Do You Need a Business Bank Account?

A bank account is more than just a place to store money. When used effectively, it can become a money management tool to help you track your cash flow, analyze your performance, and even reduce your expenses. But the question remains, should you open a business bank account once you already have a personal one?

The Different Between a Business Bank Account and a Personal Bank Account

Usually, business accounts enable you to perform the same types of transactions that are enabled by your personal bank account. There are, however, some minor differences between the two.

Ownership

While your personal bank account is owned by you personally, this is not necessarily the case with a business bank account. If your business is considered to be a separate legal entity, such as an LLC or a corporation, then the bank account is considered to be an asset of the business. This means that if the business is sold, then the bank account will be included in the sale.

If you’re a sole proprietor or an individual contractor, however, then the business account will be owned by you personally because your business is not a separate legal entity.

Taxes

Unlike a personal account, your business bank account is considered an asset of your business. As a result, the expenses you incur in this account are tax deductible so long as the IRS believes that they were incurred for work purposes and they are not deemed excessive.

Setup Process

Applying for a business bank account usually requires more paperwork than a personal account.

Your exact requirements depend on the type of business you own and may include documents such as your business license, DBA (Doing Business As) name, and form of ownership specific details such as Articles of Incorporation or a Partnership Agreement. We will, however, go into more detail about this process later.

Employee Debit Cards

Some business accounts allow you to order employee debit cards, thereby giving them the ability to withdraw and spend funds. If your bank enables this feature, then you’ll also have the ability to set spending limits including online, at ATMs, and on card machine purchases.

The Benefits of Business Bank Accounts

While the extra administration that comes with opening an additional bank account may seem daunting, there are several important benefits that prove why opening a separate business bank account is not only a worthwhile endeavor but a necessity.

Taxation

By keeping your business and personal funds separate, financial management becomes a lot more efficient. Not only is it easier to track business expenses and income, but filing taxes becomes simpler as well.

Instead of confusing business funds with personal ones, you’ll have a clearer picture of what to include in your business’s tax filings as well as what expenses to include as tax write-offs.

Credibility

For many potential customers, financial security is of utmost importance, especially when it comes to parting with their hard-earned money. By having a separate bank account that reflects your business’s name and contact details, you’ll provide your business with a layer of legitimacy that will make it appear more credible in the eyes of customers, thereby earning their trust.

Liability Protection

Although not every business operates as a separate legal entity, opening separate business and personal bank accounts can help you to minimize your personal liability should your business run into financial or legal trouble. Should an issue arise where your business’s finances are affected, your personal finances will remain untouched.

Building Credit

No matter the size or age of your business, having access to a line of credit always provides peace of mind.

Not only do business checking accounts often come with business-specific financing options, but by using a business bank account, you’ll have the opportunity to build your credit history. This will result in a stronger business credit score and access to bigger loans on better terms.

Functionality

Many business bank accounts offer multiple signing authority. This means that both you and other key business members such as directors, managers, or treasurers can obtain signing authority on the account.

What’s more, you can create different groups of signatories, for example, one could be sole signatories with their own signing power while others require dual signatures. With multiple signing authority, you can accelerate daily financial decision-making.

Another feature that business accounts often have is the ability to order debit cards for multiple employees, thereby enabling them to perform necessary business purchases as and when needed.

What You Need in Order to Open a Separate Business Bank Account

While banks will require some basic information from all businesses, the specific documents you need in order to open a business bank account depends on the type of business you run. Let’s take a look at what you might be required to submit depending on your form of ownership.

Sole Proprietor

Basic information that banks usually require from sole proprietors include your personal details such as full legal name, physical address, phone number, and email address as well as your Tax Identification Number (TIN) or your Social Security Number (SSN).

Some documents that may be required include your DBA (Doing Business As) certificate and either an IRS SS-4 form or a 147 c Letter that verifies your Employment Identification Number (EIN).

General Partnership/Limited Liability Partnership (LLP)

Like sole proprietors, partners in a partnership are required to submit their full legal names, physical address, phone number, email address and Social Security Numbers (SSNs).

