This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.
Once your business starts to make money, it’s important to put it in the right place. A business bank account allows you to separate your business finances from your personal finances, helping you better monitor and manage your business’s cash flow while helping limit your personal liability.
Although it’s a relatively simple process, opening a business bank account tends to require more specific documentation than opening a personal account. Here are four steps you’ll need to take to start a new bank account for your business.
1. Determine your account needs
There are four common kinds of business bank accounts, and you may need more than one. They are:
- A business checking account, which enables you to receive payments under your business name and spend funds using debit cards, checks, or wire transfers. This is the account you’d use to manage payroll and handle other operational expenses.
- A business savings account, which allows you to store funds safely while they earn interest.
- A business credit card account, which enables you and other authorized users to make purchases on credit and pay them off later.
- A merchant services account, which allows you to accept credit and debit card transactions from customers in a safe manner, with purchase protection for customers and security for their personal information.
2. Prepare your information and documents
The details and documentation you’ll need to open a business bank account can vary depending on what type of business you operate and what kind of account you seek.
If you operate a limited liability company (LLC) or corporation, some things you may be asked to provide in your application include:
- Your company’s address, phone, email, and other contact information, as well as your industry and business type
- Your federal Employer Identification Number (EIN), which is a nine-digit number assigned to your company by the IRS. If you don’t yet have an EIN, you can apply for one here. If you are a Square Banking customer, you do not need an EIN for a Square Checking account.
- A copy of your articles of incorporation
- A certified copy of your “doing business as” (DBA) certificate.
- Your DBA is the name your business is referred to both legally and by consumers
- Proof of your business license if you operate a restaurant or other licensed business operation
- A copy of your ownership agreements — i.e., your business partnership agreement or any other organization documents that detail company ownership
- Personal information such as your name, phone, address, Social Security number, birthdate, and ownership stake in the business
- Proof-of-identity documents such as your driver’s license or passport.
If your business has multiple owners, you will likely need to provide personal information and government-issued photo identification for every owner with 25% or more ownership in the business
3. Understand the costs involved
As you look into which bank you want to work with, you’ll want to pay close attention to the associated costs. You may find a bank offers “free” checking and introductory offers, for example, but there are always costs involved — and they vary depending on which type of account(s) you opt for.
- For business checking and business savings accounts, you’ll want to understand transaction fees, wire transfer fees, monthly fees, ATM fees, early termination fees, and interest rates for lines of credit.
- For credit card accounts, you’ll want to know about your interest rate/APR, annual fees, balance transfer fees, cashback fees, late payment fees, or other penalties. You’ll also want to understand any potential reward programs available to you.
- For merchant services accounts, understand terms such as:
- Discount rate: A percentage charged for each transaction processed
- Transaction fees: Fees charged for every credit card transaction
- AVS fees: Small fees charged every time you access your card network provider’s address verification system (AVS), which helps to prevent fraud
- ACH (Automated Clearing House) daily batch fees: Fees charged each time ACH transactions are settled (or “batched out”) for the day. ACH payments are a way to transfer money from one bank account to another without using paper checks, credit card networks, wire transfers, or cash
- Monthly minimum fees: Fees charged if your business doesn’t meet a minimum number of required transactions
Keep an eye out for account minimum balance requirements, which are a minimum dollar amount required typically to waive an account’s monthly fee. Both business savings and checking accounts could have a minimum balance requirement depending on the bank. In addition to minimum balance requirements, it’s important to keep an eye on overdraft fees. If you spend more money than you have available in your account, you could be paying an additional fee for overdrafting. Square Checking accounts do not have minimum balance requirements or overdraft fees.
4. Apply for an account
The last step is to get started with your application. Most banks offer the option to apply for an account either in person or online. Once you submit your application, you should expect an answer on whether you’ve been approved within one to five business days. If you apply for an account with an online-only digital bank, you may see a faster approval time than with a traditional branch-based bank.
Make the right choice for yourself and your business
Ultimately, having a business bank account helps you protect your personal finances by protecting both your business and your customers. Having savings, a credit card, and a line of credit — which often can come with your business checking account — also helps prepare you for emergencies and can enable you to finance any major purchases for your company.
For more on the benefits of having a business bank account, get advice from the U.S. Small Business Administration here.
Square, Inc. is a financial services company, not a bank. Banking services are provided by Square’s banking affiliate, Square Financial Services, Inc. or Sutton Bank; Members FDIC.
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