How to Open a Business Bank Account (Step-by-Step Guide)

Opening a bank account is one of the crucial steps in setting up your business. A business bank account is a must-have for all businesses, big or small. 

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What's Included in a Business Bank Account

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• Checking account. Business checking accounts are used for day-to-day transactions. This account allows you to handle the following transactions:

1. Debit card payments. A business may use a debit card payment to process a sale made by a customer in-person. The customer would swipe or insert their debit card, and the business would process the payment through their business bank account using a debit card terminal.
2. Check writing. A business may use a check to pay for goods or services purchased from a vendor or supplier. The business would write a check from their bank account, which the vendor or supplier could deposit into their bank account.
3. ACH transfers. A business may use an ACH transfer to pay an employee's salary or to transfer funds to another business or individual. ACH transfers are electronic payments that move funds between bank accounts and are often used for recurring payments or large transfers.
4. Wire transfers. A business may use a wire transfer to make an urgent or high-value payment, such as to pay for international goods or services or to transfer funds between accounts at different banks. Wire transfers are also electronic payments, but they typically move funds more quickly than ACH transfers and may incur higher fees.

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• Savings account. Business saving accounts allow you to earn interest on your money. 

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• Business credit card. Business credit cards provide rewards equivalent to or even superior to those offered by personal credit cards, allowing you to accumulate additional points, miles, or cash back on the purchases you must make anyway. It also allows you to separate your work purchases from your personal ones.

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• Merchant services account. Merchant accounts allow a business to accept credit cards or other forms of electronic payment.

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Reasons to Open a Business Bank Account

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• It's legally required for certain business structures. Any business operating as a separate legal entity from the owner is required to have a bank account dedicated to business transactions. So, you are legally required to open a business bank account if your business entity is a limited liability company (LLC), limited liability partnership (LLP), or corporation.

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• Accept credit card (and other forms) payments. For many business owners, the ability to accept credit card payments is the single biggest reason to open a business bank account. A personal bank account can't accept credit card payments without the use of a payment service provider.

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• Build business credit. By opening a business bank account, you'll start building a financial history for your business. This can help you establish credit with lenders and suppliers and may make getting approved for loans or credit lines easier.

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• Earn better rewards. Business credit cards provide rewards equivalent to or even superior to those offered by personal credit cards, allowing you to accumulate additional points, miles, or cash back on the purchases you were going to make for your business anyways.

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• To separate business and personal finances. Opening a business bank account allows you to separate business finances from personal finances. This makes tracking your business expenses and income easier and ensures you're not mixing personal and business funds.

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• Simplify accounting and taxes. A separate business bank account can make accounting and tax preparation more manageable and accurate. You'll have a clear record of all your business transactions, which can help you track expenses, prepare financial statements, and file taxes.

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• Liability protection. Opening an LLC or another entity that provides liability protection is not enough if you mingle personal and business funds. Failure to separate your finances could make your personal assets vulnerable as it may appear to a court that your business is not, in fact, a separate entity.

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• Legitimacy. Opening a business bank account adds significant credibility and legitimacy to your business. The data shows customers are more inclined to trust a business when payments and transactions move through an account that uses a business's name instead of a personal one.

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• Future growth. Opening a business bank account gives more flexibility to your business and customers. It also allows you to delegate operations around business finances, such as purchasing supplies using a business credit card, to employees.

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Select a Business Bank Account

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Selecting a business bank account impacts the financial health of your business. Therefore, it is important to consider the following variables:

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• Fees. Some standard business bank account fees to consider are monthly service fees, transaction limit fees, cash deposit limit fees, non-sufficient funds fees, early-termination fees, and wire transfer fees. Understanding the specific requirements and limit thresholds surrounding each of these fees is essential. This will be a significant factor for any type of business.

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• Cash deposit limits. Your bank may limit the amount of cash you can deposit fee-free into your business checking account each billing cycle. After you have reached the limit, you'll have to pay a cash-handling fee for any further cash deposits. This could be a significant factor for cash-intensive businesses such as retail stores or restaurants.

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• Transaction limits. Typically, banks cap the number of transactions that can be processed in a given billing cycle, usually around 200 per month. Once this limit is exceeded, you may incur a transaction limit fee for each additional transaction. Transactions may include teller deposits, ATM deposits, checks, electronic debits, and credits. This could be a significant factor for e-commerce businesses that regularly process a high volume of transactions and hit transaction limits.

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• Introductory offers. Many banks advertise introductory offers to attract business owners to open a business account. Such offers may include bonus cash for making an initial deposit of a specific amount and maintaining the balance for a particular duration (usually a few months) or lower fees for new accounts. If the bank meets your other criteria and offers enticing account features, choosing an institution with a compelling introductory offer could be a sound decision when opening your business bank account.

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• Interest. Many banks will pay you interest on your balance. It's important to understand how much. This could be a significant factor for businesses with substantial money reserves.

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• FDIC Insurance. Make sure your bank is FDIC insured. Most business bank accounts are FDIC insured up to $250,000. 

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• Online Banking. In today's world, customers anticipate being able to manage their accounts and conduct banking tasks online. However, not all websites are created equal regarding user-friendliness and reliability. Before selecting a bank, evaluate their website and mobile apps to see if they suit your needs.

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• Branch Locations. A local branch nearby can prove advantageous if you ever need to conduct banking in person. This can be a significant factor for businesses with a high volume of cash transactions or that expect assistance with complex transactions.

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• Bundled services. Some banks offer fee waivers on business checking accounts if you sign up for other services, such as merchant services or business credit cards. This can help your business save money on fees and simplify your financial management by consolidating your banking and payment processing needs with one provider.

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• Financing options. Most entrepreneurs can not completely self-finance their businesses and must rely on different financing options. You'll first want to understand what financing options your bank may provide, such as lines of credit, loans, and business credit cards. You'll then want to understand what fees, which businesses qualify, and the process to apply that is associated with each financing option.

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Choosing the correct bank account can be complex and hard to navigate, considering so many variables. So, I evaluated over 30 business bank accounts to help you find the right one for your business. Here are the best business bank accounts.

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Provide the Necessary Documents

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Once you've selected a bank, it's a relatively straightforward process to open up an account. You can open an account online or stop at your bank's local branch to start the process. 

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Some banks may ask for additional information, but here are the most common documents that you will need:

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• Employer Identification Number (EIN). Your EIN is your federal tax ID. For free, apply for an EIN with the IRS assistance tool. If you're a sole proprietor, you'll need your Social Security number instead.

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• Business license. For free, apply for the necessary federal and state licenses.

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• Personal identification. Personal identification examples include your state-issued driver's license or passport.

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• Business identification. Business identification examples include your articles of incorporation (this includes documents that describe the corporation's purpose, name and address of the registered agent, number of authorized shares and amounts of common stock, and names of any incorporators) or your partnership agreements. 

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You may have to make an initial deposit depending on the bank and account type.

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That's all. Congrats, you've opened a business bank account!

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