How to Open a Business Checking Account
From the startup just starting out to the sole proprietor flying solo, it’s essential that you have a dedicated bank account if you’re a small business owner and serious about your financial viability.
There are lots of accounts to pick from, but a business checking account is a simple, smart first choice for managing your expenses and revenues.
Keep in mind that if you’re new to business banking, it’s not quite the same as opening a personal checking account.
There are different criteria involved, and as a businessperson, you’ll need to provide different types of documentation before becoming an account holder.
Why You Need a Business Checking Account
Before opening a business checking account, think about some of the reasons why you need one in the first place.
The professional way
If you have ambitions of success, whether it’s opening a small web store or eventually going public on the stock market, dealing with hard currency only won’t get a business very far.
A checking account is a secure way to manage that cash flow, pay vendors and other expenses, and act as a repository for depositing income.
Separate from personal expenses
It might seem like no problem, if you’re a freelancer, to put some business expenses on your personal debit or credit card. But, it’s not a good idea.
Unfortunately, up to one-quarter of small business owners lean on their personal checking accounts for business purposes.
If you anticipate any kind of fiscal business growth, eventually your personal and business expenses will start to get mixed up, it’ll become harder to keep track of transactions.
There could even be legal or tax implications involved without a dedicated business account strictly for business purposes.
In this case, a business checking account simplifies your bookkeeping records and enables you to build a better business budget.
Easier to file taxes
Having a business checking account doesn’t give you any automatic tax advantages, but it can help identify the expenses you can deduct from your annual income taxes.
Putting all -- or even some -- of your business expenses on a personal account could mean missing these money-saving opportunities.
Enhances legal protections
Using a business versus personal checking account to segregate your various expenses can also help avoid legal implications should they arise.
By keeping a dedicated record of business transactions, a business account can prove to be one of your best defenses if you’re ever sued or taken to court.
One reason? You can’t be accused of combining (or confusing) private spending with business expenses.
What You Need to Open
Make no mistake that personal and business checking accounts are similar in structure, and much of the requirements for opening them are the same.
But owning a business means having to take a few extra steps when opening your account.
The first thing you’ll need is a business. No, we’re not being facetious.
You might have intentions of starting your own business and want to open a business checking account to get a headstart on things, but you’ll actually need to be in business first and have the paperwork to back it up.
In every case, you’ll need to provide basic documentation with your business name and the type of work you do.
The type of documentation a bank will need from you generally depends on your business structure, since it plays a big role with the IRS and how much you may pay in taxes each year.
Here’s a breakdown of different business structures, and the types of paperwork you’ll need for each when applying for a business checking account:
Sole proprietorship
If you’re a sole proprietor, you own and operate your business by yourself, so opening a business checking account will be similar to that of a personal account.
According to the U.S. Small Business Administration, sole proprietors opening a business account need to provide their bank with:
- A business license stating your and your business’ real names, or a Fictitious Business Name document if your business functions under a name that differs from your own
- Your Social Security number or your Employer Tax Identification number -- also known as your EIN for filing income taxes --
- Two different forms of ID (e.g., driver’s license, a passport, birth certificate, etc.)
LLC
You may have seen these three letters following the name of a business, where “LLC” stands for “Limited Liability Company.”
Literally speaking, if you’re an LLC, that means you have limited tax liability in that you don’t need to file a corporate tax return, plus other legal protections.
To become an LLC, you’ll have needed to file the necessary documentation with your state -- and to open a business bank account.
You’ll need to provide the bank with your EIN along with other documentation, like business licenses, and a signed business partnership agreement certified by the state.
Corporation
In terms of small business, you could be one of many types of corporations, like an S-Corporation, a C-Corporation, even a nonprofit corporation.
Whatever your aim or designation is, for the purposes of opening a checking account, you’ll need to provide your EIN, a certified article of incorporation and/or a corporate charter, plus your business license.
Nonprofits need checking accounts, too, even if the profits go somewhere else, and in this case, your bank will need your proof of 501(c) status or tax exemption.
Rules to Remember
Even with all your documentation and paperwork in place, there’s more to remember:
- According to the SBA, if you’re a telemarketer, precious metal dealer, professional gambler or government entity, you can only open a business checking account in person, not online.
- Though business checking is not a loan or form of borrowing money with interest, banks may still check your credit, especially if you’re a sole proprietor.
- However, not every bank uses ChexSystems, a reporting agency that collects data on your banking and checking activity (similar to the three credit reporting bureaus). If you have a history of poor credit or negative banking activity, look for financial providers and business checking accounts that don’t involve ChexSystems.
- While this fact will likely become evident after you’ve obtained your necessary business licensing and documentation, check to see if your proposed business name isn’t trademarked or in use by someone else, or you could be denied a business checking account. How do you tell if your catchy name is taken or not? The SBA recommends using the United States Patent and Trademark Office’s search database.
