Do I Need a Business Bank Account? Here Is What You Should Know

Written By
I. Mitic
Updated
November 17,2022

Whether you’re a startup or an established business, sooner or later, you'll need to decide whether to open a business bank account. Before doing that, you’ll need to know what that entails and what the potential benefits and drawbacks are.

If you’ve been asking yourself, “Do I need a business bank account?” our article is for you. We’ll discuss when and why you should open a separate business bank account and the drawbacks of going without one. We'll also provide tips on choosing the right bank for your needs. Let’s get started, shall we?

How Does a Business Checking Account Work?

A business checking account is a bank account specifically designated for use by businesses. It’s similar to a personal checking account but offers certain features and benefits specific to businesses.

For example, one of the benefits of business accounts is that you can write company checks rather than using your name, which can help establish your business credit

You can also make purchases for your business using your business debit card. Some banks provide corporate debit card programs, allowing designated employees to make business purchases with their personal cards.

Furthermore, you can make and receive electronic funds transfers (ACH) using your business checking account.

Many banks offer incoming wire transfers free of charge but will make charges for outgoing wire transfers. International wire transfers go from $35 to $50, and outgoing domestic transfers average around $25 to $30

Opening a business checking account might help you develop a positive credit history. Establishing net terms with suppliers and vendors who report to a business credit reporting agency is one way to do this.

By agreeing to net terms with your suppliers, you can delay making payments to them for a set amount of time (often 30, 45, 60, or 90 days) while your prompt payments under those net terms get reported to business credit reporting agencies, thereby contributing to your business credit.

Overall, a business checking account can be a helpful tool for businesses of all sizes. It can help you manage your finances in a more organized way, establish business credit, and take advantage of business-specific features and benefits.

Why Do I Need a Business Bank Account?

The fees and red tape necessary to open a business checking account can be off-putting, leading many side hustlers to avoid them altogether.

However, there are several reasons why having a business checking account is advantageous for any small business owner, even if it’s only for a small-scale side gig. And there are affordable, even free business checking accounts available, so if you’re just starting a business, you don’t need to worry about burdening your budget by opening another account.

  • Simplify your tax reporting: When you have a business checking account, your business income and expenses are all in one place. This is handy come tax time as you can simply provide your accountant with your business bank statements.
  • Professionalism: Using a personal checking account for business purposes can make your business look unprofessional. It’s always a good idea to separate your personal and business transactions; it gives your company an air of legitimacy and helps you build credibility with customers, suppliers, and partners.
  • Improved security: A drawback of using your personal checking vs. business checking account for business purposes is that you open yourself up to an increased risk of identity theft and fraud. That’s less of a problem if you run business transactions from a business account.
  • Access to business banking services: When you have a business checking account, you’ll have access to a host of business-specific banking services, such as merchant services, business loans, and lines of credit.
  • Increased limits on transaction sizes: When you use a personal checking account for business purposes, you may run into limits on the size of allowed transactions. For example, some banks limit the amount of money that can be withdrawn from an ATM in a single day from a personal bank account.

What Do I Need To Open a Business Checking Account?

To open a business checking account, you will need to provide the following:

  • Your business registration documents. This may include your Articles of Incorporation (for corporations) or Articles of Organization (for LLCs), partnership agreement (for partnerships), and your business license.
  • Your tax identification number. This is also known as your employer identification number and is used by the IRS to identify your business for tax purposes.
  • Your personal identification documents. You will need to provide some form of government-issued ID, such as a driver's license, passport, or state ID card.
  • You might also need a Doing Business As certificate if you are the sole proprietor and your business name differs from your legal name. For example, your legal name is Sonia Kramer, and your business is named S.Kramer Corp.

Opening a business checking account is a relatively simple process, but it's essential to be prepared with all the required documentation. This will all but ensure that everything goes smoothly and that you'll be able to start using your account as soon as possible.

How To Choose a Business Bank Account

The market is flooded with various types of business bank accounts, so you might not know which one to choose. If you want to find the most optimal bank for your business, these are a few key factors to consider:

  • The fees: Be sure to compare the monthly service fees, per-check fees, and other charges applicable to your business transactions before choosing a business checking account.
  • Minimum deposit: Some banks may have higher minimum deposit requirements than others, so choose an account that matches your needs.
  • The interest rates: Some business checking accounts offer interest on your deposited funds, while others do not. Be sure to compare the interest rates before choosing an account.
  • The location: Choose a bank that's convenient for you and your employees. If you have multiple locations for your business, consider a business checking account that's available online and has a good mobile app.
  • Customer service: Be sure to choose a bank with friendly and helpful customer service representatives. In the end, should you open a business account with a bank where you can’t count on agent assistance when it is crucial for your business? We think not.

Tips for Managing Your Business Checking Account

Once you’ve opened a business checking account, there are a few things you can do to help manage it and avoid any unnecessary fees:

  1. Keep a close eye on your account balance. It's essential to regularly check your account balance and make sure that you have enough money to cover any upcoming expenses. This will help to avoid any overdraft or returned check fees.
  2. Understand the features and benefits of a business checking account and know what you’re getting at your chosen bank. There can be a lot of differences between business checking accounts on offer, so make sure you know what you’re getting into.
  3. Stay organized. Keeping your financial documents organized will help you to keep track of your account balance and transactions. 
  4. Monitor your account activity. It's important to review your account statements and transactions regularly. This will help you catch any fraudulent activity and avoid unwanted fees.
  5. Keep your contact information up to date. Make sure that your bank has your most current contact information on file. This will ensure that you receive any critical account notifications on time.

So, in the end: Do you need a business bank account? Considering the benefits a business account brings to the table, the answer should be a resounding yes. And by following these tips, you can keep your account organized and avoid paying unwanted fees.

The Bottom Line

A business checking account is a valuable tool for any enterprise. It can help you manage your finances, pay your employees, and accept customer payments. 

When choosing an account, make sure to do adequate research and find a bank that offers the best deal for your business regarding fees, deposit requirements, and interest rates.

FAQ

What is the difference between a business checking account and a personal checking account?

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When comparing business checking vs. personal checking accounts, you’ll find that the latter has higher transaction limits and may offer handy features such as direct deposit via the ACH network and check processing.

How do I choose the right business checking account?

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Compare the fees, minimum deposit requirements, and interest rates. You'll also want to choose a bank that's convenient for you and your employees. There are several excellent business checking account options on the market right now, so with a bit of research, you’ll be sure to find one that fits your business needs.

What is the point of a business bank account?

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Many people new to owning a business ask themselves, “Do I really need a business bank account?” Although it is not mandatory, having one makes your business look more professional and has several other benefits.

It can make your accounting easier, keep your personal and business transactions separate, allow you to make purchases for your business, and streamline the process of paying your employees and accepting customer payments.

About author

For years, the clients I worked for were banks. That gave me an insider’s view of how banks and other institutions create financial products and services. Then I entered the world of journalism. Fortunly is the result of our fantastic team’s hard work. I use the knowledge I acquired as a bank copywriter to create valuable content that will help you make the best possible financial decisions.

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