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Anyone who runs a business with fewer employees or less revenue than a corporation or regular-sized business is considered a small business owner. If you fall into this category, you might be thinking about where to open a business account.
While the definition of a small business is somewhat loose, small businesses tend to operate on a more limited scale with fewer employees and may not have the same resources as a corporation or bigger business. Still, small businesses comprise a large portion of the business world. According to the U.S. Census Bureau, the majority of U.S. businesses (54.4 percent) had fewer than five employees in 2018.
The U.S. Small Business Administration identifies about 33.2 million small businesses in existence across the U.S. as of 2022. Those businesses are essential to the economy, employing 46.4 percent of all private sector workers.
Opening a bank account for a small business is an essential step to help manage the business and keep its finances in order. If you’re a small business owner looking to find the right business account, here’s where to get one, what to look out for and how one of these accounts can help you.
What is a small business bank account?
Business accounts are similar to personal accounts in many ways, but there are some key differences.
A business owner will need to submit additional paperwork to open a business account to verify that they own a registered business. After opening the account, it will be under the owner’s name as well as the name of the business associated with it.
While there may be higher fees on a business account, having one helps ensure that business transactions are kept separate from personal finances. An account with the business name attached to it can lend the business greater professionalism and help customers feel assured in writing a check or making peer-to-peer payments to the business. Plus, it can help boost the business’s credit rating.
Some banks offer accounts specifically tailored to smaller businesses. They may come with less complex features, limited free transactions and lower or no monthly fees.
- 77 percent of small business owners take on the day-to-day accounting for the business themselves.
- According to 2018 data, 70 percent of small business owners who applied for a business loan without a business checking account were turned down.
- Nearly half (47 percent) of small business owners choose to open a business account with the same bank they use for a personal account.
- Most small business owners (60 percent) check their business account at least once a day.
- The top-cited reason for small business failures is running out of cash/failing to raise capital, which was the reason cited by 38 percent of failed small business owners.
Sources: Bluevine, Nav, CB Insights
Top banks to open a small business account with
Several banks and credit unions offer business checking accounts that are especially suited to small business owners.
Here are some of the top options to choose from, along with what fees to look out for and what perks they come with.
|Bank account||Monthly fee||Minimum balance requirement||Transaction limits||Additional features|
|Axos Basic Business Checking||None||None||Unlimited free digital transactions||Comes with free set of 50 checksUnlimited domestic ATM fee reimbursements|
|Bethpage Federal Credit Union Free Business Checking||None||None||Unlimited free transactions||Earns 0.20 percent APYFree business debit card|
|Bluevine Business Checking||None||None||Unlimited free transactions||Earns 2.0 percent APY on balances up to $250,000|
|Capital One Basic Business Checking||$15 (waived if certain criteria are met)||$250 to open, $2,000 daily balance required to waive monthly fee||Unlimited free digital transactions||Free business debit cards|
|Chase Business Complete Banking||$15 (waived if certain criteria are met)||None, but $2,000 daily balance required to waive monthly fee||Unlimited free digital transactions;20 free transactions by teller or paper check, 40 cents per transaction after||Associate Debit cards availableAccepts credit card payments with Chase QuickAcceptComes with fraud protection services|
|LendingClub Tailored Checking||$10 (waived if minimum balance is met)||$100 to open, $500 daily balance required to waive monthly fee||$10,000 in incoming and $10,000 in outgoing transactions per day||Earns 1.50 percent APY on up to $100,000, and 0.10 percent APY on any balance overUnlimited domestic ATM reimbursements|
|U.S. Bank’s Silver Checking Package||None||$100||125 free transactions per month, 50 cents per transaction after||50 percent discount on first check order up to $50Comes with check fraud prevention tools|
Benefits of a small business banking account and why you should get one
There are four primary benefits of having a business account for your small business that the U.S. Small Business Administration lists:
- Purchasing power
Keeping a business account separate from any personal accounts can help protect business transactions from getting lost or mixed up with a personal transaction. It’s easier to track expenses and look out for errors when you have all your business transactions in one place. Plus, if you face a personal financial crisis, it won’t negatively affect the business’s credit score.
