Business Bank Account Checklist: Documents You’ll Need
Find out which documents and licenses you’ll need to bring with you when you apply for a business bank account.
- Your articles of incorporation, employment identity number, and personal identification documents are required in order to create a business bank account.
- You can open a checking and savings account for your business.
- You need a business bank account to separate your personal and corporate funds.
- The goal of this article is to inform small company owners about the requirements for creating a business bank account.
Your business money may be properly managed and kept distinct from your personal affairs with the use of business bank accounts. A commercial bank account must be opened with more effort than a personal account. Documents need to be gathered, names need to be selected, and licenses need to be organized. Discover the benefits of having a business bank account as well as the steps required to create one.
Benefits of a business bank account
Running a small business requires you to open a separate business bank account. Even while you might only have one personal bank account, your company probably requires many.
The majority of corporate bank accounts have advantages and perks that personal bank accounts do not, according to the U.S. Small Business Administration. You require a business bank account for the following four reasons.
1. Limited liability protection
By keeping corporate funds distinct from personal funds, business banking helps to reduce your personal responsibility.
No matter what kind of business you run, Chas Rampantly, general counsel at LegalZoom, advised always keeping your personal and corporate funds separate. “Having separate bank accounts is the first and most crucial step in properly separating your finances.”
2. Purchase protection for customers
Many banks provide merchant accounts as a business banking alternative, protecting both your clients’ personal information and their purchases. The finest credit card processing services should include this option, as it may considerably increase client happiness and strengthen brand loyalty.
A business bank account allows checks to be made to the business – which is more professional than asking customers to make checks to your name. Additionally, your clients may pay using credit cards, and staff members can manage the company’s financial activities.
4. Credit options
A line of credit option that you can utilize in an emergency is offered by several institutions. Many also provide business credit cards that may be used to begin establishing credit history for your new company.
4 types of business bank accounts to consider
There are several sorts of corporate bank accounts, just like there are for personal accounts. Depending on your requirements, you might need to create multiple accounts.
The four most typical types of company bank accounts are as follows:
Checking account: account is an excellent option for handling payroll, bills, and other routine financial duties that keep your company afloat.
Savings account: To store your profits in addition to a checking account, you’ll probably require a business savings account.
Merchant account: to determine whether you may open a merchant account if you want to accept payments made with credit and debit cards. As the founder and CFO of Edi and Sienna Group, Julia Saphir noted, “Depending on whom you bank with, certain banks also offer merchant services.” “I advise all of my clients to look around before settling on one specific account and renegotiate your fee at least once a year,” the author says.
Credit card account: You can use a company credit card to pay for unexpected expenses or other small business needs. The main advantage of a credit card for new business owners or those with poor credit is that it may assist establish or raise your company’s credit score.
Things to consider when choosing a bank for your business account
There are several banking alternatives available to business owners, and each bank provides a somewhat different service. Till you locate the ideal bank for your company, take your time examining the available choices.
Always compare prices, advised Global Career founder and CEO Mike Sinoski. Use this to your advantage to receive better prices because banks are just as eager to attract new clients as they are to keep their existing ones.
Here are some things to think about (and inquire about) as you compare various banks:
Each bank offers a different set of features and price structures. In general, fees and minimum balance requirements for business accounts are greater than those for personal accounts.
Ask whether the bank has any bonuses, Tracy Odell, vice president of content at Finance Buzz, advises.
She said that banks occasionally provide incentives for opening business accounts with them. “A bank may provide $300 as an illustration if you create an account and keep a specific minimum balance. These opportunities might be a terrific way to generate some additional money, but keep in mind that any incentives are taxed. The next tax season, don’t be shocked if you receive a 1099 for the bonus.
Account maintenance requirements
There are many criteria for business bank accounts that you must fulfil; if you don’t, you might be charged penalties. For instance, it’s typical for banks to demand that you have a minimum balance, however the exact amount varies from bank to bank and may be a daily or monthly minimum. If you have many accounts, the bank may consider each one independently or collectively toward a required minimum balance.
Some banks with business checking accounts won’t charge you a fee if you spend a specified amount on a debit or credit card linked to your account, utilize one of the bank’s other services, or maintain a specific minimum balance.
When evaluating banks, pay close attention to the account features you really must have. Do you, for instance, require a corporate bank account with in-depth analytics? Do you want a mobile app that enables digital check deposits? Are corporate debit cards necessary? Would getting notifications when your balance is getting close to your minimum balance be useful?
How to open a business bank account by company type
Except for sole proprietorships, obtaining a business bank account is the same procedure as opening a personal savings or checking account, according to Grant Aldrich, founder and CEO of OnlineDegree.com.
