Opening a business bank account is a crucial step for all business owners, regardless of their size or scale. It should be one of the early steps in the business development process. A business bank account helps you manage practically every other financial aspect of your company, from vendor payments to payroll. While business bank accounts are required for all businesses, regardless of industry, structure, or size, they are not one-size-fits-all, and selecting the correct one can be difficult.
We’ll review everything you need about business bank accounts, including choosing the best one for your company’s needs and how to open one.
What is a business bank account, and why is it important?
Business bank accounts serve as your company’s financial foundation. Businesses, like people, can open several bank accounts, including checking and savings accounts. A business checking account lets you keep cash to purchase and pay personnel. It also aids in keeping your funds separate from your business’s.
Your primary business bank account is where you will keep money for all business operations, including:
- Giving Salary to Employees
- Vendor and supplier payment
- Purchasing advertisements and other marketing expenses
- Obtaining funding from investors
- Receiving sales revenue, either directly from consumers and clients or through payment processors
- Paying taxes
- Purchasing office supplies
- Obtaining business loans and grants
- Purchasing inventory
- Paying down business credit card balances
Types of Business Bank Accounts
There are seven kinds of business bank accounts:
- Business Checking Account: This is the account from which you will execute all business transactions. Most of the above payments would be made from your business checking account.
- Business Savings Account: Having a separate savings account for your business provides the same advantages as having a personal savings account. You can save for an emergency future goal and earn interest on your contributions. Most company checking account providers also offer business savings accounts, so opening one and establishing a financial cushion might be useful.
- Traditional savings: A standard savings account often has a low interest rate and minimal flexibility. Traditional savings accounts still generate higher interest than the average small-business checking account. A regular savings account also has a lower minimum deposit requirement than different savings accounts, and the monthly fees are easier to waive.
- Cash Management Account (CMA): A CMA is a managed account that combines the functions of a checking account, a savings account, and an investment account. A CMA may be a smart alternative if you want a more complete and strategic approach to managing your cash or a higher interest return on your company savings.
- CDs: A Certificate of Deposit account is just like a savings account in that it stores money for a set length of time. This can range from a few months to several years. CDs often generate greater interest rates than other types of accounts, with the proviso that you must commit to keeping the cash there for the whole term—no more, no less. This is an ideal account for saving for bills with a specific due date.
- The Money market: Money market accounts function similarly to typical savings accounts, but they frequently offer a higher interest rate and allow you to write checks from your account. (Depending on your bank, they may still have a transaction restriction). They can have extremely high minimum starting deposit requirements. Similarly, the minimum balance required to remove the monthly cost will be significantly larger than in a regular savings account.
- Savings with a high return: High-yield savings accounts include standard savings and money market savings accounts that pay much greater interest rates than the average. No exact interest rate threshold defines a high-yield account, although you’ll frequently see high-yield business savings accounts with rates ranging from 0.5% to 1%.
Benefits of a Business Bank Account
Here are the benefits of a Business Bank Account
- Separation of Finances: You can separate your personal and business finances like a professional with a Business Bank Account. You can have calculative information on your debit and credit.
- Access to Small Business Banking Tools: Small Business Banking Tools can help you automate your accounting system. It will help you access banking software that calculates and works for you.
- High Return and Business Credit Improve: You can create a credit relationship with a local bank by opening a business account. Lenders will consider a company’s credit history when deciding whether or not to lend it money. A solid business credit history can help you get a loan with a reasonable interest rate if you wish to finance equipment, hire more personnel, move to a larger place, or expand your firm in other ways.
- Convenience in Payment Processing: Having a business bank account is a convenient approach to dealing with money in your account. In this case, you can access debit and credit cards for your payment processing.
- Easier Bookkeeping: Bookkeeping software may assist you in managing bill paying, accounting, budgeting, and invoicing, making managing your company’s money much easier and syncing your bank account with your bookkeeping software if you have a business bank account that separates your personal and corporate finances. Essentially, this automates almost all of your bookkeeping!
What are the most important things to consider when choosing the best small business bank account?
When selecting a bank account, the number of alternatives available can be overwhelming. Every bank and financial institution offers various accounts, each with its features and benefits. To assist, let us look at some of the major business bank account characteristics to look for.
- There are no fees: Many accounts are subject to monthly fees. These normally range from $10.00 to $15.00 monthly, depending on the bank and account. These fees are sometimes removed if you keep a specific minimum balance. This might be as low as $500.00 or as much as $5,000.00.
