How to Open a Business Bank Account in 6 Steps (+ Checklist)
Every business needs to have at least one business bank account to organize its finances properly. When starting a business, it is one of the first things you should set up.
Even if you are operating a small business or are a solopreneur, it is recommended that you separate your business bank account from your personal bank account.
Operating a business bank account makes your business more credible, organizes your taxes, and helps you keep track of your business finances.
In this article, you will learn everything you need to know about opening a business bank account.
There are six steps you need to take to open a bank account.
- Choose the Best Type of Bank Account
- Find the Right Bank
- Check the Account Fees
- Gather the Required Documents
- Open a Business Bank Account Online or In Person
- Deposit Your Funds
Let's get started.
Step 1: Choose the Best Type of Bank Account
There are numerous bank accounts you can choose from. To make those choices depends on what you want to use the account for. Types of bank accounts for business include:
- Checking Account – A liquid bank account that allows you to make numerous withdrawals and deposits. Businesses can easily access their funds through cheques, automated teller machines, electronic banking, debit and credit cards, direct deposit, and lots more. This business bank account type is best for businesses that make withdrawals frequently to fund their business operations. However, note that there are little or no interest options available with this account type.
- Savings Account – A type of bank account that allows businesses to save money and earn interest from their savings. It is an excellent business bank account for saving excess business funds and earning from it. This type of account limits the number of monthly withdrawals your business can make.
- Certificate of Deposit (CD) – A savings account that keeps the money for a fixed period of time. This account gives a time range (from five months to five years) before money deposited into it can be used. If you withdraw money from the Certificate of Deposit (CD) account earlier than the maturity date, you have to pay a penalty. There are exemptions to this rule. Some banks allow early withdrawal from flexible Certificate of Deposit accounts without penalty. The Certificate of Deposit account is suitable for businesses who are certain that the money kept in it will not be touched before the expected date. Money saved in a Certificate of Deposit (CD) account attracts a higher interest rate than in a savings account. You can reinvest your business funds at the end of the maturity date.
- Merchant Account – A type of business bank account that allows electronic card transactions for payment. It is mostly used by businesses that allow debit and credit card transactions. Money paid to the business entity from these cards is placed in the merchant account before being transferred to your other business accounts after two or three days. There are charge fees per transaction. Merchant accounts have contracts that can be canceled before auto-renewals are made. Cancellation of auto-renewals leads to payment of fees.
- Money Market Account – This business bank account type is similar to both saving and checking accounts. It gives full access to your money, unlike the Certificate of Deposit account. Deposits and withdrawals can be made, but there is a restriction on the number of transactions that can be made. Money market account attracts more interest for your business funds. It supports the use of cheques and debit cards.
You can open more than one account for your business. There are no restrictions on having other business bank accounts with multiple banking institutions.
For your ongoing business costs, a business checking account is the best choice. For keeping extra earnings, a business savings account, business merchant account, or business money market account is advisable. Ensure you compare your options and select a bank account that best suits your business needs.
Step 2: Find the Right Bank
There are some factors you have to consider to get the right bank for your business bank account. They include features and services, fees or charges, loan offers, branches, online facilities, customer support, and bonus or reward offer.
1. Features and Services
Getting information on services offered by banks helps to make a great choice for your business. Check the banks for services that you need and also ensure the features you need are available for the account type you choose.
Some examples of features and services you want to check out include:
- Access to debit cards
- ATM fees
- Use of cheques
- Payment of bills
- Safe deposits
- Online transfer
You need to compare the fees charged by different suitable banks before deciding on a suitable pick. There are some bank charges to put into consideration like maintenance fees, transaction fees, annual charges, etc.
Also consider monthly bank charges on services fees, maintenance fees, ATM fees, overdraft fees, minimum balance fees, and more.
Endeavor to have an idea of monthly, weekly, and daily charges and limits on transactions. It is advisable to find banks that offer limitless transactions or lesser charges on each transaction.
Raising capital is one of the biggest concerns of startups and established businesses. Situations may arise where you need loans to fund your business operations
Financial institutions like banks offer loans to different organizations You may want to find out about business loan eligibility criteria to ensure that the bank can lend money to your company.
Before taking a bank loan, compare the interest rates with other banks. Enquire about the repayment terms, availability of emergency loans, and how long it takes to process these loans.
You can also compare your earning rates to the amount earned from rates on interest-yielding bank accounts.
Make inquiries about the location of the bank's office branches. Selecting a bank with physical locations near you helps you to make complaints easily and get issues resolved faster. ATM branches for withdrawing cash and making other transactions should be located close to you.
5. Online Facilities
Nowadays, it is easier and faster to process things online. Find out if your bank of choice supports electronic banking, the use of ATMs, and mobile applications. Online facilities save time, give easy access, and are dependable.
6. Customer Care
Round-the-clock support from the bank is necessary. In case of any emergency, the bank should be at easy reach at all times.
