When to Open a Business Bank Account for Optimal Success
When setting up a new business, there are lots of questions to answer, problems to solve, processes to establish, and systems to choose. Knowing when to open a business bank account, like a small business checking account, and choosing the right banking partner can expedite your startup launch. Plus, you’ll gain access to a variety of resources and tools to support your business’s payment processing, compliance, and financial management.
TowneBank’s business bankers are here to support you and your new business, with information and guidance regarding:
- How and when to open a business bank account.
- What you need when opening a business bank account.
- What to look for when opening a business bank account.
- What to ask when opening a business bank account.
When the time to open a new account arrives, we’ll be here to guide you through the process, every step of the way.
Understanding the Importance of a Business Bank Account
New business owners often wonder why they can’t use personal bank accounts for their business transactions. However, using a personal account for business purposes is suboptimal (at best) and illegal (at worst).
For compliance purposes, small business owners must separate personal finances from business finances. Limited liability companies (LLCs), limited liability partnerships (LLPs), and corporations are required by law to operate with separate bank accounts. In sole proprietorships, maintaining separate finances is not always legally required, but it is preferable.
Benefits: How Opening a Business Bank Account Supports Your Business
Opening a business bank account maintains compliance, and it can help meet a variety of your business needs with business bank account advantages, such as:
1. Simplified Bookkeeping, Accounting, and Tax Preparation
Business accounts, electronic statements, and accounting software integrations simplify and automate the maintenance of accurate and compliant recordkeeping.
2. Better Financial Control
With a separate business account, you can better monitor cash flow, business income, and business expenses, in addition to managing payables and receivables, understanding financial performance, and making data-driven decisions.
3. Credibility and Professionalism
Even in small businesses, a business bank account and professional financial tools project a more credible and trustworthy image to vendors, clients, and potential investors.
4. Business Services
Choosing the right bank for your business bank account provides your business access to several additional banking services, such as streamlined payment processing with merchant services tools, business debit cards, online banking, and bill pay.
5. Establish Credit History
Opening a business bank account can help you build business credit by developing relationships with lenders and establishing a credit score with a business credit card, line of credit, or business loans.
6. Protect Personal Assets
A business bank account separates business and personal funds, providing limited personal liability protection.
Not all banks are created equal, but at TowneBank, we work hard to support our business members with powerful financial tools and personalized services that keep their back offices running smoothly.
When to Open a Business Bank Account: Two Questions to Determine If It's Time
If you answer "yes," then it is time to open a business bank account.
Has your business started dealing with money?
The best time to open a business bank account is as soon as your business is ready to begin handling financial transactions or incurring business expenses.
Do You Have Everything You Need?
You need several documents to open a business bank account. To streamline the account opening process, we recommend that business owners open accounts when they have the necessary paperwork and documentation.
What do you need when opening a business bank account?
While the requirements can vary slightly, depending on the type of business, you will generally need the following documents:
- An official copy of your IRS-issued tax identification number (TIN) or employer identification number (EIN)
- An official copy of your business’s formation documents, which provides proof of the registration of your business and its trade name with the Secretary of State or the Secretary of the Commonwealth
- DBA - Business name registration
- LLC - Articles of organization
- Corporation - Articles of incorporation
- LLP - Partnership agreements
- Business license or permits (depending on the business structure, industry, and local regulations)
- Valid government-issued identification for all authorized account signers (i.e., passport, driver’s license, military identification, or state-issued identification)
- Names, titles, addresses, phone numbers, and social security numbers of all authorized signers
We always welcome you to contact one of our offices to speak with a TowneBank banker before opening an account. We can answer your questions and provide you with a comprehensive list of the required documents and identification.
Choosing the Right Bank for Your Business
The right bank will become an invaluable part of your financial management function, so be sure to consider how banking services can support your business. Knowing how you plan to use your bank will help you select a financial institution with good customer service and the right types of accounts, financial services, and financial management tools for your business.
What to Ask When Opening a Business Bank Account: Types of Business Bank Accounts
When considering a bank for your business, ask about the business accounts they offer. Every bank offers slightly different business deposit account products that come with various features, perks, and fee structures.
The basic types of business accounts include:
1. Business Checking Accounts
Support everyday business transactions like deposits, withdrawals, debit card use, and check writing.
2. Business Savings Accounts
For holding extra cash and saving for the future, emergencies, investments, and goals (Money held in savings accounts often earns interest).
3. Merchant Services Accounts
Facilitate the acceptance of credit cards, debit cards, or electronic payments from customers.
