How to Choose and Open a Business Checking Account

How to choose a business checking account

With numerous banking options, including local and online financial institutions that offer vast arrays of features, choosing a business bank account can feel overwhelming. Here are the steps you should take. 

1. List the banking criteria that matter most to you. 

Start by listing the general features and services that are most important to your business. These criteria will guide your decision-making process. Check with your accounting and finance team to answer the following questions:

• Do you need in-person banking? If the option to visit a branch is important to you, narrow your search to local or regional banks with physical locations near you.
• Is online banking an option? If an in-person banking experience isn’t a priority, you may want to consider an online bank. Besides convenience, one perk of online banks is that they often have fewer fees, making them ideal for companies that need to reduce business expenses. Online banks are often an excellent choice if you’re opening an online store or dealing primarily with e-commerce.
• Is online bill pay a priority? Many businesses want online bill pay to streamline payment processes and reduce administrative tasks.
• Do you need a robust mobile banking app? Bank mobile apps can differ enormously. If you want to manage your finances on the go, look for a bank with a highly rated, user-friendly mobile app.
• Do you need integration with accounting software? If syncing your transactions with accounting tools like QuickBooks Online is a priority, focus on banks that offer this feature. Many banks integrate with the best accounting software, but not all do.

Be sure to ask financial institutions to explain all of their business checking account options, as many offer accounts tailored to different needs.

2. Research banks, and create a short list.

Once you’ve established your banking parameters, research financial institutions that meet your needs. Consider the following measures:

• Asking for referrals from other business owners or professional networks
• Reading online reviews to assess customer satisfaction and experiences
• Comparing key features and fees on the banks’ websites or contacting customer service

3. Choose a bank and business checking account option.

At this point, one or two clear contenders have likely emerged. Compare them side by side, paying particular attention to their customer service reputation, convenience and added perks, such as rewards programs or priority access to business loans.

Finally, choose the bank that best matches your needs and business goals.

How to open a business checking account

After you choose a financial institution and business checking account, it’s time to open your account. Although this process will vary by bank, you’ll likely encounter the following three steps: 

1. Gather all of the necessary paperwork.

Opening a business checking account typically requires the following documentation. Check with the bank you’re working with to ensure you have everything you need. 

• Employer identification number (EIN) or Social Security number: If you’re a sole proprietor, you can use your Social Security number to open an account, but businesses need an EIN. An EIN establishes your business’s tax presence and is crucial for building business credit. It’s easy to apply for an EIN online.
• Personal identification: You can use a valid driver’s license or passport to confirm your identity with the bank.
• Business license: You’ll need a license from your city or state that includes the name of the business and your name.
• Certificate of assumed name: If your business operates under a fictitious or trade name, you’ll need a “doing business as” (DBA) certification. For example, if your company’s official name is Tim’s Bakery LLC but you operate as Timmy’s, you’ll need this document.
• Partnership agreement: If your business has multiple owners, present the founding agreement that outlines who the partners are and lists their rights and responsibilities.
• Organizing documents: Each state has different requirements for organizing documents, but almost all include the business’s name, address, owners, registered agents and management structure. These documents are often referred to as “articles of incorporation” or “articles of organization.”

2. Complete your business bank account application.

With the necessary documents gathered, it’s time to apply for your business bank account. Depending on your chosen financial institution, you’ll apply in person or via an online application. To avoid delays, confirm that you have all the required documentation before you start the application.

Depending on the institution and the type of checking account (e.g., online-only vs. traditional), approval can take anywhere from a few minutes to a few weeks. Some banks may require an immediate initial deposit, and you may receive temporary versions of your checks or debit card until your official ones arrive. 

3. Operate and manage your business checking account.

After your business checking account is approved and active, ensure that you use it effectively. Stay on top of the following banking best practices:

• Track deposits and withdrawals. You or your accountant or bookkeeper should monitor your account activity regularly to ensure all transactions are accurate and not fraudulent.
• Reconcile your account regularly. Use bank statements to reconcile your business bank account.
• Utilize your bank account features. Take advantage of tools such as mobile banking, online bill pay and accounting software integrations to ensure you get the most out of your business checking account.
• Comply with all requirements to avoid fees. Familiarize yourself with your bank’s policies concerning fees, overdrafts and minimum-balance requirements to avoid unnecessary charges.
• Plan for growth. As your business grows, revisit your account’s features to ensure they align with your financial needs.

9 things to look for in a business checking account

Business bank accounts offer varying features, perks and parameters. Here are nine elements to pay close attention to when you’re choosing a business checking account. 

