Business Loans

Small Business Bank Accounts

Fees and APY’s listed in this piece are accurate as of the date of publishing.

When starting a small business, it may seem convenient to pay for expenses out of your own pocket and put revenue back into your personal bank account. But as your company grows, mixing your personal and professional finances becomes a bad business practice.

Opening a business bank account keeps your funds separate and helps you easily track expenses and revenue to keep an eye on your cash flow. In this guide, we’ll help you feel confident in opening a business bank account.

Benefits of a business bank account

The primary reason to open a business bank account to separate your personal finances from your business finances, said Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling.

It’s difficult to track the profitability of your business without a clear picture of your spending and expenses, he said. From day one, small business owners should have a separate account for business funds “because that can make their life easier,” he said.

Simplify tax time. Organizing your personal and business funds individually also helps you clearly identify revenue and expenses when filing your taxes, Coleman said.

“Record keeping is so important for small businesses,” he said. “Those bank accounts are a primary source for record keeping when it comes to expenses and revenue.”

In the eyes of the Internal Revenue Service, a business bank account gives you legitimacy as a company, according to Krista Tuomi, assistant professor of international economy policy at American University. If you’re audited, you would have bank statements on hand to illustrate your business financials, she said.

Give employees more responsibilities. Another benefit of opening a business bank account is it allows you to give your employees access to company money, Coleman said. Employees could sign checks and make purchases, freeing you up to focus on other tasks.

Boost your reputation. In addition to keeping your finances organized, a business bank account communicates professionalism. Customers can make checks out to your business instead of directly to you and they can pay you with credit cards.

Build credit. You could also open a line of credit and credit cards associated with your business bank account. This would help you build business credit and make large purchases.

Savings vs. Checking

How you plan to use your business funds would determine whether you open a business savings account or a business checking account. A business checking account allows you to make day-to-day transactions, such as paying bills and making deposits, while a business savings account can store funds that you don’t plan to touch for a while. Or, you could open both to meet your business needs.

“If a business owner is trying to save to make a large purchase, like a piece of equipment, then a business savings account might the best way to go,” Coleman said. “They can watch it grow.”

If you don’t have large savings, you likely won’t earn a huge amount of interest from keeping your money in a business savings account because rates are currently low, Tuomi said. But opening a savings account would be a good idea if you’re trying to practice self-discipline with your money. If you’re the type of person who easily spends what you have on hand, it could be beneficial to stash money in a separate account.

“It would be good to get out of temptation’s way,” Tuomi said.

Compare key features of business checking accounts

You should shop around before opening a business checking account, comparing large banks, local banks and credit unions to find the best offer for your business, Coleman said. It’s not a choice to be taken lightly and should consider the long term.

“Small business owners should look at their banking situations as relationships,” he said. “They would want to build relationships with their bank, so that, in the future, if they’re looking to borrow from the bank for business needs, they have a well-established relationship with the bank.”

When shopping for a business checking account, here are five key factors to consider:

Fee structure. Some banks charge a monthly service fee, while others offer free business checking accounts. Banks may waive fees if you maintain an average daily or monthly balance.

Transaction limits. Banks may limit the number of transactions you can make each month, including debits, checks and deposits. You may face a per-transaction fee if you exceed the monthly maximum. If your business executes a significant number of transactions each month, it may be smart to find bank that doesn’t impose limits.

Cash handling policies. Like transaction limitations, banks may cap the amount of cash you can deposit in a month. If you go over the limit, you may face a fee per each additional deposit. Businesses that have seasonal highs may find they need to make more deposits during certain months, and may want to avoid accounts that cap deposit amounts.

Introductory offers. Be wary of introductory offers, as they’re designed to pull you in. Look at the fine print to see what the fees and rates would be after the initial offer expires.

“You should not make any decisions based on that introductory offer,” Tuomi said. “They wouldn’t be offering them if they weren’t making money off them.”

Fraud protocol. A bank’s fraud policy should be a key factor when choosing an account. Some banks allow just 24 hours to report fraudulent activity, while others have a bigger window. Get a clear picture of the bank’s security strategy and what the bank would do if you run into trouble, such as a bounced or missing check from a customer.

“None of these things are going to be a problem, unless things go wrong,” Tuomi said. “But things go wrong.”

