help improve your business’s finances. And many business savings accounts offer higher interest-earning potential than checking accounts while maintaining FDIC coverage.
If you plan to accept credit card payments, you’ll need a merchant account. This account is separate from your primary business checking account and may come with its own fees.
These days, many popular end-to-end merchant service platforms, like Square, provide a merchant account or merchant account functionality as part of their services. It’s also worth remembering that some banks may waive business checking account fees if you sign up for merchant services.
Here are a few of the most prominent differences between business and personal checking accounts.
Business Checking Account | Personal Checking Account |
---|---|
Specifically for businesses | It can be opened by most U.S. residents over the age of 18 |
Used for business-related expenses such as payroll, paying vendors, or receipt of revenue | Used for everyday personal finances such as receiving paychecks and paying bills |
Carry monthly maintenance fees, and may charge a fee per transaction once you go over the set limit | Often, don’t apply a monthly maintenance or account fee or make these fees easy to waive |
Like any other financial product, business checking accounts have drawbacks and benefits.
Here’s a closer look at some of the main benefits of operating a business checking account.
Gathering the information to file tax returns can be stressful, especially if you are a sole proprietor or small business. Keeping your business finances separate makes it substantially easier to see exactly how much you’re earning and how much goes toward expenses—and calculate how much you owe Uncle Sam.
Consider opening a separate business savings account to set aside your quarterly taxes. That way, you won’t accidentally spend the money on other things.
Having a separate business checking account simplifies bookkeeping. Your business bank account will give you a bird’s eye view of your company’s financial comings and goings, which is much easier than trying to identify and separate relevant transactions from the chaos of your personal account.
Having a business checking account can increase confidence among your clients and suppliers. When payments hit their account (or you offer your credentials on an invoice), they’ll see that you take your business seriously enough to separate it from your personal finances.
Additionally, a business checking account can help you build credit as a business entity, which is important if you ever want to take out a business loan or line of credit. Your business will eventually have its own credit score, and opening a business checking account is one of the first steps toward that goal.
While incorporating is an essential step toward protecting your business assets in case of a lawsuit (alongside taking out business insurance), separating your business’s finances adds another layer of protection for your personal assets.
While every bank has specific requirements for opening a business checking account, here are some of the most common documents and information you may be required to have.
Your EIN is the unique identifier that makes your company recognizable to the IRS. Filing for an EIN is one of the first steps you’ll take after you incorporate your business. If you’re an unincorporated sole proprietor, you should be able to use your Social Security number instead.
Articles of incorporation or organization are used to establish your business as an entity in the state you’re doing business in. This document also proves to the bank that your business is real, so most require you to upload them as part of your business checking account application. Again, sole proprietors are excused from this requirement.
Along with your EIN, all authorized signers (not just the business owner) must provide the bank with their Social Security Number.
Many business checking accounts require a minimum initial deposit, which you’ll need to have ready to go as soon as the account opens.
With so many business checking accounts available, shopping for the right one can be challenging. Here are some highlights to remember when deciding which account is right for you and your business.
Lili Premium Business Banking | U.S. Bank Platinum Business Checking | |
---|---|---|
APY* | N/A | N/A |
Monthly fee | $35 | $30 waivable; 500 free transactions/month, then $0.40 fee per transaction |
Promotion | $35 | Up to $800 |
Business checking accounts may come with monthly maintenance fees, additional per-transaction fees, cash deposit processing fees, lost debit card fees, and more. These expenses can add up over time and cut your profit margins, so it’s worth shopping for the most affordable option.
Access to fee-free ATMs will be critical if your business regularly uses cash. If you prefer to interact with a teller, you’ll want to choose a bank with brick-and-mortar locations. Consider what’s most important to you when shopping for your bank-to-be.
It’s always nice to make money just by having money—and if you choose an interest-bearing business checking account, you can do just that. Some banks may offer a special introductory cash-back bonus or other rewards if you deposit more than a certain minimum threshold.
Opening a business checking account is easier than ever. Here’s what you’ll need to do.
There are plenty of financial institutions to choose from. Narrow your choice using the points we’ve already covered. Many business owners prefer to do their personal and business banking in the same place, but choosing the bank with the lowest fees may be advantageous, even if it means going elsewhere.
You’ll also need to decide which specific business checking account you want. Many banks offer several business checking accounts, which may have varying minimum daily balance requirements, transaction limitations, and fees.
You’ll typically pay more for additional services and fewer account restrictions. You need to decide if it’s worth paying more for the extras that are offered. Remember that you can always start small and upgrade later.
Once you’ve decided on your business checking account, follow the bank’s instructions to open the account. If you’re opening your account online, you’ll likely be able to upload the required documentation from home, though it may take a few business days for your account to be activated.
Although it does take a few extra steps and adds another cost, opening a business checking account can make your life much easier. These accounts can go a long way toward legitimizing your business, simplifying bookkeeping, and protecting your assets. And these days, they can be opened online in minutes.
Yes, a good business checking account will be covered by FDIC insurance. For incorporated business structures, this insurance is separate from personal funds held at the same institution, meaning up to $250,000 of personal funds and up to $250,000 of business funds will be covered.
Unincorporated sole proprietors get less protection. For them, the $250,000 maximum covers both business and personal funds at the same bank.
Banks constantly shift their account offerings, developing new features or lowering costs to become more competitive. Major financial institutions like U.S. Bank, Bank of America, and Wells Fargo offer business bank accounts, but smaller institutions and digital-first banks are also worth considering.
The U.S. Small Business Administration recommends opening a business bank account when your business starts accepting or spending money. If you want to follow that advice, you should open the account before you receive or send payments or as soon as you become a business owner.
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