Also, check for the mediums of customer support. Ideally, it should offer customer support via emails, phone calls, physical branches, live chat, and more.
7. Bonus or Rewards Offer
Deposit bonuses are sometimes offered by banks to attract new customers. There are other incentives that banks use to encourage you to open a business account with the bank.
Bonuses such as cash price, automobile gifts might be available. However, do your due diligence when choosing a bank. Ensure it provides other valuable services and features apart from just bonuses.
Best Business Bank Accounts
Some of the best business bank accounts for small businesses and other business sizes include:
- Wells Fargo
- First Citizens Bank
- Bank of America
- U.S. Bank
Step 3: Check the Account Fees
An important factor to consider is the cost of opening an account. The cost of various business bank accounts differs from each other.
Account Fees for Business Checking and Saving Accounts
1. Monthly Fees
These charges might be written off if your business meets some criteria such as linking both savings and checking accounts together or maintaining the bank's minimum balance.
- The monthly fees while using a business checking account range from $0 to $29.
- The monthly fees while using a business saving account costs $0 to $15.
2. Transaction Fees
Transaction fees refer to the charge on every transaction made, either through transfers, using ATMs, depositing, etc. It costs 0.40 to 0.50 cents per transaction on checking accounts and $5 to $20 on business saving accounts.
Exceeding the number of transactions to be made per month also leads to extra charges for business savings accounts.
3. Cash Deposit Fees
Cash deposit fees are usually charged when the amount deposited is higher than the monthly allowance of the account.
For cash deposit fees, 2% to 3% is deducted from both the business checking and business saving accounts.
4. Wire Transfer Fees
This charge is made on all local and international wire transfers, either incoming or outgoing. It costs $15 to $45 on checking accounts and $10 to $45 on saving accounts.
5. ATM Fees
ATM fees are only charged for transactions made on ATMs of other banks. It costs $2 to $3 per transaction on business checking accounts.
Account Fees for Merchant Accounts
While using merchant accounts, the rate per transaction varies from card type, ranging from 0.13% to 0.15%.
There is a fixed percentage of charge for each transaction. The charge ranges from 1% to 3%.
Other account fees for merchant accounts include:
- Annual Fee is deducted yearly. It is usually a percentage of your transaction revenue
- Authorization Fees are charged every time a debit or credit is swiped.
- Processing Commitment Fees are charges for failure to make a particular number of transactions in a month.
- Incidental Fees like cancellation, verification, chargeback, and PIN verification charges are also feasible.
Account Fees for Business Money Market Accounts
Business money market accounts do not charge service fees. The account can be opened with $500- $2500 initial deposits.
If the initial amount can not be paid as a minimum balance, there might be maintenance fees or charges. It is only when the minimum balance can not be met that these charges occur.
Step 4: Gather the Required Documents
There are various documents that need to be presented at banks before opening bank accounts. Even if you are switching from one bank to another, these documents are still required.
1. Personal Information
You need to submit your personal information to open a bank account. Your bank will give you a form in which you have to fill in the following information (for sole proprietorship businesses):
- Contact information
- Residence address
- Email address
- Social security number
- Picture ID, and more.
For businesses with more than one owner, information about your ownership percentage must be included.
Proof of address like phone or electricity bills is necessary to show that the business is operating at the physical address you gave the bank.
2. Identification Documents
Documents like driver's license, passports, identification cards, etc. are needed by the bank to verify your identity with the business registration information.
For businesses owned by more than one owner, every owner must present necessary identification documents too.
3. Doing Business As (DBA) Name Registration
A DBA name shows that a particular business is being operated with a name different from its legal name. Using a fictional name for your business requires registration with the state.
Equivalent documents such as trade name certificates and fictitious business name statements can also be used.
4. Business License
The business license shows your business is legitimate and is being run in compliance with the law. To prove to the bank that you have been permitted to do business in your region or state, you need to present your current business license.
Either you run an LLC (Limited Liability Company) or you are an individual proprietor, your current business license is required.
5. Tax Identification Number
A tax identification number is a type of identification number issued out for tax payment.
The tax identification number is needed to manage tax and salary payments for employees. As a sole proprietor, you can make use of your social security number to pay taxes for your business.
6. Employer Identification Number and Social Security Number
Employer Identification Number is similar to social security number for businesses and it is required even without employees. Social Security Number can however be used in cases of a sole proprietorship.
In cases of a Limited Liability Company (LLC), an Employer Identification Number obtained from the Internal Revenue Service (IRS) is required by the bank.
7. Record of Credit Card Revenue
Details of the average revenue of your credit card must be provided to the bank. It is mostly required to open a merchant services account. New businesses that do not have this record should present an estimate of the amount they anticipate.
8. Articles of Incorporation
Articles of incorporation reveal certain information such as the structure of the business, how the business is operated, and how finances are managed by the bank.
