Opening a bank account should be on your small business checklist. Whether you’re just starting out or transferring your business account to a new bank, you’ll need to gather some documents, names and licenses to ensure the process goes smoothly.
Let’s go through how to open a business bank account, noting which documents are required.
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Why Do You Need a Business Bank Account?
There are several benefits to setting up a business bank account:
Separate Business and Personal Finances
Separate bank accounts for business and personal finances will help simplify your financial records come tax time. It will also help you build your business credit score. Additionally, it’s easier to track your company’s cash flow to help identify areas that need improvement.
Appear More Professional
Having a business bank account will make you look more professional when dealing with clients:
- You’ll have checks featuring your company’s name.
- Customers will have the convenience of paying with their credit cards.
- Your accountant will have a better time handling bank-related tasks.
Building a Relationship With Your Bank
Setting up a business bank account is a way to build a good relationship with the bank. At some point, you might need to take a loan for your business. An established relationship will help you qualify for financing so you can expand your business.
Types of Business Bank Accounts
Before you open a business bank account, determine what kind of account you want. Why are you starting a business bank account? Do you need it for daily deposits or accepting payment from clients? Keep in mind you could also earn interest or dividends from little investments.
Here are 3 common types of business bank accounts:
- Savings accounts
- Checking accounts
- Merchant accounts
Business Savings Accounts
A business savings account allows you to gradually stockpile money while earning interest every month. However, you might have some restrictions on the number of withdrawals or transfers you can make in a month or year. The most common savings accounts include business certificate of deposit (CD), high-yield savings and money market accounts.
Business Checking Accounts
Checking accounts allow business owners to receive or transfer money, write checks and deposit or withdraw money using a debit card. There are usually no minimum account balances required — you only need enough funds in the account to cover your purchases. A basic business checking account might come with introductory offers, low fees and network availability.
Business Merchant Accounts
This kind of account allows companies to automate the process of accepting debit or credit card information and send those funds to the merchant’s linked bank account. Typically, when a customer makes a payment with a credit card, the money is first deposited into the merchant account before being transferred to the recipient’s business bank account. Opening a business merchant account is a good option because customers are increasingly moving away from cash payments. In 2020, 38% of point of sale transactions were made with credit cards, according to Statista. Debit cards were the next most-used payment method and cash was third.
What Documents Are Needed to Open a Business Bank Account?
When you’re starting a business bank account, you’ll need the following documents:
- Personal identification (national ID card, passport or driver’s license)
- Social Security number or employer identification number (EIN)
- Business licenses
- Organizing documents
- Certification of business identity or Doing Business As (DBA) name registration
- Partnership agreement
Personal Identification
For most bank applications, you’ll need to present a government-issued picture ID such as a passport or driver’s license.
Social Security Number or EIN
Before opening a business bank account, you’ll need to prove your business’s identity. In this case, you’ll need an employer identification number (EIN) accompanied by documents sent by the Internal Revenue Service (IRS) during the issuance of your business tax ID number. Some banks allow sole proprietors to use a Social Security number for business tax purposes, but you get much more benefit from having a business tax ID number.
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- You can apply for an EIN online on the IRS website. The process should be quick and straightforward if you have a valid Social Security number and your company is in the U.S. Preserve the confirmation letter because you’ll need it during the application process.
Business Licenses
Whether you are an individual proprietor or a limited liability company (LLC), banks will typically ask for an updated business license from a state or local government body to prove you’re legally allowed to conduct business in the region. Each state, county or locality has different processes for getting a business license, so check with the respective authorities to determine what your area requires.
Organizing Documents
Organizing documents can differ depending on state and local governments. Still, they include crucial company details such as the business name, who the owners are, the company address, the management structure and planned business activities.
Some of the main organizational documents you’ll need include the articles of incorporation to show how the business is structured. For an LLC, corporation, limited partnership or other separate legal entity, these documents are called the articles of association. They should be presented to the bank on the day of opening the business account.
Certification of Business Identity or DBA Registration
If your business operates under a different trade name, you will need to provide a business name certificate, also referred to as a DBA filing. The certificate will act as proof of your legal business name.
Partnership Agreement
For any business you set up, you’ll need to file some paperwork with the state government. Businesses with several partners will bring along a partnership agreement. LLCs will need an operating agreement, while corporations will require bylaws. The agreement will include the rights and responsibilities of each partner, key issues the business will encounter and how it will conduct its activities.
Other Business Bank Account Requirements
The documentation required to set up a business bank account will vary based on a company’s corporate structure. Here are some of the business bank account requirements for different business structures:
Sole Proprietorship
- Personal identification
- Social Security number or EIN
- DBA certificate
- Business licenses with legal names of the owner
Partnerships
- EIN
- Personal identification
- Organization documents
- Certification of business identity or DBA filing
- Business licenses
- Partnership agreement
Corporations
- Business identification
- EIN
- Articles of incorporation
- Business licenses
- Certification of business identity/DBA certificate
- Corporate bylaws
- Corporate resolution
LLC
- EIN
- Business identification
- Articles of association
- Business license
- Organizational documents
- Certification of business identity/DBA certificate
Can I Open a Business Bank Account Online?
Yes, you can open a business bank account online. Some institutions, such as BlueVine and Axos, operate entirely online, while other banks, including Bank of America and Chase, have brick-and-mortar locations as well as online account services. When you’re setting up a business bank account online, consider which type of bank best fits your needs. Is it important that you’re able to go to a physical bank branch in addition to online banking? Or is it more convenient for you to handle all of your banking matters online?
Some online banks provide a variety of options, from a business account with basic features to full-analysis business checking. Look at each institution’s requirements to open and maintain a business bank account, including minimum balances, monthly or transaction fees and withdrawal limits. Keep in mind that some online banks offer higher interest rates than brick-and-mortar banks because they have lower overhead costs.
Can I Open a Business Bank Account With Bad Credit?
A negative credit report can limit your access to business checking account options.
If you have poor personal credit and decide to open a business account, expect some hurdles. The bank will check your credit score before setting up a business bank account. If it’s too low, the bank won’t open an account.
There are 2 solutions: Either get your bad credit record cleared or work with a bank that will overlook a negative credit report. The second option is the quickest.
Some banks offer online business checking accounts with no credit score review. However, the bank might charge higher fees or require a certain minimum balance if it seems you’re a higher risk as a customer. Once the account is opened, you can manage it almost entirely online.
