Do You Need a Business Bank Account?

Written By
I. Mitic
Updated
September 18,2023

Whether you're launching a startup or steering an already established enterprise, the question of opening a business bank account will inevitably arise. The most recent statistics from 2023 found that 96% of small-business owners have a business bank account, but that still does not mean that you yourself will benefit from one.

This is why we're here today, to explore the reasoning behind opening a separate business bank account, all the requirements, benefits and potential disadvantages of forgoing one.

How Does a Business Checking Account Work?

A business checking account is like your everyday personal checking account but with a twist. These accounts are tailor-made for businesses, packed with special features and some cool perks just for them.

For instance, a big advantage of business accounts is the ability to issue checks under the company's name, a step that can bolster your business credit profile.

Moreover, business debit cards facilitate commercial purchases. Some financial institutions even offer corporate debit card schemes, empowering selected employees to undertake business-related expenses using individual cards.

Additionally, electronic funds transfers (ACH) can be seamlessly executed via your business checking account.

While many banks choose to waive fees for incoming wire transfers, outgoing transfers more often than not come with associated costs. The fees for international transfers usually range anywhere between $35 and $50, while domestic transfers traditionally carry a lower fee of around $25 to $30.

Opening a business checking account can be instrumental in fostering a commendable credit history. One strategy involves establishing net terms with suppliers and vendors that report to business credit bureaus.

By consenting to these net terms, you can defer payments for stipulated durations (like 30, 45, 60, or 90 days). Timely payments under these terms are reported to credit agencies, enhancing your business credit score.

At its core, a business checking account is like a trusted friend for businesses. With a business checking account, the process of handling money is greatly simplified, your business credit is boosted, and the features and perks are tailored specially for your business needs..

Why Is a Business Bank Account Important?

Admittedly, the bureaucratic hoops and associated fees to open a business checking account can be daunting, prompting many freelancers and side hustlers to sidestep them.

However, even if you think your business isn't large enough yet, there are plenty of solid reasons to consider getting a business checking account. Plus, with so many affordable and  even free options available on the market, it's easy for new entrepreneurs to get started without breaking the bank.

  • Streamlined Tax Reporting: A business checking account consolidates your commercial income and expenditures, simplifying tax preparations. Come tax season, furnishing your accountant with consolidated business statements becomes effortless.
  • Enhanced Professionalism: Leveraging a personal account for business transactions can tarnish your enterprise's professional image. Distinctly separating personal and business finances not only exudes professionalism but also fortifies credibility with stakeholders.
  • Robust Security: Utilizing a personal account for business transactions amplifies the risk of identity theft and fraud. This vulnerability diminishes when transactions are channeled through a business account.
  • Exclusive Business Banking Services: A business checking account unlocks access to specialized banking services, encompassing merchant services, business loans, and credit lines.
  • Elevated Transaction Limits: Employing a personal account for business might impose restrictions on transaction magnitudes. For instance, certain banks cap daily ATM withdrawals from personal accounts.

What Do You Need To Open a Business Checking Account?

Opening a business checking account necessitates the following documentation:

  • Business registration artifacts, which might encompass Articles of Incorporation (for corporations), Articles of Organization (for LLCs), partnership agreements, and business licenses.
  • Your tax ID, also known as the employer identification number, is what the IRS uses for tax matters. And for personal identification, you'd typically use things like your driver's license, passport, or any state-issued ID card.
  • Additionally, sole proprietors whose business names diverge from their legal names might require a "Doing Business As" certificate.

Being well-prepared with the requisite documentation ensures a smooth account opening process, enabling you to harness your account promptly.

How To Choose a Business Bank Account

With a plethora of business bank accounts vying for your attention, discerning the optimal choice can be challenging. When evaluating your business bank options, consider the following criteria:

  1. Fees: Scrutinize monthly service charges, transaction fees, and other pertinent costs.
  2. Minimum Deposits: Ascertain that the bank's deposit requirements align with your financial capabilities.
  3. Interest Rates: Some accounts accrue interest on deposits. Compare these rates judiciously.
  4. Proximity: Opt for a bank that's geographically convenient for your team. If you've got business spots in different places, it's a good idea to lean towards banks with strong online systems and easy-to-use mobile apps.
  5. Customer Support: Prioritize banks renowned for their impeccable customer service. After all, would you entrust your business's financial health to a bank that's unresponsive during critical junctures?

Strategies for Efficient Business Checking Account Management

Upon establishing a business checking account, adopt these strategies to optimize its management and circumvent superfluous charges:

  1. Vigilance: Regularly monitor your account balance, ensuring sufficient funds to cover impending expenses and avert overdrafts.
  2. Awareness: Familiarize yourself with the nuances of your chosen business checking account. Recognize the disparities between various offerings to make informed decisions.
  3. Organization: Systematic financial record-keeping aids in tracking balances and transactions.
  4. Regular Monitoring: Periodically review account statements to detect anomalies and sidestep unwarranted fees.
  5. Updated Contact Details: Ensure your bank possesses your latest contact information for timely communication.

The Final Verdict

A business checking account is an indispensable instrument for any commercial venture. It facilitates financial management, payroll processing, and customer transactions. When scouting for an account, meticulous research is paramount. Seek a bank that offers a harmonious blend of competitive fees, flexible deposit prerequisites, and attractive interest rates.

FAQ

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

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While both serve as financial conduits, business checking accounts typically offer elevated transaction limits and additional features like ACH direct deposits and check processing.

How do I choose the right business checking account?

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Evaluate fees, deposit thresholds, and interest rates. Additionally, prioritize banks that are conveniently located and cater to your business's unique needs.

What is the point of a business bank account?

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Though not mandatory, a business bank account boosts your company's image and offers several perks. It makes accounting easier, separates personal and business money, and smoothens both payroll and 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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