1. Introductory offers and bonuses

Banks often entice new customers with an introductory bonus, typically predicated on the customer depositing and maintaining a certain balance in their new account. For example, Chase offers a $100 bonus to new customers who complete 10 qualifying transactions within 60 days of enrollment.

Of course, an extra hundred dollars or so shouldn’t be the driving factor when you’re choosing a bank account. But if all other factors are equal, you may want to pick a bank that offers a sign-up bonus.

2. Service fees

Business checking account fees can be a significant consideration. Typical monthly service fees range from $10 to $30 but may be higher or lower, depending on the financial institution. Banks with robust business checking features often charge higher service fees. If you won’t take advantage of those features, there’s no point in paying for them. 

Some banks will waive the monthly service fee if you meet specific criteria, such as maintaining a minimum daily balance or signing up for another account. Be sure to ask if the bank can waive the fee or what steps you can take to qualify for a waiver.

3. Minimum account balance requirements

Some banks may not require a minimum balance, while others set a specific minimum daily balance to avoid fees.

Many banks also require a minimum initial deposit to activate your account and qualify for bonuses. Be sure to check with a bank representative and carefully review the terms and conditions to understand any balance-related requirements.

4. Transaction allowances

Your business bank account is designed primarily to hold money and facilitate financial transactions for your small business. These transactions could include cash or check deposits, withdrawals, transfers and electronic payments.

Some checking accounts allow unlimited free transactions. If yours doesn’t, determine how many transactions you’re allowed before you’re assessed a fee. For example, if the bank offers 500 free transactions per month and you rarely exceed that limit, the fee may not be a concern. However, if you routinely post more than 500 monthly transactions, you may want to look for another bank.

5. Deposit allowances

Deposits fall under the umbrella of transactions. Some banks limit the number of monthly cash deposits and impose a fee if you exceed the allowed amount. This practice won’t work for cash-heavy businesses or those that make frequent deposits. Fortunately, many brick-and-mortar and online banks don’t charge fees for exceeding a certain number of monthly deposits, so shop around for these options.

6. Wiring allowances

Sending money from one bank to another electronically is known as a wire transfer. While these transactions have waned in recent years amid the rise of digital payment methods, they remain essential for some businesses. If your company receives or sends funds via wire, ask how many free wire transfers are included each month and what the fees are for additional transfers.

7. In-person vs. online services

Some business types require in-person banking for reasons other than a more personal touch. For example, if your company deals heavily in cash and must make in-person deposits at convenient locations, you’ll want a bank with physical branches nearby. In contrast, if you have an e-commerce business and conduct all transactions online, access to a physical branch may not be as important.

Online-only banks often offer perks such as higher interest rates or reduced fees compared with traditional banks. These benefits make online-only banks an attractive option for some businesses.

8. Ease of integration

Many small businesses use cloud-based software for accounting, invoicing, expenses and other financial matters. Online banks typically allow for seamless integration with these platforms. If you’re considering a brick-and-mortar bank, check whether it offers compatibility with popular business software, as not all traditional banks prioritize integrations.

9. Interest rates

Interest-generating business checking accounts have become a popular tool that allows business owners to rack up interest on their business profits. A business savings account may offer higher overall interest rates, but it doesn’t hurt to earn more interest where you can.

Why do you need a business checking account?

Using a personal checking account for business purposes is inadvisable and may violate banking regulations. Indeed, many banks explicitly prohibit using personal accounts for business earnings.

A dedicated business checking account is necessary for the following reasons: 

• Financial organization: A business checking account separates business funds from personal funds. Intermingling your personal and business spending creates accounting challenges and complicates financial reporting.
• Tax assistance: Business owners must think about taxes all year, not just at tax time. Your business checking account contains valuable information and saves you time when you’re categorizing expenses. 
• Greater visibility: A dedicated business bank account gives you greater visibility into your business goals and growth. You’ll know exactly how much money your business has on hand.
• Legal compliance: Small business owners who don’t use a dedicated business checking account risk legal and financial consequences. For corporations, commingling finances “pierces the corporate veil,” potentially making you personally liable if you face a business lawsuit.

How much does it cost to open a business checking account? 

Technically, opening a business checking account can be free. Some business bank accounts have no monthly fees, require no minimum opening deposit, and offer unlimited monthly transactions. Additionally, some banks incentivize new customers with sign-up bonuses for selecting their accounts.

Sammi Caramela contributed to this article.