It can be easy to overlook the importance of opening a business bank account, especially if your business started out as a side gig. Bear in mind that using your personal bank account for your business finances will make tax season a headache, and can even be risky, as doing so blurs the line between you and your business.
Why Open a Business Bank Account?
Opening a business bank account is one of the easiest ways to keep your business and personal finances separate, making your life a whole lot easier come tax season. Business bank accounts tend to come with many other advantages that aid your business’s financial planning, such as:
- Limited liability protection by separating out your business finances
- Merchant services to protect your clients’ personal information
- The ability to give employees or an accountant access to your transactions
- Access to an emergency line of credit for urgent business expenses
- Credit card accounts for building up your business’s credit history and making large purchases
Aside from the required documentation, opening a business bank account can be as straightforward as setting up any other bank account. And, you can simply transfer funds to your personal account as your “paycheck” whenever appropriate.
What Do You Need to Open a Business Bank Account?
Just as opening a personal bank account requires certain identification and other documentation, most business banks will require documents to verify your business’s legitimacy and approve your new business account. The type of documentation required may vary depending on your business entity type, and some banks may ask for more information than others.
1. Employer Identification Number (EIN)
If your business is an LLC, partnership, or corporation, you will need to provide an Employer Identification Number (EIN) to open a business bank account. Sole proprietors do not need an EIN and can simply use their Social Security number (SSN).
2. Personal and Business Identification
Opening a business bank account requires you to provide identification that verifies the legitimacy of your business, as well as your own personal identification. What is required for this varies depending on your business type:
- Sole Proprietors may simply need to provide their SSN, but certification is also required if they are operating under a DBA (doing business as).
- LLCs will need to present business registration in addition to their EIN, and single-member LLCs should list themselves as the sole owner.
- Partnerships will need to provide a copy of their written agreement, listing the business name and all business partners.
- Corporations will need to provide any articles of incorporation.
3. Ownership Agreements
Partnerships, multi-member LLCs, and corporations need to provide documentation of ownership that clearly identifies who the owner or owners are and their respective levels of ownership. This can be a simple written agreement between partners or members of a multi-member LLC, though something more official may be required for corporations.
4. Business License
Your business needs to be registered in the state where you are operating, and many banks will require a copy of this business license to open a business account.
5. First Deposit
Some banks will require you to make an initial deposit before your account can be officially opened. There may be a required minimum amount.
What to Look for When Opening a Business Bank Account
Business accounts will vary depending on the bank, so it’s important to do your research and find the right one for you. Here are some things to consider when choosing a bank for your account:
What fees are involved?
Does the bank charge monthly or annual fees? What is the penalty for an overdraft on the account? Keep in mind that any regular fees are deductible business expenses! Additionally, check to see if the bank has a minimum required balance, as some business accounts have this in order to avoid overdraft fees.
How much do merchant services cost?
Business bank accounts are handy for accepting payments from clients as many of them include merchant services, such as accepting debit and credit card payments into your checking account. These services usually have fees involved, so you should compare these fees to other business banking options.
What additional features are included?
Business bank accounts may have several digital tools to aid in your business’s financial planning, such as:
- Expense tracking and categorization
- Tax preparation tools
- Integrations with other platforms
- Bill pay
- A business debit or credit card
How is their customer service?
Is it easy for you to connect with a customer service representative who can help with your account? Even if you don’t expect to rely on it often, it’s important to know that you can get the support you need when you need it.
How to Open a Business Bank Account with Lili
When you’re ready to open a business account, Lili has everything you need to make managing your business finances a breeze, from fee-free banking, to tax prep tools, to accounting software. And, opening a business bank account with Lili is as simple and straightforward as it gets!