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7 Min. Read

Set up a Business Bank Account in 6 Steps: A Small Business Guide

Set up a Business Bank Account in 6 Steps: A Small Business Guide

Having a business bank account is a more professional way to run your small business. It also makes it much easier to track your income and expenses, according to Inc..

This is hugely important at tax time since many expenses can be written off (deducted from taxes owed). Using a personal bank account for business makes it much harder to pick out potential deductions.

A business bank account also lets an owner plan their budget, deposit payments, receive payments, manage payroll and generate financial reports for potential lenders or investors.

In this article, we’ll cover:

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

1. Check What Accounts You Need

You may need different business bank accounts for income, payroll and taxes, according to Inc.. It depends on the complexity of your business’ affairs. Ask your accountant for recommendations.

The following business accounts are most common:

  • Checking account
  • Savings account
  • Credit card account
  • Merchant services account (see step six)

Businesses that are just starting out probably only need the four accounts listed above, but especially the business checking account.

2. Select a Bank

Don’t automatically open a business account where you do your personal banking. A credit union may not even offer business banking options.

Choose the bank that will best service your small business. Some banks specialize in specific types of businesses or industries. Their specialized expertise and custom offerings will better suit your needs, especially when it comes to lines of credit or business credit cards.

That said, it’s okay to use your personal bank as a comparison point. Still, there may be better options out there, especially if they offer benefits like lower business banking fees or specialize in your industry.

Another note: your business bank should meet all your needs and be able to grow with you in the future. Compare your options carefully.

The following factors are important when choosing a bank, according to the Small Business Administration (SBA):

  • Monthly fees waived if a minimum balance is maintained
  • Interest rates for checking and savings accounts
  • Interest rates for business lines of credit
  • Transaction fees
  • Early termination fees (fees to end bank contract)
  • Introductory offers (such as a bonus)

WalletHub recommends Axos Bank Business Interest Checking as the best business bank account overall and BBVA Compass ClearConnect Business Checking for having the lowest fees.

3. Register Your Business Name

Before you talk to your potential new bank, set up your company name--that is, unless you want to operate under your personal name. This is a natural step in setting up your business.

  • For example, a copywriter can set up a company name like “Sarah Smith Copywriting.”

Check your business name isn’t taken by using the U.S. Patent and Trademark Office’s trademark database. Also, search for the name online to make sure your online presence won’t be overwhelmed by similar names.

Now that you’ve chosen a business name, visit your county clerk or state office and pay the required fee to register your business name. It should cost less than $100. This U.S. Small Business Administration guide will tell you where to register.

You can also go the extra step and apply for trademark protection. This costs less than $300.

4. Collect the Necessary Paperwork

You’ll need to gather some information before approaching your chosen bank and opening an account.

You will need, at minimum:

  • A tax ID number (get one via the IRS for free)
  • Social security number (if you’re a sole proprietor)
  • Proof of incorporation (for business structures like LLCs)
  • A business license or business name filing paperwork

Contact your chosen bank to see what paperwork you’ll need to provide to open your account.

5. Contact the Bank

You can usually open your business bank account online. But some companies will have to do so in person at a bank branch. These include companies in the telemarketing, gambling and money service industries. One of the benefits of going in person is that you’ll be able to get your business debit card immediately.

6. Set up a Merchant Services Account

Now that you have a business bank account, go a step further and make sure your company can accept payments. To do this, you need to open a merchant services account that lets you accept payments. For example, a credit card merchant account will let you accept credit card payments.

Check the following criteria when deciding on an account, according to the SBA:

  • Minimum monthly fees
  • Transaction fees
  • Discount rates: percentage charged per transaction processed
  • Address verification service (AVS) fees: help verify a credit card to prevent fraud
  • Low ACH daily batch fees: fees to settle credit card transactions daily

Alternative payment processing services are also popular and connect to your business bank account. If you accept payments online, you can consider online payment systems like PayPal or Shopify. In-person payments can be processed via point-of-sale systems like Square.

People also ask:

What Do You Need to Open a Business Bank Account?

Each bank requires different information to open a business bank account.

At minimum, you’ll probably need:

  • A tax ID number: the IRS will supply you with one
  • Social security number: for sole proprietors or partnerships
  • Proof of incorporation: for corporations like LLCs
  • A business license or business name filing paperwork

Can You Use a Personal Bank Account for a Small Business?

You can use a personal bank account for a small business, but you probably shouldn’t according to the National Federation of Independent Businesses. Here’s why:

Higher Accounting Fees

While personal bank accounts cost less, this type of account for business will ultimately cost you more in accounting fees because accountant will need to spend more time separating out your business expenses and income from your personal expenses and income.

Harder to Get a Business Loan

Even if you open a separate personal bank account for your business, you’ll have a harder time getting a loan. Lenders don’t usually offer loans to businesses using personal bank accounts because small businesses using business bank accounts usually have more accurate records. And if your personal and business finances are mixed, banks won’t have a clear picture of cash flow nor be able to see an income statement.

On top of this, business bank accounts usually have the option to get a line of credit, which is important in an emergency, according to the SBA.

Taxes Are Trickier

Tax time will probably be a nightmare if you use a personal bank account. Combining your personal and business finance will make getting audited a real problem. Plus, it’s harder to prove that expenses purchased through a personal account were used for business purposes. This makes them more difficult to write off on your taxes.

Can’t Process Payments

Payments are simpler with a business bank account. If you’re making out personal checks, they’ll be processed slower. Plus, personal checking accounts won’t let you connect merchant accounts that can process credit card and debit payments.

How Much Does It Cost to Open a Business Bank Account?

Rates and fees vary from bank to bank. Many bank don’t charge a monthly fee, but they will require you to deposit a minimum amount to open the account.

Minimum deposits can be as low as $25 for a bare-bones business bank account, though this comes with certain requirements like keeping a daily balance of $1500. Some banks even offer no minimum deposits and no minimum balance.

There are also costs associated with getting the required paperwork to open a business bank account: