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How to Open a Bank Account for a Business

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Whether you own a boutique, operate an online shop, or own any kind of business, a business bank account can help. A business bank account ensures that company funds are not intertwined with your personal funds and offers perks unavailable to the average account holder.

Here, we'll outline how to open a business account for a business and how a business bank account can benefit you.

What is a business bank account?

A business bank account is opened in the name of a business. It's a way to differentiate business funds from personal funds and is one of the best ways to keep an eye on your business's finances.

Common business account types can include:

  • Checking accounts
  • Savings accounts
  • Credit cards
  • Merchant services accounts

If you're not familiar with a merchant services account, here's how it works: Let's say a customer pays you $500 for goods or services. They pay using a credit or debit card. You run the card through merchant services, and merchant services fronts you the money, minus fees.

You must have a business bank account and merchant services account if you want to accept any type of electronic payment.

TIP

See our top business bank account picks

Benefits of a business bank account

According to the Small Business Administration (SBA), business bank accounts offer perks you won't typically find with a personal checking account, such as the following examples.

Greater protection

A business account keeps your business funds separate from your personal money, helping to protect your personal account from liability. If you also have a merchant services account to accept electronic payments, merchant services offer another layer of protection.

Air of professionalism

The fact that a customer can pay with a credit card or make a check out directly to your business offers an air of professionalism, a sign you own a business and it isn't a hobby.

A chance to prepare for what the future may bring

Most business bank accounts come with an option to take out a line of credit. You don't have to use the line of credit right away, but it might be nice to know it's available in the event of an emergency.

Greater purchasing power

Having a business bank account in place means you can also apply for a business credit card in your business's name. Say you're a house painter and land a huge job painting the exterior of an apartment complex. A credit card for self employed people will not only allow you to purchase the supplies you need to complete the job, but paying the credit card back as agreed helps establish a credit history for your business.

Streamlines tax preparation

When all your business deposits and outlays are in one place, it's faster and easier to file your taxes each year.

How to open a bank account for a business

Opening a business bank account is slightly more complex than opening a personal bank account. Still, with a bit of pre-planning, the entire process should not take much time. Here's what you'll need to provide to open an account for a business.

Employer Identification Number

Unless you're a sole proprietorship with no employees, you'll need to provide your IRS-generated Employer Identification Number (EIN). This may also be referred to as a Federal Employer Identification Number (FEIN). It's the EIN you use when you file taxes each year, and it's the EIN the bank will use to keep track of your business account.

As mentioned, you won't need an EIN if you're a sole proprietor, but you will need to provide your Social Security number.

If you don't have an EIN yet, you can request one online from the IRS. Once you fill out the application, the IRS system does a quick check and immediately provides you with a number.

Word of caution: If you type "IRS EIN" into a search engine, you will find for-profit companies that have designed their websites to make it appear as though they're the IRS. It's not until you scroll to the bottom of the page that you learn these sites are actually businesses hoping to make money off you. They ask for personal information, transfer that information to the free IRS site, and pass along your EIN when it arrives. It is free to get an EIN through the IRS. If any site asks for money, you know you're being scammed. Your best bet is to work directly with the IRS.

Personal ID

Be prepared to present a driver's license or passport as proof of identity.

Business ID

If you're a sole proprietor, you'll need to provide your Social Security number. If your business operates under a DBA (doing business as) name, be prepared to provide a certificate showing the name you use for the company.

If your business is an LLC, you'll need to present your EIN and business registration. And if your business is a limited liability partnership, you may be asked to provide the agreement that shows the names of all partners (along with the name of the business).

Business license

If you have a business license, bring it along too.

Initial deposit

You'll likely need to make an initial deposit to get the account up and running. If you're not starting with much money, make sure the bank you work with has a low (or no) minimum balance requirement.

What to look for in a business bank account

Some business owners open a business account with the same financial institution they use for personal banking services. While there's certainly nothing wrong with doing so, it could pay to shop around for a bank that better meets the needs of your business. Ideally, the bank in which you open a business account offers:

  • Attractive introductory offers
  • Higher-than-average interest rates for savings and checking
  • Low APY for lines of credit
  • Low transaction fees
  • Low or no minimum account balance or checking account fees
  • No early termination fees
  • Convenient hours
  • A robust online presence that allows you to bank 24 hours a day
  • Customer service that makes you feel like a valued customer

When it's time to open an account, speak with a business banker about which types of accounts you need to open now and which you may want to open in the future.

FAQs

  • The type of business you own and specific bank requirements determine the documents you'll need to open an account. For example, your Social Security number is required if you're a sole proprietor with no employees. If your business is an LLC, you'll need an Employer Identification Number (EIN). You should also be prepared to provide a copy of your business license (if you have one), partnership agreement, and if you're operating as a DBA, a document with the DBA name on it.

  • There's no cost to open a business bank account, but you should pay special attention to minimum deposits and balance requirements.

  • That depends on the type of business you own and the bank you decide to work with. Once you settle on a bank, it will provide you with a list of required documents based on your business type.