Aldrich advised that, if you are a sole owner, you need present your Social Security card as opposed to your EIN.
The business license, DBA certificate, and personal identity documents are still required for sole proprietors.
What documentation do you need to open a business bank account?
Before you open a business bank account, you should have the following documentation prepared:
- Constitutional documents
- business permits
- Certificate of Doing Business As (DBA)
- Identification documents Employer identification number (EIN)
When creating a company bank account, business owners should take into account a number of criteria, according to Rampantly. “In order to promote a painless process, it is important to prepare all relevant paperwork from the outset.”
More details on each of the paperwork you’ll need to create a business bank account are provided below.
Articles of incorporation
Your articles of incorporation outline the organizational structure of your company to the bank, and you also utilize these legal documents to register your company with the government.
The articles of incorporation that you filed with the state if you are the sole owner will be required to open a bank account if you form a business as an LLC, limited partnership, corporation, or other separate legal entity, according to Tiffany Wright, president of The Resourceful CEO and project director at Cogent Analytics.
According to Rampantly, banks will probably want a copy of your most recent business license as evidence that you have the legal right to operate a business in the area.
Additionally, he added, “this makes sure that your company is responsible for all acts, including taxes and money. To find out whether you need any licenses to run your business, check with your state, county, and municipal governments.
Doing business as (DBA) certificate
According to Deborah Sweeney, CEO of My Corporation, a DBA, often known as a “fictitious name,” enables you to do business “such marketing or advertising, or collect money, under a name that differs from the current name of your corporation.”
Since business owners aren’t permitted to utilize their personal bank accounts under their corporate names, Sweeney continued, most banks want a certified copy of a DBA in order to create a commercial bank account.
Without needing to establish a new company, companies can conduct business under a different name by filing for a DBA, according to Sweeney. “Take Tom Johnson, an entrepreneur, as an example. Tom, who has his own company and plans to start a sandwich restaurant named Subs ‘n Chips, is a solo owner. Tom wants to use the Subs ‘n Chips moniker for this company rather than his own, Tom Johnson. So that he could conduct business under this name, including receiving and signing cheques made out to and on behalf of Subs ‘n Chips, he would have to apply for a DBA.
Employer identification number (EIN)
of the credit solutions and monitoring company Nav, says that if you’re a sole owner, you’ll need an EIN, your Social Security number, and a driver’s license or passport.
EINs are also used to stop fraud, money laundering, and identity theft. Even though some banks let a single proprietorship to create accounts without an EIN, King continued, getting one is still advantageous.
The EIN is necessary for managing taxes and paying employees, according to Rampantly.
In place of an EIN, he continued, “sole proprietors may utilize their Social Security number for company tax reasons.” “By filing with the IRS, you may get an EIN for your company.”
Finally, you’ll need to present identification documentation.
A government-issued photo ID, such as a driver’s license or passport, is one of the acceptable forms of verification, according to Rampantly. This is done in order to verify that the business owner actually owns and/or operates the associated business.
When should you open a business bank account?
Before you take the first payment for the goods or services your firm provides, is the ideal moment to register a business bank account. Typically, the process of incorporating includes opening a business bank account. Before a business may create a bank account, it must have both an operating license and an identification tax number (which will be an employer identification number or a Social Security number for a sole proprietorship).
What is the difference between a bank and a credit union?
Customers and members may often get the same services at banks and credit unions. Both are made to offer lending services, other financial services, and money management (such as checking and savings accounts).
The distinctions result from how each sort of financial institution is organized, categorized, and governed. For-profit institutions like banks can be privately or publicly held. By definition, credit unions are nonprofit organizations. Credit unions are cooperatively owned by union members; hence they can never be single proprietorships.
The two types of institutions’ regulations are different as a result of their different classifications. Many of the regulations put in place following the financial crisis of 2008 did not apply to credit unions. Banks and credit unions may charge varying fees or interest rates for their services, and the approval procedures may also differ. For instance, membership qualifications for credit unions may have certain criteria. For instance, a lot of credit unions only allow people who live in the county where the credit union is situated to join.
Is it better to apply in person or online?
According to Rampantly, certain banks do not provide the option of creating a business account online, either because of the nature of specific firms or to lower the danger of identity theft.
If you apply for a business bank account online, the bank may take longer than if you applied in person to verify your paperwork and set up the account.
If the bank of your choice has both methods of application, you will need to pick which method (and trade-off) is more advantageous: applying conveniently online but having to wait longer for your account to be set up in person and getting your account set up the same day.
This article’s reporting and writing were aided by contributions from Matt D’Angelo and Simone Johnson. For an earlier iteration of this article, some interviews were performed.