- There is no minimum balance: To avoid costs, many accounts demand a minimum balance. In truth, many accounts that promise “no fees” will gladly charge you one if your balance falls below this level. However, you will keep a consistent balance. Some banks additionally require a minimum opening amount to open an account. This is less of an issue, but it can be difficult to meet this deadline if you’re self-funding.
- Simple access: A bank account is useless if the funds in it are inaccessible. That means a debit card is required. You should also examine how important cash withdrawals are to you and whether you are willing to pay a fee for them—this may influence your decision, as not every bank will offer local ATM access.
- A user-friendly, effective mobile app: Mobile connectivity is more vital than ever. Bank offices are becoming obsolete, as 78% of adults in the United States prefer to bank through a mobile app or online. The mobile banking app can help you check your account balance, make transactions, verify payments or purchases, or make deposits. That implies your bank should provide a good online experience.
- Accepts cash, checks, and wire transfers: Being paid is critical to running your operation as a small business owner. And you’ll be paid in various ways, including cash, checks, and wire transfers. You should look for a bank that accepts and handles multiple payment methods. Limited payment acceptance can cause problems with deposits, limiting your cash flow.
- Financial management tools: You have to find a bank that allows you to manage your assets, which is critical when your monthly income fluctuates. Look for a business bank that offers services like virtual cards or ways to organize your money to help you better manage your cash flow. The virtual cards allow you to generate unique card numbers for different suppliers or 1099 contractors to keep spending organized and secure. Separating funds into a single primary account for specific reasons such as payroll, taxes, or operating expenses makes it simple to distribute funds and track where they are spent. The correct cash management tools give you better visibility and control over your company’s finances.
- FDIC-backed: Keeping your funds in peer-to-peer payment software may be tempting, but it is not the most secure option. To secure your money, you should instead choose an FDIC-insured bank. The Federal Deposit Insurance Corporation (FDIC) covers deposits of up to $250,000 per depositor in each FDIC-insured bank.
- Customer service: You will undoubtedly have questions or concerns about depositing dollars, moving money, and other transactions. Many financial institutions will have robust self-service support centers with frequently asked inquiries. Nonetheless, you should look for a bank with responsive customer service professionals who can rapidly handle any issues. Access to specialists who care about your company makes a significant difference. Look for a bank that offers various networks to contact customer service, such as phone, live chat, and email.
- Link to other services: Business needs connectivity. Banking is no exception to platforms and apps connecting in fascinating and innovative ways. Finances do not exist in a vacuum any longer.
What You Need to Open a Business Bank Account
To begin with, talk about your requirements with various institutions to better understand their offerings and costs. Once you’ve decided on a bank, you can start the account opening procedure online or by visiting a nearby location. However, the details vary from bank to bank; new customers must visit the bank in person and submit their papers. In general, to open a business bank account in the United States, you will need to provide the following paperwork:
- Passport size photo
- Articles of Organization/Incorporation
- Letter confirming your EIN
- Proof of the director’s personal address
- Certain banks require proof of business address, while others do not. Certain banks want you to demonstrate that your address is in the same region and state as the branch.
- List down the required documentation depending on different types of business structures.
Step-by-Step Guide to Opening a Small Business Bank Account
Let’s go into the specifics. A general step-by-step guide to opening a small business bank account is below.
Step 1: Select the Best Bank for Your Company
Choosing a small business bank account that meets your needs is critical. Investigate local banks to evaluate prices, customer service, internet banking capabilities, loan alternatives, and ATM access.
Step 2: Gather the Required Documents
When opening an account, you must usually supply some documentation. This could include documents such as your tax identification number (EIN) or driver’s license, evidence of business ownership, a canceled check from your other business accounts, etc.
Step 3: Submit an Application
Fill and apply at the bank of your choice once you’ve gathered all the essential documentation. This may be done online in some situations. You may need to book an in-person appointment, depending on the type of account and the bank you choose.
Step 4: Make your first deposits
After your application has been granted and your new account has been activated, make any initial deposits that the bank may demand to pay processing fees and minimum balance requirements.
Step 5: Set up Mobile Banking and Payments
Small companies rely on mobile banking solutions such as digital wallets and payment apps to remain competitive in today’s market. Inquire about the bank’s mobile products so you can use useful features like automated payments and spending-tracking tools.
Level up your business with Cheqly: Open a small business banking account today!
You can elevate your business with Cheqly, which offers a straightforward and seamless small business account opening process. As a business owner, you gain access to all banking services at your fingertips with no monthly or annual fee, eliminating the hassle of maintaining a minimum account balance. Further, you can easily transfer money both locally and internationally.
Why wait? Experience leveling up your small business account with Cheqly today!