A business bank account can be a useful tool for business owners. But getting started can leave you wondering, “what do I need to open a business bank account?”
Although it won’t take long to open the account, you will need to have a handful of documents ready. You'll also want to make sure you are going about it the right way. Let’s take a closer look at if you need a business bank account, its benefits, the documents you need to set one up, and where to start.
Do I need a business bank account?
Whether you are in the early stages of your business or side hustle or you are a seasoned business owner it's very important you have separate financials for your business. These separate financials should also include separate business bank accounts.
Having separate accounts might seem like an annoyance but from a tax and legal perspective, it's something every serious business owner should have. Especially if you want to achieve your business goals.
Your business finances will be less complex and you'll have less stress and confusion when it comes to determining what expenses are personal and what are business-related.
Benefits of a business bank account
The major benefit of opening a business bank account is to create separation between your business and personal finances.
When you have a separate business bank account, you’ll find it easier to keep track of your business financial statements. Plus, you’ll avoid unnecessary legal exposure of your personal assets when the funds are kept separately.
As your business grows, you may need the help of credit at some point. With a lengthy bank record of your business's success, you’ll find it easier to obtain financing.
With a mix of personal and business funds, it can be difficult for a potential lender to assess the business’s creditworthiness. Beyond the legal and financial benefits, a business bank account shows your clients a professional attitude toward your business.
Drawbacks of a business bank account
The drawback of opening a business bank account is that it can take time to open the account. Plus, having another bank account requires more financial maintenance. However, the time costs of opening a business bank account are easily outweighed by the benefits.
What do I need to open a business bank account?
Here’s what you’ll need to collect in order to open a business bank account.
1. Social security number or Employer Identification Number (EIN)
In order to open any bank account, you’ll need your social security number or employer identification number (EIN). If you are opening a business bank account, then an EIN is preferred. But some banks will allow sole proprietors to use their social security number.
You can obtain an EIN for your business by applying on the IRS website. You’ll need to have your Social Security number and business paperwork ready to get your EIN quickly. There is no charge to get an EIN.
2. Personal ID
Although you are opening a business bank account, most banks will require some form of personal identification.
The bank wants to verify that you are connected to the business before moving forward. You can use a driver's license, a passport, or other forms of identification.
3. Business entity documents
When you set up your business entity with your state, you’ll receive documentation of the legality of your business.
You can bring the paperwork provided by the state to the bank. With those documents in hand, the bank can set up your account.
4. Any "Doing Business As" (DBA) documents
You may or may not need to include a copy of any Doing Business As (DBA) filing documents when opening a business bank account. Many businesses will need to take this extra step because they operate under a different name than their legal entity.
For example, you may own Susie’s Web Development and Creative Enterprise LLC. But you may operate as Susie’s Web Development.
Since you aren’t operating as the full legal name, you’ll need to file a fictitious business name with your state. This is otherwise known as a DBA - or "doing business as" name.
5. Monthly revenue statement
If you are applying for business credit, the bank will want to see the details of your business revenue. With that, you’ll need to provide a comprehensive revenue statement.
This will also help the lender gauge your ability to pay back the loan or extension of credit.
Types of business accounts
Once you have what you need to open a business bank account, you can start the process of opening the account. Here is a closer look at the most common business bank accounts.
Business checking account
If you are accepting payments from your customers, issuing refunds, or making purchases, you need somewhere to process and keep those funds.
That place would be in a business checking account. Your business checking account also provides you with a place to monitor your business cash flow and day-to-day transactions. You can do this easily by connecting your account to business money management tools like Quickbooks or Wave Apps.
You'll also have the ability to delegate financial tasks to trusted employees by adding them to the account. This way, you can avoid having to give them cash advances or reimbursements for certain business transactions they can make on your behalf.
Also, you'll be able to monitor the transactions they are making easily by logging into your account, and you can also set limits to how much they can spend.
In addition to having a business checking account, you can also start establishing a relationship with your bank over time in the event that you need financing for your business in the future.
Business savings account
It's certainly a good idea to have business savings accounts where you can put aside funds for things like taxes, payroll, future projects, products, or whatever long-term ideas you might have in mind for your business.
Having business savings means that instead of having to rely on outside financing and paying interest you may be able to finance things in your business on your own.
It's also a good idea to separate these accounts by purpose to avoid any confusion and for proper bookkeeping.
Business credit or charge card
Having a business credit or charge card allows you to establish your business credit history with the commercial credit bureaus over time. This is important in the event that you require further financing for your business.
In addition, having a business credit card may provide you with certain types of purchase protection and may also provide you with the benefit of earning rewards or points based on your transactions.
You'll also be able to add on employees and monitor their transactions. Keep in mind though, that similar to your personal credit cards, you should avoid carrying a revolving balance and instead pay your balance off in full each month.
Opening a business bank account based on your business entity
Businesses are created in all shapes and sizes. But each will fall under a certain business type - sole proprietorship, partnership, LLC, or corporation.
The type of business entity you operate under will determine the type of paperwork you’ll need to collect to open your bank account
Sole proprietorship
Sole proprietorships are the simplest form of a business entity. You will not have to take any formal steps to form a sole proprietorship. With that, you can open your business bank account with your social security number.
Partnership
Partnerships will require an EIN in order to form a bank account. You’ll need personal identification to prove that you are part of a partnership. Additionally, you’ll need the partnership agreement and any organizing documents you filed with the state.
Limited Liability Company (LLC)
When you form a Limited Liability Company (LLC), you’ll file articles of incorporation and draft an operating agreement with any partners. You will need to bring both of these documents and an EIN to open a business bank account. Plus, you should have personal identification on hand.
Corporations
Corporations are a more complex business structure. With that, you’ll need to bring additional documents to set up a business bank account.
You’ll need to bring your business licenses, corporate bylaws, articles of incorporation, and any documentation of your DBAs (Doing Business As). And like other business entities, you will need an EIN and personal identification.
What is the best business bank account for my business?
A business bank account is likely the right move for you, and knowing how they work can prevent you from having to learn how to close a bank account. Any business owner should consider separating your personal finances from your business as soon as possible. As you consider your options, seek out the account that will suit the needs of your business.
You’ll likely want to look for an account that offers a low fee structure and minimal maintenance requirements. With the right bank account, you can focus on taking your business to the next level.