Documents that may be required for further validation are a copy of the Partnership Agreement as well as Certificate of Partnership. It’s important to note, however, that the Partnership Agreement should stipulate the percentages of ownership among the partners.

Limited Liability Company (LLC)

When applying for an LLC business checking account, LLC’s are required to present their Business Employer Identification Number (EIN) as provided by the IRS. This is in addition to their physical address and phone number. The date that the business was established may also need to be submitted.

Essential documents that LLCs must submit are their Articles of Organization as well as their Operating Agreement. While not always a requirement, some banks request LLCs to disclose their annual revenue, so make sure to have this information available just in case.

Corporations

Much like an LLC, corporations are required to submit their Business Employer Identification Number (EIN) as well as physical address and phone number.

Corporation-specific documents that will be required are your Articles of Incorporation as well as the Company Bylaws.

Choosing a Business Account

Before searching for a bank account, it’s important to determine what features are a priority for your business. Here are some of the factors that may help you identify the ideal business bank account for your circumstance.

Fees

While they may not be viewed as typical business costs, banking fees such as monthly fees, ATM transaction fees, and transfer fees are still expenses. What’s more, because they occur on a regular basis, they can add up to a substantial amount.

If your aim is to save money, then you’ll want to consider opening a business bank account with minimal fees. Some banks such as Novo and Bluevine offer accounts with no monthly fees, while Axos provides full unlimited reimbursements on ATM fees.

Interest

As you focus on growing your business’s income through sales, your business can earn a modest passive income on the side by joining a bank that offers a competitive interest rate. Bluevine offers an APY of up to 2.0%, while others such as Lili and LendingClub offer up to 1.5% interest.

Online features

Aside from financial benefits, your bank account can also help you to run your business more efficiently. Lili offers online features such as its tax optimizer to help you organize your tax write-offs and file your taxes, while Found and LendingClub both provide digital invoicing software so that you can perform all financial transactions on one integrated platform.

Credit Access

No matter how much financial planning you do, the future remains uncertain. Because of this reality, you may want to ensure that you have access to credit lines in case you need some extra financial support to grow your business and reach your goals.

Bank of America and Axos are two banks that provide a range of loans specifically tailored to small businesses.

Do You Need a Business Bank Account Frequently Asked Questions (FAQs)

Do you still have some unanswered questions about opening a business bank account? Here are some answers to common questions that will hopefully make the process a little clearer!

What ID do I need in order to open a business bank account?

While each business requires a specific set of documents according to its form of ownership, there are some forms of identification that all business owners should make sure to prepare when applying for a business bank account.

Make sure to have your full legal name, physical address, phone number, and email address ready to submit along with the legal name of your business.

If you’re a sole proprietor or a partnership, then you and any relevant partners will need to submit your Social Security numbers as well as your Tax Identification Numbers.

For other businesses that are a separate legal entity, an Employment Identification Number (EIN) is required. Here’s how to open a business bank account with EIN only.

How do you open a business checking account online?

Today, opening a new business bank account online is easier than ever. Axos, Bluevine, Lili, Novo, and Found are just some examples of online banks that provide a fast and straightforward sign-up process straight from their official websites.

All you’ll need is the documents required by your chosen bank and a working internet connection and you’ll be able to apply for an account within minutes.

An array of traditional banks are also entering the online banking sphere, with Bank of America and Chase for Business among those brick and mortar banks that are enabling their clients to apply for accounts and conduct banking transactions entirely online.

How does tax work if I have a business bank account?

By signing up for a business bank account, filing your taxes actually becomes simpler! This is because you don’t have to search through your transaction history and separate business income and expenses from personal banking activities. What’s more, some banks provide tools to automate your tax filing.

Some business bank accounts such as those from Lili and Found come with accounting software, receipt scanners, and automatically generated financial reports, while Bluevine and Bank of America offer integration with external accounting platforms.

Bottom Line on Whether You Need a Business Bank Account

No matter what type of business you own and what size it is, opening a separate business bank account is a must. Whether or not your business is a separate legal entity, your online bank account’s digital tools will be sure to make managing your business’s finances simpler!

Best Business Bank Accounts by State

Below you will find an interactive U.S map that can help you locate and compare different banks and financial institutions that offer business accounts in your area.