This article is part of our Business Startup Guide, a curated list of our articles that will get you up and running in no time!
One of the key items on your new businessâ€™s startup checklist is opening a business bank account. Wherever you decide to open an account, youâ€™ll likely use that bank or credit union for years to come. Itâ€™s not just a place to hold your money; itâ€™s a partner that youâ€™ll want to develop a relationship with as your company grows, especially if you seek a loan or line of credit.
Weâ€™ve created this guide to help walk you through the process of setting up a business bank account. Weâ€™ll help you find a bank thatâ€™s right for you, help you weigh banking features, and go over the setup process.
3 reasons you need a business bank account
If youâ€™re just starting out, you might wonder why you need a business bank account. Why not just use your personal accounts? Any serious entrepreneur will tell you that a business account is vital to your success.
Why? Here are a few reasons.
1. To track your expenses
If you keep your personal and business accounts together, youâ€™ll have to sift through each transaction to see how much money came in and went out.
Itâ€™s a tedious task that eats away at time thatâ€™s better spent improving your business. Itâ€™s a smart idea to start a business credit card for the same reason. Itâ€™s really hard to monitor your companyâ€™s cash flow if itâ€™s mixed together with your personal money.
2. To alleviate tax headaches
WhenÂ tax time rolls around, you want to have all of your numbers in one place. Itâ€™s infinitely easier to turn over bank statements to an accountant that are solely based on your business.
From those statements, a skilled accountant can look for tax deductions and incentives. Even if you decide to do your own taxes, an account dedicated to your business will be a lifesaver.
3. To start a relationship with a bank
At some point, you might need a loan for your business.Â Hopefully, in a few years, youâ€™ll look to expand.
If you already have a relationship with a bank, youâ€™re one step closer to getting funding. This connection, combined with a solid business plan,Â will help you secure the funds you need to grow.
Considerations to help you pick the right bank
You have a variety of options to choose from. Should you go with a big corporate bank, a regional bank, or a credit union? Itâ€™s a tough decision. It all depends on what youâ€™re looking for.
Here are a few points to consider.
Every bank has fees, some more than others. Be sure to ask about fees and their structure.
In some cases, youâ€™re charged for not keeping a minimum balance in your account. ATM fees can add up. Some banks even charge a â€śmaintenance feeâ€ť just to keep the account open.
Typically, big banks can offer lower fees because they have a higher volume of clients. Ask how common it is for fees to increase too, or if any of the rates are promotional and expire quickly.
Inquire about lending ability. Can the banker you work with authorize a small business loan, or does it have to go through sixteen layers of corporate executives first? Itâ€™s something youâ€™ll want to know upfront.
Typically, regional banks and credit unions have more flexibility here.
Most entrepreneurs want online features. Most banks offer them.
From online bill pay to the ability to transfer money from your business account to your personal account, ask about specific features that you need and compare prices with other banks.
In some cases, working with your local branch provides personal satisfaction, but according to a J.D. Power customer satisfaction survey, big banks outrank their smaller counterparts in this area. Itâ€™s something youâ€™ll have to weigh for yourself.
There are a growing number of online banks, and some entrepreneurs find their features appealing. Online banks tend to offer optimized digital features, like banking apps and user-friendly dashboards.
Of course, thereâ€™s no face-to-face connection, which depending on your business could be a pro or con. It can also be challenging to deposit cash, if your business has a brick and mortar location.
Finding the right bank is probably the most time-consuming part of the process. It will take some time to investigate what each bank has to offer and how it works within your business.
What you should bring when opening an account
When youâ€™re ready to open a business bank account, youâ€™ll need to gather some paperwork to take with you. Hereâ€™s a quick list of what you should bring.
Employer identification number
Before setting up an account, youâ€™ll need an employer identification number, or EIN. The government uses this number to keep track of your business and its tax requirements.
You can apply online to get this number through the IRS website.Â After filling out some forms online, youâ€™ll get the number immediately.
Make sure you have your driverâ€™s license with you. The bank will need a proper form of identification to prove you are who you say you are. If you have an official business partner, they will need to bring their ID also.
Certification of business identity
No matter what kind of business you establish, youâ€™ll have to file paperwork with the state. The bank needs this information on your business structure too.
If you set up an LLC, youâ€™ll need articles of organization. If you set up a proprietorship, youâ€™ll need your DBA (doing business as) papers. If you set up a corporation, youâ€™ll need to bring your articles of incorporation. If you have a business partner, bring your partnership agreement.
Business license (only required for certain businesses)
In some states, specific businesses need a business license to operate. When you establish your business with the state, youâ€™ll be notified if you need a license. If itâ€™s required by the state, the bank will need to see it to make sure your business is legitimate.
Every bank is different, but thereâ€™s always an application to fill out. Itâ€™s a good idea to pick up the application and fill it out at home. That way, youâ€™ll be ready to go as soon as you sit down with a banker.
What to expect when you open an account
Youâ€™ll sit down with a banker and talk about your business needs. The banker will go over different account options with you and review your paperwork. If you havenâ€™t filled out an application ahead of time, youâ€™ll do that too.
Youâ€™ll fill out a signature card so the bank can check your signature against various transactions. If you have a business partner, he or she will need to sign a card as well to have access to the account.
The bank will check your personal credit score. The bank wants to know who theyâ€™re dealing with, so expect them to take a look at your financial history. If you plan to ask for a line of credit or a loan, some of that decision will be based on your credit score.
The whole process will likely take an hour or so, maybe longer if you plan to discuss additional products like savings accounts, business credit cards, or lines of credit.
Youâ€™ll be issued a temporary checkbook, and most banks issue a temporary ATM or debit card. Your official checkbook and debit card are mailed to you several days later.
Maintaining your bank account
At least once a year, itâ€™s a good idea to review your banking choice. Review the fees and make sure youâ€™re not being charged for anything new. If you see anything out of the ordinary, call your bank to discuss the problem.