When you operate your own business, you don’t give much thought to business banking, especially your business checking account. You probably use your business checking account in much the same way as you would your personal checking account. You may have even used your personal checking account to start your business and decided it’s time to move to a business bank account. When you open a business account, it pays to take the time to shop around and look for a bank or credit union that offers a full range of business banking services that can help you build your business.
Opening a business bank account is often the first step when you start your own business. There are a number of reasons to open a separate business bank account:
- A business account allows you to separate your personal funds from business finances. Providing a clear delineation between the business and your personal accounts simplifies bookkeeping, especially for tax purposes.
- A business account offers protection. By keeping your personal and business money separate, you can limit your personal liability. For retailers, merchant services also offer purchase protection for customers and ensure their personal data is secure.
- Having a business bank account also shows that you truly are a business. It means customers make payments to the business, rather than to you personally, and it means employees or third parties can be authorized to handle routine transactions for the business.
- A business bank account also allows you to take advantage of additional services, such as adding a commercial credit card so you have the extra cash for equipment, expansion, or an emergency.
- Opening a business bank account is the first step in establishing credit for your business.
When shopping for a business checking account, you want to look for many of the same benefits you get from your personal checking account, as well as additional features that can serve your business.
Business Banking: The Basics
As with any type of financial service, you want to look for a business checking account that offers a wide range of benefits with low or no fees. The Small Business Administration (SBA) suggests you consider:
- Looking for attractive introductory offers
- Shopping for the best interest rates on checking and savings
- Shopping for the best interest rates on commercial credit card
- Comparing transaction fees
- Looking at early termination fees and minimum account balance requirements
Some banks and most credit unions require you to open a business savings account in addition to a checking account, which can be useful for setting aside funds for quarterly taxes or planned expenses.
You may want to consider other beneficial features, such as a debit card. If you are making purchases for the business or traveling and want to draw cash from your business checking account, then a debit card could be extremely valuable.
You also want online and mobile banking. Remote access to your checking account makes it easy to monitor cash flow and can be invaluable if you need to transfer funds at the last minute or pay bills online. Online and mobile banking also gives you the ability to remotely deposit checks, which can save time and trips to the bank.
You also should consider whether to get an interest-bearing checking account or regular checking. If you anticipate plenty of money flowing through your bank account, then interest checking will help you earn more. Most interest-bearing accounts require you to maintain a minimum balance and have other restrictions, but the benefits are often worth it.
Other considerations when you open a business account include whether you need to authorize a partner or employee to use the account. Do you need to make nightly deposits? What about overdraft protection? Consider what features might be beneficial to your operation and consult with your financial advisor.
If you are selling goods through a store or online, you also need to be able to process customer payments. That means opening a merchant account, which can accept payments such as credit cards. The money is deposited into the merchant account and then transferred to your business account once the transaction clears.
When shopping for a merchant account, look for:
- Merchant discount rates or the percentage charged for each transaction
- Fees charged for every credit card transaction
- Address Verification Service (AVS) fees charged to minimize fraud
- ACH batch fees charged to settle credit card transactions every day
- Monthly minimum fees, which are charged if your business fails to process the required number of transactions
If you plan to run an e-commerce site, you will need a separate internet merchant account to process online credit card transactions. The biggest difference between a conventional merchant account and an internet merchant account is the fees; the internet account fees will be higher because the risk of fraud is higher.
What You Need to Open a Business Account
When you open a business account, you have to present specific documentation to prove you are a business. Depending on how your business is structured—sole proprietorship, limited liability company, corporation, and so on—you will need different documents. Look at our Business Member Required Documentation checklist to get an idea of what you might need.
At the very least, you will need a Federal Tax Identification Number (TIN) or Employer Identification Number (EIN), which you can get from the federal government. Do not use your social security number as a tax ID number; that defeats the purpose of separating your personal assets and liability from the business. You also will need a photo ID, and in most cases a business license. Other documents may be required, depending on the financial institution.
Above all, when you start a business, you want to find a bank or credit union that will support you as your business grows. As you build your business, you will need business credit cards, lines of credit, business loans, payroll services, and other financial services. Credit unions often are more business-friendly than larger banks because they want to promote local business growth and have more flexibility in working with members.
If you are looking for business banking services, stop and talk to one of our financial advisors or review this helpful checklist. iQ Credit Union offers comprehensive business financial services, and we are committed to helping our members succeed.