4. Business Money Market Accounts
Combine the interest-earning abilities of savings accounts with the debit-card and check-writing capabilities of checking accounts.
5. Business Certificates of Deposit
Pay set interest rates on funds that must remain for a predetermined period
During TowneBank’s account opening process, a personal banker will walk you through our business account options, explain the details of each, and, most importantly, get to know you and your business to better help you determine which business banking products could best support your business’s financial management.
What to Ask When Opening a Business Bank Account: Understanding Fees
Before choosing a bank and business account products, be sure you ask about the fees associated with the account. Ask about policies and pricing regarding:
- Monthly fees
- Maintenance fees
- Transaction fees
- Transaction limits
- Cash-in fees
- Overdraft fees
- Transfer fees
- Minimum balances
- Merchant services fees
Different accounts typically come with a different set of rules and potential fees, so you will want to compare and contrast while considering which account features your business will use.
Choosing the Right Bank Account for Your Business
Depending on your business’s structure, finances at founding, and operational plans, your bank account needs will vary. Most new business owners start by opening up a basic business checking account. However, some new business owners have more complex requirements, higher anticipated initial transaction volumes, or more startup capital to put into a business savings account.
When you’re ready for a banking relationship, a dedicated TowneBank banker will talk with you about your business structure and plans and help you identify the right accounts and products to support your financial management strategy.
What to Look for When Opening a Business Bank Account
Here are some key factors to consider before opening a business bank account:
- Customer Service - Business owners often focus on the products and services offered by a financial institution. However, the kind of service with which banking products and financial services are delivered can make all the difference. Would you rather have a bank where you have an account number or a bank where you have a name?
- Member FDIC - A member-FDIC financial institution and FDIC insurance business accounts will safeguard your business deposits.
- Account Types - Look for a variety of options in business savings and business checking accounts.
- Scalability - In addition to choosing a bank with accounts that work for your business now, consider the business’s future needs. Look for account products that can grow with your business.
- Minimum Balances - Some accounts require a minimum deposit for opening and/or a minimum account balance at all times. Failing to maintain the minimum balance can result in fees or affect the account’s interest rate.
- Business Savings Account Interest Rates - Interest rates earned on savings accounts or certificates of deposit can be a good additional revenue source for businesses with enough capital.
- Overdraft Protection Availability - Automatic overdraft protection can provide operational flexibility, shield your business from fees, and support stronger vendor relationships by preventing returned payments.
- Business Credit Cards and Loans* - When you open a business account, you have the opportunity to establish a personal relationship with a business lender. Be sure your bank offers business credit cards and loans.
- Business Account Perks - Some banks and types of business accounts come with additional perks, such as business debit card rewards, discounted wire transfers, complimentary change orders, or safe deposit boxes.
- Additional Business Services - Some banks offer additional services, like treasury services, that are designed to further support effective and efficient financial management.
Integrating Technology with Business Banking
Choose a bank that provides robust online and mobile banking^ solutions that support electronic payments, offer bill pay, and integrate with your bookkeeping and accounting software.
When opening a business bank account, you should look for products that include user-friendly technology with streamlined online banking features that flow with your accounting software, while supporting electronic payments and mobile deposits^.
Frequently Asked Questions
For quick reference, we've provided answers to the top questions about new business bank accounts. Please remember our personal bankers are also here for your and always just a phone call or drop-in away.
-
The best time to open a business bank account is as soon as your business is ready to begin dealing with money, whether consolidating member contributions, receiving funds from investors, accepting payments from customers, or incurring business expenses. -
Yes, your small business needs a dedicated bank account. All types of businesses (except sole proprietors) are required by law to have separate bank accounts. Sole proprietors also benefit from separating business from personal finances. -
Required documents can vary, but generally, you need the following:- IRS-issued TIN or EIN
- Business registration papers and agreements
- Business license or permit
- Valid, government-issued identification for all authorized account signers
Perfect Your Timing: When to Open a Business Bank Account With the Guidance of a Dedicated Personal Banker
Whether you’re wondering when to open a business bank account or which type of bank account is right for your business, our dedicated TowneBank bankers can help you perfect your timing and choices. We get to know each of our members and their businesses on a personal level, which helps us provide business owners with the products and services that will best support their financial management needs.
We invite you to contact a TowneBank office to talk with a business banker about our business account requirements and the products and services available to help your new business get up and running.
Let's Connect
Please complete the short form below to have a banker contact you at a time that is most convenient for your schedule.