This document can be used to register businesses.
9. Ownership Agreements
An ownership agreement is a type of document made between company owners to show the management of the business.
If the business is a partnership or corporation, a partnership agreement must be created by every individual involved. It shows the operation of the business, rights, and other responsibilities of the owners.
10. Funds Deposit
Some banks require minimum deposits to open bank accounts. Depositing at least the minimum amount makes the account active.
Required Documentation According to Business Account Type
The documents required to open one type of business bank account differ from another. They include:
- Sole Proprietorship – Personal identification, business license, business documents, social service number.
- Partnership – A partnership agreement that must be signed by all the partners in the partnership agreement.
- Limited Liability Company (LLC) – Article of incorporation, partnership agreement (if any), and business license.
Step 5: Open a Business Bank Account Online or In-Person
To open a business bank account online, follow the following steps.
- Choose Your Desired Bank. Before doing this, research various banks available to you. Then, select the bank that suits your business.
- Get Required Documents. You need to have a means of identification and other required documents like a driver's license, business registration certificate, business license, and social security number.
- Register on the Bank Website. On the bank's website, locate the online application section. Select the business checking account option or any other business account type you want to open. Complete the application form and submit it.
- Set a username and password where required.
- Verification. Pull a call through to the bank customer support. Ask for verification and other important information.
- Deposit Money to Make the Account Active. Proceed to make your first deposit to activate the account you just opened.
To open a business account bank in person, follow these steps:
- Pick your desired bank.
- Visit the branch office or any headquarter.
- Fill in the application documents correctly.
- Fund your new business account.
Step 6: Deposit Your Funds
Depositing funds into your business bank account is very easy.
- Fill a deposit slip issued by the bank. Details to fill in might include the depositor's name, amount to be deposited, account number to deposit into, signature, etc. Ensure you fill in the appropriate details. These details are compulsory for banks to keep records.
- Make others copies of the deposit slips. It will come in handy in case a problem arises with your deposit.
- Crosscheck the details on the deposit slip. Confirm the deposit and input it into the company's logbook.
- Ensure you collect your receipt.
- Make other copies of the receipt. It will come in handy for future references, making your accounting easy.
Benefits of Opening a Business Bank Account
1. Proper Organization
Your business bank account should be separate from your personal account. It helps to cut unnecessary or excessive spending on your business finances.
There is proper tracking and monitoring of your finances when you open a business bank account. Banks also provide financial statements that your bank generates for you for auditing and other internal accounting.
2. Safekeeping of Funds
Situations might arise where the business runs into some sort of legal trouble. Using a business account prevents exposure of your personal assets to loss.
When you use an FDIC-insured bank, your business funds are safe even if the bank goes bankrupt.
Using your business bank account while making or receiving payments from suppliers or clients paints the picture of expertise and shows a professional front. It also gives the impression of an authentic business and shows credibility.
4. Evidence of Legitimate Business
Having a business account helps to show a clear trace of your business dealings. It helps to prevent suspicions of fraud from the IRS (Internal Revenue Service) and other law enforcement agencies in case of audits. You also get business owners' benefits and write-offs.
5. Access to Business Loans
To get access to business loans, business bank accounts are required. It is also required by the IRS for your incorporated businesses.
6. Integration with Business Accounting Software
Business accounts support integration with accounting software. It allows for easy processing and management of your corporate accounts.
Chase Bank is highly recommended due to its provision of automatic loans, mortgage, and bonus offers. It is easy to open a business account in Chase Bank because of numerous bank branches and ATMs which make it easily accessible to users anywhere they are.
Also, a minimum deposit is not a mandatory requirement for opening a business account with Chase Bank. The bank provides access to mobile banking, use of debit cards and ATMs. It has an annual percentage yield of 0.01%.
Wells Fargo has a large network of branches. More than one account can be opened with Wells Fargo. Excessive monthly charges are avoidable. There is good customer care service.
Novo Bank's business checking account has no monthly charge or transactional charges. Integration tools are also available. Novo Bank is easy to use because of its efficient online banking access. Bank-related issues are quickly resolved without having to visit a branch office.
The cost of opening a business bank account differs from bank to bank. It also depends on the type of account you want to open.
The price ranges from $5 to $1000. However, some banks allow the free opening of business accounts. Kindly enquire from your bank of choice to know the exact amount you're required to pay.
Opening a business bank account takes roughly fifteen to twenty minutes online when all requirements are ready. The whole process may last for up to a week or more. During this time, the bank confirms all the required documents and information provided.
You are not required to open a business bank account if you are self-employed. However, It is advisable you get one because of the benefits of using a business bank account.
Having a business bank account makes your business look valid and professional. It makes it easier for you to make accurate tax deductions.
However, extra charges ranging from $5 to $15 might apply. Making use of a personal account for both your business and personal needs can lead to errors.