How To Open A Business Bank Account in 6 Easy Steps (2024)

9 Min. Read

March 27, 2023

Having a business bank account is a more professional way to run your small business. It also makes it much easier to track your income and expenses, get business loans in the future, and keep all your paperwork centralized in one spot.

This is hugely important at tax time since many business expenses can be written off (deducted from taxes owed). Using a personal bank account for business makes it much harder to pick out potential deductions and can potentially create problems for small business owners during tax season.

A business bank account lets owners plan their budget, deposit payments, receive payments, manage payroll, and generate financial reports for potential lenders or investors.

Keeping bank accounts for your business separate from personal accounts is a vital step. But understanding how to open a business bank account can be a hurdle to those who aren’t yet familiar. We’ll guide you through everything you need to know about business bank accounts.

Key Takeaways

• Getting a business bank account is vital and not too complicated—but your current bank might not be your best choice
• The process of opening a new business bank account is just 6 simple steps
• Business bank accounts help to keep money organized, separate personal finances from business income, simplify tax preparation, and help you to build a credit history for your business

In this article, we’ll cover the following:

• How to Open a Business Bank Account: Steps to Set Up
• Benefits of Opening a Business Bank Account
• Conclusion

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

How to Open a Business Bank Account: Steps to Set Up

Ready to start handling your business accounts the professional way? Here are the steps you’ll need to follow to get started.

1. Check What Accounts You Need

Depending on the nature and structure of your business, you may need different business bank accounts for income, payroll, and taxes. You might also want to consider a business credit card as an additional source of funds. Business bank accounts can vary drastically, and it all depends on the complexity of your business affairs. Ask your accountant for recommendations.

The following business accounts are the most common:

• Business checking account
• Business savings account
• Business credit card account
• Merchant services account (see step six)

Businesses that are just starting out probably only need the four accounts listed above, especially the business checking account.

2. Select a Bank

Don’t automatically open a business account at the same bank you do your personal banking with. A credit union, for instance, may not even offer business banking options.

Choose the bank that will best service your small business. Some banks specialize in specific types of businesses or industries. Their specialized expertise and custom offerings will better suit your needs, especially when it comes to lines of credit or business credit cards.

That said, using your personal bank as a comparison point for potential business banks is okay. There may be better options out there, especially if they offer benefits like lower business banking fees or if the bank specializes in your industry.

Another note: your business bank should meet all your needs and be able to grow with you in the future. Compare your options carefully and think about your business’s future when deciding.

The following factors are important when choosing a bank, according to the Small Business Administration (SBA):

• Monthly fees are waived if a minimum balance is maintained
• Interest rates for checking and savings accounts
• Interest rates for business lines of credit
• Transaction fees
• Early termination fees (fees to end bank contract)
• Introductory offers (such as a bonus)

3. Register Your Business Name

Before you talk to your potential new bank, set up your company name unless you want to operate under your personal name. This is a natural step in setting up your business, regardless of whether or not you’re opening business bank accounts.

For example, the copywriter John Smith could name their business ‘John Smith Copywriting,’ provided the name is available.

Using the U.S. Patent and Trademark Office’s trademark database, you can check that your business name isn’t taken. Also, search for the name online to ensure your online presence won’t be overwhelmed by similar names.

Now that you’ve chosen a business name, visit your county clerk or state office and pay the required fee to register your business name. It should cost less than $100. This U.S. Small Business Administration guide will tell you where to register.

You can also go the extra step and apply for trademark protection. This costs less than $300.

4. Collect the Necessary Paperwork

You’ll need to gather all your paperwork and other necessary information before approaching your chosen business bank and opening a separate business bank account.

You will need, at a minimum:

• Personal identification
• A tax ID number (get one via the IRS for free)
• Social security number (if you’re a sole proprietor)
• Proof of incorporation (for certain business structures, like a limited liability company)
• A business license or business name filing paperwork

Contact your chosen business financial institution to see what paperwork you’ll need to provide to open your business banking account.