Business accounts help give businesses a more professional image. Clients can write checks out to the business, rather than to a personal account. Having a professional account may also mean securing better deals for your business, not the least of which is being approved for a business loan. With 70 percent of business owners getting turned down for a loan if they don’t have a business account, whether you have one of these accounts can have a serious impact on your ability to cover business-related costs.
The U.S. Small Business Administration states that business accounts help business owners stay better prepared for emergencies, because they often come with a line of credit option. U.S. Bank, for example, offers four types of lines of credit for businesses, which can help manage cash flow, protect from overdraft charges and purchase materials.
A business account can also lend the owner more purchasing power by establishing a good credit history. With a separate bank account comes a separate business credit score, which lenders use to assess the creditworthiness of a business. Better credit may provide access to more funding.
One final benefit of having a business account is taking advantage of tax deductions. If you report tax deductions for a business from a personal account, it may trigger an audit. Some valuable small business tax deductions include utility costs, inventory expenses and loan interest.
Small business checking accounts vs. small business savings accounts
While business checking accounts are a must for managing the daily expenses and transactions for the business, it can also be a good idea to open a business savings account to store earnings that won’t be needed on a whim. The money in a business savings account can serve as an emergency fund or savings for large future expenses.
Business savings accounts may also come with benefits that aren’t offered through a business checking account, such as higher annual percentage yields (APYs). They may not be worth it, though, if you can’t meet the minimum balance requirement to avoid a fee.
Here’s a breakdown of the different uses and benefits between business checking and savings accounts:
|Small business checking account||Small business savings account|
|Primarily for everyday transactions||Primarily for storing funds|
|Lower APYs (and often noninterest bearing)||Higher APYs, which can be part of an investment strategy|
|Check-writing privileges||Limited withdrawals allowed per month (typically six)|
|Higher liquidity, since it allows for frequent debit and credit card transactions||Better for saving for future expenses or emergencies|
Frequently asked questions
There are many benefits to opening a business account: They lend professionalism to the business, help you stay prepared for funding needs, make it easier to keep track of business transactions and build the business’s credit score. All of these benefits can open up better opportunities for the business, such as getting the best business loans.
Different business accounts are suited to different needs. There may be minimum balance requirements the bank imposes to avoid a monthly fee — look for an account with a minimum balance you know you can meet. Many accounts also come with transaction limits. Depending on the size and needs of your business, it’s important to consider how many transactions you expect to make or whether you can afford to pay the bank’s transaction fees.You’ll likely come across a variety of unique features offered by different accounts, such as ATM reimbursements or enhanced fraud protection services. These extra features may be more or less important to you, but sometimes they come with certain requirements for the customer to be eligible for them.
It’s not always necessary to have both a business checking and business savings account, but it can make it easier to track spending and incentivize you to store away extra earnings. A business checking account is primarily used for frequent, everyday transactions while a business savings account is primarily for storing the money you don’t need right away. It’s more likely that you’ll need a business checking account. Still, having a business savings account is a good idea if you have some extra revenue that can be saved for future expenses or emergencies. Business savings accounts also tend to offer higher APYs, which can help boost your savings.
First, you’ll need to have a federal Employer Identification Number (EIN). The EIN is needed for verifying the business and managing taxes. If the business is a sole proprietorship, then a Social Security number will suffice in place of an EIN. Some other documentation a bank may ask for includes:
- The business’s formation documents
- Ownership agreements
- A business license
- Personal identification, such as a passport or driver’s license.
Lastly, you may need an initial deposit amount if the account has a minimum opening deposit requirement.
With millions of new businesses opening every year, they occupy a significant role in the economy. Most of the owners of these small businesses handle accounting for the business themselves — and with all the responsibilities that come with running a business, finding a business account that suits the business’s needs can help make managing its finances smoother.
It’s important for small business owners to open a business checking account that can be used for sending and receiving payments under the business name and for taking out business loans. When shopping around for the right business account, look for what fees it comes with, transaction limits and what features the account has to offer.
Depending on the business’s needs and earnings, you may also want to open a small business savings account. Just make sure you can meet the minimum requirements to avoid paying a monthly fee.