If your small business is a sole proprietorship or a single-owner LLC , you may feel fine using your personal bank account to handle your business finances. But there are a lot of benefits to having a separate business bank account.
Opening a business bank account helps keep your business finances separate from your personal finances, makes your small business more ready for tax season, helps you with bookkeeping and accounting, and so much more. Regardless of what business structure you have, opening a business checking account, business savings account, and/or business credit card can all help your business in many ways.
7 Benefits of a Business Bank Account
When tax time comes and you have to file taxes with the IRS, having a business bank account can make all the difference. A business bank account makes it easy to track your income and business expenses, while keeping your personal expenses separate. You can handle deductions (like quarterly taxes) right from your business bank accounts throughout the year and easily find the information you need to create your tax returns.
Many business bank accounts also make it easy to add a professional, like an accountant or bookkeeper, through their own secure login. So they can easily access your business’s financial information without waiting for you to find the time to do it.
2. Getting a Better Handle on Bookkeeping and Accounting
By opening a business bank account, you can much more easily keep track of your daily transactions, especially with online banking. You can immediately see your business account balance on a daily basis, allowing you to track daily transactions (aka bookkeeping) and more easily calculate your cash flow. Easily automate your bookkeeping through online software by connecting it directly to your business accounts.
Keeping your business bank accounts separate from your personal accounts allows you a better view of your business finances, so you can budget and plan, too. Plus, by giving your dedicated business bank account details to your outside accountant or bookkeeper you can help keep your personal accounts more private.
Most consumers today use credit cards to pay for things, and your customers are probably no exception. With a business checking account, you can accept not just credit card payments, but mobile payment options like Cash App and Square, ACH transfers, wire transfers, and more.
This makes it easier to accept payments for invoices, services, and physical products, particularly if you conduct most of your business online. You can set up a merchant services account and easily accept payments to your business checking account. With the right business bank account, you may be able to waive transaction fees, too, which we cover in more detail below.
4. Making It Easier to Apply for a Small Business Loan or Line of Credit
If you apply for a small business loan to cover daily expenses, buy new equipment, or fund an expansion, having a separate business account can help you get the documents you need quicker and can make your business more attractive to a lender. For instance, you’ll need your financial statements and income tax returns to apply. By having a separate business bank account, you’ll easily have access to these without having to sort through your personal transactions and accounts.
If you’d like to apply for a line of credit or business credit card, having a business bank account will also make this process much easier. Many banks offer a business credit card as you sign up, too, which can help you build business credit and make it easier to secure a small business loan.
5. Limiting Personal Liability
One reason for separating your personal banking from your business banking is liability. As a sole proprietor, you are fully responsible for any debts your business might incur, not to mention lawsuits from unhappy customers or vendors. As a sole proprietor, your business name is generally your name, and you also generally use your social security number for tax purposes, so you and your small business are one.
Even as an LLC or a sole proprietor with a doing business as (DBA) name and a federal employer identification number (EIN), you may still be liable for debts or lawsuits if you’re using a personal account for your business transactions. This is because it makes it more difficult for a judge or other investigator to determine that you are fully separate from your business. Thus, by keeping your business transactions separate from your private transactions, you can help limit your personal liability. You also limit the access that lawsuits or debt collectors may have to your personal assets. Opening a merchant services account also helps protect your customers’ purchases, so you’re less likely to run into trouble there, too.
6. Allowing for Multiple Business Account Signers
If you’re a sole proprietor or single-owner LLC, this may not matter to you right now. But if your small business is a partnership, S corp, C corp, nonprofit, or any other number of business structures that may have multiple owners or responsible parties, you’ll want a business account that allows for multiple signers.
This makes it easier for different people in your business to do banking activities like signing checks for payroll, paying vendors, or moving money to checking or savings accounts. Of course, you still need your personal social security number to open a business account, so be sure you trust everyone you give access to the business account.
7. Taking Advantage of Business Account Perks
Opening a business banking account can have its perks. Many financial institutions offer sign-on bonuses if you spend a certain amount of money from your checking account or on your business credit card or debit card within a certain time period. They may also waive monthly fees if you maintain a minimum balance. There are even banks that will allow you to open a free business checking account with no minimum balance requirements, maintenance fees, or overdraft fees.
Many banks also offer you unlimited wire transfers, ACH transactions, or other merchant services transactions. You can also use a business credit card to help build your business’s credit, making it easier to secure a small business loan, as mentioned above. Beyond these obvious perks, business bank accounts also offer you greater access to lines of credit, professional services for your customers, purchasing power for your business, and protection, both for you personally and for your customers through merchant services.
When to Open a Business Bank Account
The right time to open a business account is as soon as you start receiving payments or spending money as a business. If you’ve already been using your personal accounts for business transactions, it’s okay – but you can benefit from opening a business account as soon as possible. Generally you should have your EIN when applying for a business bank account, although some banks will allow you to sign up using just your social security number.
You may imagine that, as a small business owner, you have to go to a physical location of a bank and open an account on the spot, preferably while wearing a suit and tie. Thanks to the normalization of online banking, this is definitely no longer the case. With the right documentation and personal information , you can open a business bank account online, possibly in a matter of minutes. You’ll want to choose the right bank for your business needs, gather the right documentation, and then apply, either online or in person.
There are four types of business bank accounts that are most common, according to the Small Business Administration (SBA) :
- Checking account
- Savings account
- Credit card account
- Merchant services account
Often you can open all of these business accounts at the same time, sometimes with sign-on bonuses or other perks (as listed above).
How to Find the Right Bank Account for Your Business
The type of small business you run, your financial needs, your revenue, and a number of other factors will play a part in where you decide to open your small business bank account. Many small business owners simply open a business account at the bank or credit union where they have a personal checking account, allowing them to establish a new business banking relationship with a financial institution they already trust.
But just because you have an existing relationship with a bank doesn’t mean they’re going to provide you with the kind of account or perks that your business needs. At the bare minimum, you’ll want to make sure any financial institution you choose is a Member FDIC or Member NCUA — or a member of the Federal Deposit Insurance Corporation or National Credit Union Administration, which are the two agencies that supply deposit insurance to American depository institutions. From there, you’ll want to check on what kinds of fees they charge or minimum balance requirements they have. Finally, you’ll want to decide if you need a physical location, or if mobile or online-only banking is something that will work for you.
Setting up a business bank account may seem like a hassle, but it can benefit your business today and in the future.
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