Additional perks. Some banks may offer benefits when you open a business checking account. For example, Bank of America’s Business Fundamentals checking account comes with chip-enabled business debit cards while the Business Advantage checking account includes QuickBooks integration to handle your accounting needs. PNC Bank business checking accounts also include free business debit cards, as well as a personal Performance Checking account for business owners. SunTrust offers a bonus if you deposit cash back earned from a SunTrust business debit card into a business deposit account.

Best business checking accounts

Here are two of LendingTree’s picks for best business checking accounts.

Partner Colorado Credit Union

High-interest checking account

  • No minimum balance
  • Monthly fee of $5 that can be waived with 20 monthly debit transactions
  • No fees up to 350 transactions, $0.15 per additional transaction

BofI Federal Bank

Business interest checking account

  • $100 minimum opening deposit
  • Monthly maintenance fee of $10 that can be waived with $5,000 daily balance
  • Up to 50 free transactions, $0.50 per additional transaction

Compare key features of business savings accounts

Because there are typically fewer monthly transactions with a business savings account compared with a checking account, there are likely fewer fees to worry about, Coleman said. However, there are still four important factors to consider when choosing a business savings account:

Annual percentage yield. The APY helps you determine how much you would earn by keeping your money in the account. The higher the percentage, the more interest you’ll get. Some banks offer specialized business savings accounts with more attractive rates than the standard business savings account, Coleman said.

Similarly, online banks tend to offer business savings accounts with higher rates, Tuomi said.

Transfer policies. Consider whether the account can link to your business checking account. If so, it would be easier for you to set up automatic deposits into your savings and have overdraft protection for your checking account.

Fees. As with a business checking account, banks charge you monthly maintenance fees and other fees for having the savings account. However, you wouldn’t see as many transaction-related fees when comparing savings accounts.

Minimum opening deposit and balance. Banks usually require a minimum balance to open a business savings account. You may also be required to maintain a minimum balance or risk facing fees if your balance drops too low.

Best business savings accounts

Here are two of LendingTree’s top choices for business savings accounts.

CapitalOne

Spark business savings account

  • Monthly service fee of $3 if balance drops below $300; fees vary by location
  • No minimum balance required
  • 1.75% APY for 12 months, 0.40% APY after one year

Community Bank of Pleasant Hill

Business premier money management account

  • Monthly service fee of $10 if balance drops below $10,000
  • $25 minimum opening deposit
  • 2.02% APY; Interest begins accruing after your first deposit

What you need to open an account

When you’ve decided on a business bank account, you’ll need to prepare a few items before applying. The process is similar to opening a personal bank account, with a few additional documents needed, Tuomi said.

Banks will ask for:

  • Social Security number
  • Employment Identification Number
  • Proof of residency
  • Business formation documents
  • Ownership agreements
  • Business license

A bank will also run a credit check before opening an account, Coleman said. Banks and credit unions may obtain a report showing your personal banking history from a checking account reporting company. You could get denied if you’ve had recent problems with your credit and the bank considers it a risk to open an account for you.

“But I would think most people with average to decent credit wouldn’t have any problems,” Coleman said.

You may also have to provide a Doing Business As name that is different from your own name, Tuomi said. You would have to provide certification that shows you filed a DBA with your local government and are operating under that name.

Bottom line

Opening a business bank account is more than simply finding a place to store your money.

It can be an opportunity for you to create a long-term, beneficial banking relationship that may help you down the road if you need to apply for financing, Coleman said.

You don’t have to open a business account at the same bank that holds your personal funds, Tuomi said. You should shop around for an account that provides the services you need, whether that’s checking or savings, for the lowest cost, she said.

Once you’ve separated your personal and business finances, you must keep them apart, Tuomi said. You should not use your business account to cover personal expenses, and you should be careful of who knows your passwords and PIN, she said. You may also want to hang on to bank statements for at least three years in case the IRS comes knocking or you need past statements to apply for small business loans.

One of the biggest benefits of keeping your business transactions all in one place and separate from your personal finances is the ease in which you’ll be able to determine your business’ cash flow, Tuomi said. You wouldn’t have to spend extra time sorting through receipts to track your monthly activity. Instead you could simply take a look at your business accounts.

Getting the bank do some of the hard work for you “is a pretty sweet deal,” Tuomi said.

 

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