5. Contact the Bank

You can usually open your business bank account via mobile banking or online. However, most financial institutions require certain industries to open their business accounts in person at a bank branch. These include companies in the telemarketing, gambling, and money service industries. One of the other benefits of going in person—even if the bank doesn’t require it—is that you’ll be able to get your business debit card immediately.

6. Set up a Merchant Services Account

Now that you have a business bank account, go a step further and make sure your company can accept payments. To do this, you need to open a merchant services account that lets you accept payments. For example, a business credit card merchant account will let you accept credit card payments.

Check and carefully consider the following criteria when deciding on an account, according to the SBA:

• Minimum monthly fees
• Minimum balance
• Transaction fees
• Discount rates: percentage charged per transaction processed
• Address verification service (AVS) fees (to help verify a credit card to prevent fraud)
• Low ACH daily batch fees (fees to settle credit card transactions daily)

Alternative payment processing services are also popular and connect to your business bank account. You can consider online payment systems like PayPal, FreshBooks Payments, or Shopify if you accept payments online. In-person payments can be processed via point-of-sale systems like Square.

Benefits of Opening a Business Bank Account

In general, there are many benefits to opening a business bank account. It helps keep money organized, keeps personal finances separate from business income, allows you to build your credit history for your business, and makes tax preparation much simpler when it comes to tax deductions.

A separate bank account is one of those essential business tools that all sole proprietors, entrepreneurs, and small business owners should take advantage of.

Conclusion

With so many benefits to opening a business bank account separate from your personal finances, it’s imperative that small business owners start the process as soon as they can. Doing the proper work ahead of time will allow you to make the right choice regarding your bank and account type. Provided you do ample research on options for your business accounts, including business savings accounts, business checking accounts, and credit card accounts, you’ll be able to enjoy the benefits of a business bank sooner than you think.

With most business bank accounts offering flexible options for clients, money management no longer has to be an ordeal.

Are you looking for a way to keep your business expenses organized? Searching for a lightweight yet powerful accounting solution to help you keep your business funds on track and your monthly transactions organized? The cloud-based accounting software from FreshBooks might be just what you need. Click here to get started.

People also ask:

• What Do You Need to Open a Business Bank Account?
• Can You Use a Personal Bank Account for a Small Business?
• How Much Does It Cost to Open a Business Bank Account?
• Is it hard to get approved for a business bank account?
• How long does it take to open a business bank account?

What Do You Need to Open a Business Bank Account?

Each bank requires different information to open a business bank account.

At a minimum, you’ll probably need the following:

• A tax ID number: the IRS will supply you with one
• Social security number: for sole proprietors or partnerships
• Proof of incorporation: for corporations like LLCs
• A business license or business name filing paperwork

Can You Use a Personal Bank Account for a Small Business?

According to the National Federation of Independent Businesses, you can use a personal bank account for a small business, but you probably shouldn’t. Personal accounts have disadvantages for business use, such as higher accounting fees, making taxes trickier, extending the processing time for payments, and complicating the process of getting a business loan.

How Much Does It Cost to Open a Business Bank Account?

Rates and fees vary from bank to bank. Many banks don’t charge a monthly fee, but they will require you to deposit a minimum amount to open the account. Minimum deposits can be as low as $25 for a bare-bones business bank account, though this comes with certain requirements like keeping a daily balance of $1500. There are also costs associated with getting the required paperwork to open a business bank account, such as registering your business name (less than $100), incorporation filing fees ($50-$800 depending on the state), legal fees ($500-$1500), and a business license or permit fees (varies by state).

Is it hard to get approved for a business bank account?

Fortunately, getting approved to open a business banking account is fairly simple, provided you only have basic business banking needs. It can be more difficult, however, to get approved for lines of credit or accounts with more favorable fees and terms. This takes time and a strong credit history to achieve.

How long does it take to open a business bank account?

Provided you have all your paperwork in order and good financial standing and credit history, you could get approved to open a business bank account same-day (if going to the bank in person) or in as little as 10 minutes when doing it through online banking.

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