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When you're self-employed or own a business, a dedicated business checking account is essential for managing your company's hard-earned income. A business checking account is a checking account you can use to make and accept payments, simplify bookkeeping and tax preparation and prevent your business funds from commingling with your personal funds.
What Is a Business Checking Account?
A business checking account is a place to keep your business funds that works similarly to a personal checking account. You can use a business checking account to deposit and withdraw cash, make purchases or pay bills via debit card, schedule online bill payments and deposit checks like you would with a personal checking account.
However, business bank accounts also offer special features designed to meet the needs of business owners and freelancers. These may include debit cards for employees, free wire transfers, integration with business accounting or payroll software, and the ability to accept debit or credit card payments. Some accounts provide financial tools you can use to create invoices, track expenses or generate financial reports.
You can find business checking accounts at traditional brick-and-mortar banks, online-only banks and credit unions. Compared with personal checking accounts, business checking accounts may require higher minimum balances to waive maintenance fees. Some accounts require maintaining an average balance of tens of thousands of dollars or even $100,000 to avoid a fee. However, you can also find business checking accounts with no minimum balance requirements or fees.
Do I Need a Business Checking Account?
Whether you're launching the next Meta or running a freelance graphic design business from home, opening a business checking account is a smart move for several reasons.
- It minimizes liability. Separating business and personal funds can help limit your personal liability in case of a lawsuit against your business.
- It simplifies your finances. Commingling business and personal funds in one place—say, the joint checking account you share with your spouse—is a recipe for confusion and complication. Keeping your business's cash in a dedicated business account ensures you don't accidentally pay your mortgage with the money earmarked for your quarterly tax payments.
- It streamlines tax preparation. A business checking account shows income and expenditures at a glance, making it easier to file taxes and claim tax deductions. Some business checking accounts even sort your income and expenses into tax categories automatically.
- It could provide access to credit. Some business checking accounts give you the option to get a line of credit. This could help your business survive slow seasons or invest in inventory or equipment it needs to grow.
- It insures your money. Like personal checking accounts, business checking account deposits in banks insured by the Federal Deposit Insurance Corporation (FDIC) and credit unions insured by the National Credit Union Administration (NCUA) are protected if the financial institution fails. However, the limits of FDIC and NCUA insurance vary depending on your form of business. If you own a corporation, partnership or unincorporated business (including a nonprofit), all deposit accounts owned by the business are insured up to $250,000, separately from any accounts the business owners have. If your business is a sole proprietorship, however, your business and personal deposit account balances are added together and insured up to $250,000.
- It's the first step in building a business credit history. Business credit scores are separate from the owner's personal credit score and rely on different information. A good business credit score can help you qualify for business loans, lines of credit and credit cards. Opening business checking accounts and other business accounts in your business's name helps establish it as a separate entity.
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What Do I Need to Open a Business Checking Account?
The documents needed to open a business checking account may vary from one bank to another, but typically include:
- Taxpayer identification number (TIN): If you're a sole proprietor, your Social Security number is your TIN. Corporations, partnerships and businesses with employees must use an Employer Identification Number (EIN), which you can get at the IRS website.
- Personal information: The bank will ask for your name, date of birth, contact information and a government-issued photo ID, such as your driver's license, state ID or passport. You'll need to provide the same information for anyone else who will be an authorized signer on the account, such as a business partner.
- Business license: You'll need a copy of your current business license.
- Assumed name certificate: Businesses that have filed a fictitious business name with their secretary of state ("doing business as," or DBA) should provide this certificate. You'll need to include your DBA on the account in order to cash checks made out in the name of your business.
- Business organization documents: These are documents you filed to form a legal business entity, such as a corporation or partnership. These might include your partnership agreement, articles of incorporation or organization, corporate bylaws or an operating agreement.
- Initial deposit: Some banks require an initial deposit to open an account.
- Estimate of monthly credit card sales: If you want to accept credit card payments, you may need to provide this information.
Check with the bank's website or give them a call to confirm which documents you'll need.
How to Open a Business Checking Account
To open a business checking account:
- Choose a bank. When evaluating banks, consider fees, minimum balance requirements, interest rates, online account and mobile app features, the ability to accept credit or debit card payments, convenient ATM locations, and any limits on the number of transactions or cash deposits you can make without paying a fee. Does the account integrate with your business's financial software or offer its own financial tools? Assess other business services the bank offers, such as business loans, lines of credit and credit cards, and access to business advisors. Even if you don't need these services now, you may someday.
- Decide who needs access to the account. Do employees or partners need debit cards, for instance? You may want an employee who handles your business's finances, such as your bookkeeper, to be able to sign checks or pay bills using the account. Determine what limits to place on their access—for instance, you might allow them to sign checks, but only up to a certain dollar amount.
- Gather the required documents. You'll need them for yourself and anyone else who will be authorized to access the account.
- Complete an application. You can usually apply in person at a bank branch or online.
- Make any required opening deposit. You can write a check, deposit cash or transfer funds from another bank account. If you plan to transfer money, have your bank account number and routing number handy.
The Bottom Line
Opening a business checking account can help you manage your business finances, stay on top of taxes and accept payments. To build a positive business credit history, apply for credit from vendors and use your business checking account to pay them on time. A good business credit score can open doors to future financing.
Until your business has its own credit score, however, lenders may consider your personal credit score when you apply for business credit. Check your personal credit report and credit score to see where you stand. If your credit score needs improvement, making payments on time and paying down credit card debt can help give it a boost.