If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
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.
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:
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.
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.
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.
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.
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.
Having a business bank account in place means you can also apply for a 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 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.
When all your business deposits and outlays are in one place, it's faster and easier to file your taxes each year.
Opening a business bank account is slightly more complex than opening a personal 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.
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.
Be prepared to present a driver's license or passport as proof of identity.
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).
If you have a business license, bring it along too.
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.
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:
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.
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.
Our Banking Experts
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2023 The Ascent. All rights reserved.