Find out everything you need to know about a business checking account and whether or not you need one, so you can choose the best option for you!
Having a business checking account can be an essential step towards building a strong financial foundation for your company. However, with many options available out there it can be hard to make a decision.
Learn more about what it is and whether or not you need one, so you can move to the next step and choose the best option for you. Also, if you want to check out more financial tips on our website, you can click on this link!
What Is a Business Checking Account?
It functions similarly to a personal checking account, but it’s specifically designed for business transactions. It allows you to deposit and withdraw funds, write checks, make electronic payments, and manage your business cash flow efficiently, while also offering features tailored to business needs, such as:
- Multiple Authorized Signers: grant access to trusted employees or partners to manage the account;
- Debit Cards: it may offer debit cards for employees;
- Merchant Services: accept credit and debit card payments from customers (may require additional fees);
- Perks: like free wire transfers, integration with business accounting or payroll software;
- Financial Tools: to create invoices, track expenses or generate financial reports, simplifying record-keeping and ensuring accurate bookkeeping.
Do I Need This Type of Account?
Even if your business is small or operates primarily online, a business checking account offers significant advantages:
- Limits Liability: keeping your business and personal funds separate can protect your personal assets in case your business faces legal action;
- Organization: it helps separates business income and expenses from personal finances, simplifying tax filing and bookkeeping, and ensuring you don’t mistakenly use business funds for personal expenses;
- Access to Credit: certain business checking accounts offer lines of credit, which can help your business manage cash flow during slow periods or finance growth by purchasing inventory or equipment.
- Insurance Protection: deposits in business checking accounts at FDIC-insured banks and NCUA-insured credit unions are protected. The insurance limits vary based on your business structure. Corporations, partnerships, and unincorporated businesses are insured up to $250,000 per depositor, separate from personal accounts. Sole proprietorships, however, have combined coverage for personal and business accounts up to $250,000.
- Builds Business Credit History: it helps build a separate credit history from your personal credit. A strong business credit score can improve your chances of qualifying for loans, credit lines, and credit cards.
Can I Open a Business Bank Account With Bad Credit?
Having bad credit doesn’t necessarily disqualify you from opening a business checking account. While some banks may run a ChexSystems report – which lists actions such as bounced checks, overdraft fees and forced closed accounts – , others can focus more on the nature of your business. Here are some tips if you have bad credit:
- Choose a Bank Known To Be Business-Friendly: consider smaller community banks or credit unions that cater to entrepreneurs;
- Prepare a Solid Business Plan: demonstrate your financial projections and growth potential;
- Find a Co-Signer: partner with someone with good credit to co-sign on the account application.
What Do I Need to Open an Account?
The specific requirements may vary depending on the bank, but you’ll generally need:
- Business Formation Documents: proof of your business structure (sole proprietorship, LLC, etc.);
- Employer Identification Number (EIN): a unique tax identification number for your business. You can obtain an EIN for free from the IRS website;
- Social Security Number: if you’re a sole proprietorship;
- Government-Issued Photo ID: valid identification for all business owners and authorized signers;
- Business License: most businesses need a combination of licenses and permits from both federal and state agencies;
- Business Bank Statements (if applicable): if you’re already operating a business account elsewhere, some banks may request recent statements;
- Opening Deposit: most banks require a minimum deposit to activate the account.
How to Get a Free Business Checking Account
Many banks offer free business checking accounts, but they often come with certain stipulations. Here are some things to consider:
- Minimum Balance Requirements: maintain a specific minimum daily or average balance to avoid monthly service fees;
- Transaction Limits: free accounts may have limitations on the number of monthly checks, debit card swipes, or ATM withdrawals;
- Account Features: they may have fewer features compared to paid accounts, such as merchant services or bill pay.