Opening a small business bank account should be a priority for every entrepreneur. Taking this step will allow you to keep your business and personal expenses separate. It will also lend your venture a certain degree of credibility, and help it to establish itself as a professional organization in the eyes of your customers and employees.
Unfortunately, many business owners don’t give this subject the importance it deserves. They hold the view that a personal checking account will suffice for their company’s needs.
Let’s understand what a small business bank account is and why it’s essential to get one.
What’s a small business bank account?
This is a bank account that is designed to handle your company’s money and process your financial transactions. There are two primary categories of accounts that you can choose from:
Business checking account
You should opt for a small business checking account if you are looking for an efficient way to pay for your business expenses.
Business savings account
This type of account could be more suitable if your primary objective is to find a place to safely keep the money that your company earns. Although the features of business savings accounts differ from bank to bank, it is likely that you will earn interest on the sums that you deposit into this category of account.
For most firms, it’s a good idea to start with a business checking account, but as time goes by, a savings account might be a better option.
Why your business needs a bank account
A small business bank account offers many benefits:
1. It’s easier to maintain accurate accounting records for your business
Using the same bank account for both your personal and business expenses is a bad idea. Commingling can complicate your accounting and make the preparation of your financial statements an arduous task.
It’s far better to open a small business bank account and use it exclusively for your company’s transactions.
2. Making tax returns is simplified
Preparing your tax returns can be a complicated process. If you use the same bank account for your business as well as your personal expenses, it can get even more difficult.
3. It’s more professional
If you don’t have a small business bank account, you may make payments for supplies and raw materials with a personal check: this could convey a lack of professionalism.
4. You have a better chance of getting your loan application approved
When you apply for a small business loan, it’s highly likely that the lender will ask for a copy of your bank statement. Providing a statement that contains both your business and personal expenses will create a poor impression. It may also lower your chances of getting your loan approved.
5. You can build your credit score
A business credit score is similar to a personal credit score. Lenders use this score to determine your creditworthiness. Having a separate bank account for your company can help you to improve your business credit score.
How to choose a small business bank account
With dozens of banks offering multiple account options for small businesses, it can be difficult to make a choice.
How can you determine which is the best bank for your small business?
Your search for a small business bank account should be influenced primarily by two factors:
- Does the bank offer the services that you require?
- How much will you have to pay for these services?
Here are some of the factors that you should take into account when making a choice:
- What is the minimum account balance that you are required to maintain? How much will you have to pay if your balance falls below the specified threshold?
- Does the account carry any monthly service fees?
- What about transaction fees? How many free transactions are you allowed per month? What is the charge if you exceed this limit?
- Does the bank have an extensive ATM network? Are any of their ATMs located close to your office?
- How many cash deposits are you allowed per month? What are the fees involved?
- What is the overdraft (Non-Sufficient Funds/NSF) fee that the bank charges?
When you are choosing a bank, remember not to focus exclusively on costs. Opting for the lowest-priced option may turn out to be more expensive in the long run.
For example, you may select a bank account that does not charge a monthly service fee. But it may require you to maintain a high average balance. If you are not able to meet this requirement, the fees that kick in could add up to a significant sum.
It’s also useful to give serious thought to opening a small business bank account with a community bank instead of opting for a large national bank. Community banks provide a higher degree of personalized service, and if you need to visit a bank branch often, an account in one of these banks may be a better choice.
How to open a small business bank account
Every bank will have its own set of requirements for opening a bank account. But, as a general rule, you can expect to be asked to furnish the following:
- An initial deposit amount.
- A document to confirm your identity. A government issued picture ID, for example, a driver’s license or a passport, should do.
- Your business license.
- You may also require to provide a “doing business as” certificate (DBA certificate).
Partnerships, limited liability companies, and corporations would also need to furnish their formation documents.
A Small Business Bank Account is what you need
It’s best to open a small business bank account as soon as you launch your venture. This will make it easier to maintain your financial records and also simplify the process of filing taxes. The other benefits that you will get by doing this include presenting a professional image to your vendors, clients, and employees.
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