Benefits of a business bank account
According to the Small Business Administration (SBA), business bank accounts offer perks you won't typically find with a personal checking account, such as the following examples.
Greater protection
A business account keeps your business funds separate from your personal money, helping to protect your personal account from liability. If you also have a merchant services account to accept electronic payments, merchant services offer another layer of protection.
Air of professionalism
The fact that a customer can pay with a credit card or make a check out directly to your business offers an air of professionalism, a sign you own a business and it isn't a hobby.
A chance to prepare for what the future may bring
Most business bank accounts come with an option to take out a line of credit. You don't have to use the line of credit right away, but it might be nice to know it's available in the event of an emergency.
Greater purchasing power
Having a business bank account in place means you can also apply for a business credit card in your business's name. Say you're a house painter and land a huge job painting the exterior of an apartment complex. A credit card for self employed people will not only allow you to purchase the supplies you need to complete the job, but paying the credit card back as agreed helps establish a credit history for your business.
Streamlines tax preparation
When all your business deposits and outlays are in one place, it's faster and easier to file your taxes each year.
How to open a bank account for a business
Opening a business bank account is slightly more complex than opening a personal bank account. Still, with a bit of pre-planning, the entire process should not take much time. Here's what you'll need to provide to open an account for a business.
Employer Identification Number
Unless you're a sole proprietorship with no employees, you'll need to provide your IRS-generated Employer Identification Number (EIN). This may also be referred to as a Federal Employer Identification Number (FEIN). It's the EIN you use when you file taxes each year, and it's the EIN the bank will use to keep track of your business account.
As mentioned, you won't need an EIN if you're a sole proprietor, but you will need to provide your Social Security number.
If you don't have an EIN yet, you can request one online from the IRS. Once you fill out the application, the IRS system does a quick check and immediately provides you with a number.
Word of caution: If you type "IRS EIN" into a search engine, you will find for-profit companies that have designed their websites to make it appear as though they're the IRS. It's not until you scroll to the bottom of the page that you learn these sites are actually businesses hoping to make money off you. They ask for personal information, transfer that information to the free IRS site, and pass along your EIN when it arrives. It is free to get an EIN through the IRS. If any site asks for money, you know you're being scammed. Your best bet is to work directly with the IRS.
Personal ID
Be prepared to present a driver's license or passport as proof of identity.
Business ID
If you're a sole proprietor, you'll need to provide your Social Security number. If your business operates under a DBA (doing business as) name, be prepared to provide a certificate showing the name you use for the company.
If your business is an LLC, you'll need to present your EIN and business registration. And if your business is a limited liability partnership, you may be asked to provide the agreement that shows the names of all partners (along with the name of the business).
Business license
If you have a business license, bring it along too.
Initial deposit
You'll likely need to make an initial deposit to get the account up and running. If you're not starting with much money, make sure the bank you work with has a low (or no) minimum balance requirement.
What to look for in a business bank account
Some business owners open a business account with the same financial institution they use for personal banking services. While there's certainly nothing wrong with doing so, it could pay to shop around for a bank that better meets the needs of your business. Ideally, the bank in which you open a business account offers:
- Attractive introductory offers
- Higher-than-average interest rates for savings and checking
- Low APY for lines of credit
- Low transaction fees
- Low or no minimum account balance or checking account fees
- No early termination fees
- Convenient hours
- A robust online presence that allows you to bank 24 hours a day
- Customer service that makes you feel like a valued customer
When it's time to open an account, speak with a business banker about which types of accounts you need to open now and which you may want to open in the future.