Where to Open a Business Checking Account
That ultimately depends on you and your personal preferences -- and with that, don’t be discouraged from opening an account where you do your personal banking, especially traditional banks.
Traditional banks
Combining personal and business checking accounts isn’t a smart idea, but opening separate accounts at a national bank can be a wise move if you’re happy with your bank’s level of service.
However, some traditional banks may not offer what you need, so research and check around for the right fit.
The right bank will specialize in working with small businesses and have the right products for them.
Business Savings Cash Deposit and Transaction Fees at Top U.S. Banks
| Bank | Account | Cash Deposit Processing Fees | Transaction Fees |
|---|---|---|---|
| Wells Fargo | Business Market Rate Savings | No fee for first $5,000, then $0.30 per $100 deposited | No fee for first 20 transactions, then $0.50 per item |
| Capital One | Spark Business Savings | No fee for first $2,000, then $2.00 per $1,000 deposited | None |
| Live Oak Bank | Live Oak Business Savings | N/A | No fee for first 6 transactions, then $10 per item |
| Bank of America | Business Advantage Savings | No fee for first $5,000, then $0.30 per $100 deposited | No fee for first 25 transactions, then $0.45 per item |
| Chase | Chase Business Total Savings* | No fee for first $5,000, then $2.50 per $1,000 deposited *For all Chase business accounts, fee is only charged if you need a night drop, post verification, or immediate verification. |
No fee for first 15 transactions, then $0.40 per item |
| Santander | Basic Business Money Market Savings | $0.22 per $100 deposited for Express Cash Pack, or $0.15 per $100 (for deposits $500 or less), or $0.27 per $100 deposited (for deposits $500 or greater), for Non Express Cash Pack | None |
| Fifth Third Bank | Business Relationship Savings | For deposits $25,000 or less, $0.026 per $1 deposited For deposits between $25,000 and $100,000, $0.032 per $1 deposited For deposits $100,000 or greater, $0.037 per $1 deposited |
No fee for first 100 transactions, then $0.515 per item |
| M&T Bank | Commercial Savings | No fee for first $5,000, then $0.25 per $100 deposited | No fee for first 10 transactions, then $1.00 per item |
| Citizen's Bank | Business Savings | No fee for first $5,000, then $0.75 per $1,000 deposited | No fee for first 200 transactions, then $0.50 per item |
Credit unions
Credit unions are another option.
Their customer-centric focus lends itself to higher interest rates on interest-bearing deposit accounts.
For business accounts, credit unions tend to allow higher deposit limits than your online or brick-and-mortar bank, sometimes up to $5,000, $10,000 or $20,000 per month.
The luxury of high monthly deposit limits is a great asset to have in a checking account if you anticipate high sales volumes or increasing revenues in the near future.
Business Checking Accounts at Popular Credit Unions
| Credit Union | Account | Cash Deposit Processing Fee | Transactions Fee |
|---|---|---|---|
| America First Credit Union | Basic Business Checking | No fee for first $20,000, then $0.35 per $1,000 deposited | No fee for first 250 transactions, then $0.15 per item |
| Delta Community Credit Union | Business Checking Account | Varies | No fee for first 500 transactions, then $0.20 per item |
| Consumers Credit Union | Business Plus Checking | No fee for first $1,500 per day, then $1 per $1,000 deposited | No fee for first 150 transactions, then $0.25 per item |
| Navy Federal Credit Union | Business Checking | Varies | No fee for first 30 transactions, then $0.25 per item |
| California Credit Union | Basic Business Checking | No fee for the first 20 deposits per month, then $1 per deposit | No fee for first 150 transactions, then $0.25 per item |
Online banks
Online banks without any overhead costs associated with no physical locations to run may also offer higher APYs on their business checking accounts. That’s interest paid to you just for having money in the bank. And don’t forget other perks and benefits, like rewards programs or preapproval on small business loans with continued good financial activity.
Look for other business-specific features attached to your future checking account.
For instance, many banks don’t charge -- or may waive -- merchant processing fees you might normally pay for doing business with them, or if you maintain a minimum monthly account balance.
When choosing the right place to open a checking account, also be mindful of fees.
Many financial institutions offer fee-free checking accounts, but be careful, since they may also impose low deposit limits to avoid fees. Similar to your personal checking, transaction, ATM, wire transfer, deposit and service fees, among others, may be common, which can all cut into your profit margins.
Conclusion
Pick a bank and a business checking account the same way you picked the line of business you’re in; think about your needs, your goals, and what types of benefits you’re hoping to get from doing business (no pun intended) with your banking provider of choice.
Then, get your necessary documentation in order.
Look at business checking as your business bedrock, laying the foundation for business savings, CDs, loans, investments and lines of credit -- a priority if you’re looking to run a successful business.
