How To Open a Small Business Bank Account: Everything You Need to Know

Should you open a separate business bank account?

Here’s a common myth: if you operate any kind of business, you need a business bank account. This advice is even given to freelancers, independent contractors, and gig workers — people who technically qualify as “small business owners” for tax purposes, but might not feel like it.

The advice comes from a good place, but it’s often applied too broadly.

When you might not need a separate bank account

If the only reason you want a separate account is to track your business expenses for tax write-offs, there are easier ways to do that. For example, you can use Keeper.

The app can sort through your purchases and note all your write-offs for tax time, even if you have personal expenses jumbled in the same account.

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That said, if you have a bigger business — especially with employees of your own — getting a business bank account is a very good idea.

Reasons to open a business bank account

A business bank account can be a bit tricky to open, but it’s worth it for businesses that:

• Have more complicated finance
• ‍‍‍Involve multiple people

Here’s a checklist of questions to ask yourself when figuring whether you need one:

✓ Is your business big enough to warrant it?

As we’ve previously stated, super-small businesses — especially sole proprietors — don’t really need the headache of opening a new business bank account.

However, once you start dealing with hundreds or thousands of customer payments per month it’s probably time. The same goes if your business needs to pay more than just your own salary.

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✓ Do you need extra liability protection?

Business bank accounts are more than just a safe place to stash your business income. They also help you keep your personal and professional finances separate. That helps you limit the risk you incur if your business gets sued.

If you have a business entity like an LLC or corporation, you’ll want to keep your personal savings separate from your business’s funds.

Blurring the lines between them can open you up to personal liability in your business dealings. Why? You’ve essentially pierced the “shield” that stands between you and your company and establishes you as separate legal entities.

✓ Do you need to accept credit card payments?

While there are services that make it easier for small businesses to accept credit cards, these naturally come with extra fees on top of the standard ones.

If you’re dealing with a lot of credit card transactions, being able to handle them without the middleman can save you big time. You can do this with a merchant services account, which we’ll cover below!

✓ Are you going to need business loans in the near future?

Establishing a business bank account before you need a loan means that you’ve already started building a relationship with your bank. That makes it more likely that they’ll say yes when you decide to ask them for money.

✓ Does anyone else need access to your business funds?

From business partners to sending an employee out to buy the office coffee, a business bank account allows for multiple people to use company funds.

✓ Who’s going to see your business account?

It might seem vain, but having a business name on your credit card can help lend your work legitimacy when you’re dealing with other companies.

We wouldn’t recommend opening one just for this reason, but if you’re already leaning toward the idea, the added level of professionalism is a nice perk.

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What to look for in a business bank account

When opening a business account, the first most important step is choosing which bank is best for your small business. You may be tempted to hop down to the same bank where you do your personal banking, but don’t get in the car just yet!

Business accounts have unique needs. Just because you’ve had no complaints using your personal bank account, that doesn’t mean the bank’s business options are worth it.

Choosing the right account is tricky, which is why we compiled this list of the 14 best banks for small businesses. You'll find traditional banks, credit unions, online banking options, and more.

For now though, keep an eye out for these features when you look for the right bank:

• Low (or no) monthly maintenance fees
• A respectable Annual Percentage Yield (APY)
• Low interest rates on loans and business credit cards
• Perks on business credit cards

Once you’ve covered those basics, you’ll need to consider the needs of your particular business.

For example, do you take in a high number of monthly purchases? If so, you’ll need to make sure there’s no cap on how many deposits you can make in a month.

Or are you more boutique, offering high-priced services for a few clients a month? In that case, a bank that lets you get the most out of your APY would be a good choice.

What type of accounts are available to businesses?

There are three main types of business bank accounts available, though not every financial institution offers all these options.

Business checking account

If you’re only going to have one type of business account, this is probably it. It allows you to write checks, use a debit card, and still save money — many business checking accounts even generate interest! All these features make it a good all-around choice.

Business savings account

Just like a personal savings account, this option is great for growing your business revenueThe main difference from a checking account: it won’t help you with payments or purchases.

These often come with higher interest rates than checking accounts, so you’ll want to keep your long-term assets here.

Merchant account

This is the kind you’ll need if you’re planning to process credit card payments directly from customers. Merchant accounts also offer consumer protections, such as fraud detection and chargebacks, giving your business an air of legitimacy and allowing your customers peace of mind.

What do you need to open a business bank account?

If you're planning to open a business bank account, there are a few things you’ll need to have with you. Whether you apply online or in-person, expect these docs to be part of your application process.

Identification documents

The first thing a bank will want to know is who is applying for the account.

IDs for yourself

Banks require new customers to hand over proof of identity to open an account or deposit funds — especially if you don’t have a personal account established at their location.

Acceptable forms of personal identification include:

• A driver's license
• A state ID
• A passport

IDs for your business

Your bank will also need identification for your business.

If your business has an Employer Identification Number (EIN), you’ll need the documentation from the IRS confirming that.

If you’re a sole proprietor and don’t have an EIN, don’t worry! You can use your personal Social Security Number.

Business formation documents

If you’ve registered your business as an LLC or classified it as an S corp or C corp, bring the documentation to the bank as proof.

Ownership agreements

If your business has a sole owner (aka, just you), but is something other than a sole proprietorship, your business articles of incorporation would denote that.

If it’s a partnership, you’ll need a partnership agreement to delegate owner rights and responsibilities. (The last thing a bank wants is co-owners squabbling over their finances!)

Business license

Depending on the nature of your business, your state may require you to get a business license. If you need one, bring it to the bank!

A business license is just permission from your state (or municipality) to operate a business. Not all types of businesses require it, and the stringency of the requirement varies from city to city and state to state.

For example, Nevada requires all contractors working on 1099 to purchase a business license. This isn’t the case for many other states, though.

Note: Licensing requirements vary depending on your industry, not just your location. If you plan to operate a business that involves handling food or selling firearms, special licensing is almost always required.

“Doing Business As” certificate

Some states require you to fill out a Doing Business As (DBA) form if you conduct business under a name that’s not your own.

You can get a DBA from your town or city hall, and the filing fee is usually less than $100. Some states even allow you to register online.

How much money do you need to open a business bank account?

Opening and minimum balances vary greatly from bank to bank. However, on average, if there is an opening balance, it’s only about $250.

Minimum balances can get a lot higher — even up to $15,000. But most of the time, those “minimums” are the required amount to avoid things like limits on the amount of deposits you can make in a month. They’re not strictly required to keep the account open.

As long as you can keep enough to pay your bills and banking fees, there’s no reason you cannot apply for the account! Many businesses start small and grow from there. If your bank doesn’t understand that, they might not be the fit for you.

Can you open a business bank account without an LLC?

Yes! LLCs have their advantages, but they’re not required for business bank accounts.

Whether or not to start an LLC is a nuanced decision that every business owner needs to make for themselves. They offer protections, but also come with more burdens. So whatever you do, don’t feel like you need to register for one just for a bank account.

Opening a business bank account can help formalize — and professionalize — your new business. At the end of the day, that’s great for your business image.

If you plan on opening a business account, just remember to have all your papers in order, and be patient. The first bank you approach may not approve your account, so just keep trying until you find the right financial partner for you!