If you have just started a business, it’s time to get your financial affairs in order, beginning with opening a business bank account. What you will need varies from state to state and by business entity type.
Most financial institutions require a set of official documents verifying your personal identity, and confirming your business exists as a legal entity. Here we discuss what you'll need to open a business bank account, why you need one, and the different types of accounts.
What Documents Do I Need to Open a Business Bank Account?
Opening a business bank account is slightly more difficult than opening a personal bank account. Any business, regardless of its type, is required to provide a standard set of documents based on the business entity. Below are the documents you'll need when opening a bank account:
Sole Proprietorships
- A Social Security Number (SSN), or IRS-issued Employer Identification Number (EIN), also known as a FEIN or Tax ID number.
- Government-issued personal identification, such as a valid driver’s license or passport.
- A business license with the name of the business and the owner’s name.
- Certificate of an assumed name, e.g. doing business as (DBA), if applicable.
- Monthly credit card revenue statements (for opening merchant accounts).
Partnerships
You will need all of the above and a partnership agreement filed with the state, including the names of the partners, and whether it is a limited partnership (LP) or limited liability partnership (LLP).
Limited Liability Companies (LLC) and Corporations
For an LLC or corporation, you will need all of the above, but you'll need Articles of Organization or Articles of Incorporation (respectively) instead of a partnership agreement.
What are the Different Types of Business Bank Accounts?
Once you have your business documents in order, you’ll need to decide on the type of business bank account best suited to your needs. There are three types of business accounts: business checking accounts, business savings accounts, and merchant services accounts.
Business Checking Accounts
A business checking account can be used for day-to-day business transactions, paying for merchandise, vendors, payroll, or any other business expense. Just like a personal check, as long as you have money in your account, you’re golden. Be sure to inquire about overdraft protection—and fees—with your financial institution.
Business Savings Accounts
Just like a personal savings account, a business savings account allows businesses to save and build a surplus of cash—while earning interest. Ask your bank about dividends and other incentives to maximize an interest-earning business savings account.
Merchant Services Accounts
If your business accepts credit cards, a merchant services account might be the best type of bank account for your business because they help maintain cash flow. When you’re paid with a credit card, the cardholder’s issuing bank pays you before their customers pay their credit card bills.
Businesses applying for a merchant services account are often required to provide additional financial information, such as estimates of their monthly credit card volume, a history of monthly credit card revenue, along with other financial statements. To be clear, you will need a business checking account to open your merchant services account.
Initial Deposit
Once you’ve established your business identity, you may be required to fund the business bank account with an initial deposit — but some banks allow you to open an account without a deposit. Some banks also require you to maintain a minimum balance. Ask your business banker about new account offers. Some waive the initial deposit or even contribute to qualifying business bank accounts.
Do I Need a Business Banking Account?
Yes and no, but opening a business bank account has numerous benefits. Primarily, it keeps your personal and business finances separate, which is especially important during tax season.
Moreover, a business bank account helps maintain your personal liability from the business's financial responsibilities. With a business account, you're able to pay your expenses, track capital inflow and outflow, and maintain your business finances all in one place. Your accountant will thank you at tax time.
Additionally, perhaps one of the biggest benefits of opening a business bank account is establishing credit—which is crucial when it comes time to apply for business loans.
Lastly, if you have a business loan or line of credit with an existing financial institution, these are good places to open a business banking account. Many offer free or lower-cost products and services for consolidating or “bundling” your business banking needs.
Can I Open a Business Bank Account Online?
Yes, you can. There are numerous reputable online financial institutions offering business banking solutions, including checking's, savings, business loans, and lines of credit.
Additionally, these digital lenders are often able to fund business loans quicker than a local bank, which makes them attractive options for businesses that need capital fast.
BlueVine and Fundbox are online financial institutions that offer business lines of credit, up to $250K and $150K respectively. Funding Circle is an online lender that offers term loans up to $500K. Keep in mind, while offering ease and convenience, an online financial institution is far less personalized than working face-to-face with a knowledgeable banker.
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