7 steps to take to open a business checking account

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If you’re starting a business, you’re going to need more than business cards for prospective customers to take you seriously. That’s where a business checking account comes in. Opening a business checking account is an essential step on your path to success. It will help you manage your cash flow and build a valuable relationship with a bank that may eventually help your business access credit for growth.

“Setting up a business checking account ultimately helps clearly separate your business and personal funds, provides more protection to your personal assets and makes it easier to keep track of your business expenses throughout the year for tax purposes,” says Tony Pica, vice president of business solutions at Virginia-based Navy Federal Credit Union.

Nearly every business owner recognizes the importance of having a checking account for the company, too. A survey of more than 2,000 U.S. small businesses conducted by Mercator Advisory Group shows that 91 percent of small businesses use a checking account.

What do I need to open a business checking account?

Opening a business checking account isn’t as simple as opening a personal checking account. You’ll need to have proper documentation, which will vary based on the type of your business.

“The documentation required to open a business account may depend on the structure of your business,” Pica says. “For example, a sole proprietor needs their federal tax ID number (TIN) letter and business license or fictitious name certificate, while an LLC or corporation also needs beneficial owner information and certificate of good standing.”

Your documentation requirements may vary based on where your business is located, too.

“Every state has its own set of rules for each structure [of a business], so talk with your trusted advisers, such as a business lawyer or accountant, to ensure you’ve compiled all of the necessary personal and company information,” Pica says. “This is a key step to make the process go as smoothly as possible.”

Here’s a rundown of the most common materials needed to open a business checking account:

    1. Two forms of identification
    2. Your tax ID number (TIN)
    3. Business documentation (Certificate of Good Standing)
    4. Assumed name certificate
    5. Beneficial owner information
    6. Cash
    7. A solid understanding of your business plan

1. Two forms of identification

You’ll want to bring a government-issued ID – your state driver’s license or your passport will do – plus another piece of ID such as a credit card or a utility bill with your name listed on it.

2. Your tax ID number

Your business isn’t official until it’s registered to pay its fair share to the government. Make sure you have applied for your federal tax ID number, which is also known as your employee ID number (EIN), with the IRS.

3. Business documentation

In addition to dealing with the federal government, you’ll need to get in touch with officials in the state where your business is headquartered for additional materials that verifies your business is officially registered and licensed to operate. If your business is a corporation or an LLC, you’ll likely need a Certificate of Good Standing. This shows that you’ve paid all the necessary fees and checked all the boxes, and it is typically secured through a Secretary of State’s office or a state’s Division of Corporations. The bank may also ask for meeting minutes, by-laws or other articles of incorporation.

4. Assumed name certificate

This item typically applies to sole proprietors and limited partnerships. Let’s say your name is Tim Ryan, but you are planning to operate as “Tim Ryan Painting.” That’s your assumed name, which might also be referred to as DBA (doing business as), a fictitious name or a trade name certificate. This typically applies to sole proprietors. You will likely be able to obtain this through your county clerk’s office.

5. Beneficial owner information

Banks are required to know who has an ownership stake of 25 percent or more in your company, which is the magic number that makes you a “beneficial owner.” If you own the business with someone else, you’ll need to determine how much equity each of you has in the company. Your bank will likely have you complete a simple form.

6. Cash

Many business checking accounts require a minimum initial deposit of $100.

7. A solid understanding of your business plan

Be prepared to share a detailed overview of the nature of your business, expectations of your annual sales, where your suppliers and vendors are located and other information.

Choosing the best business checking account for your needs

Business checking accounts share one key thing in common with personal checking accounts: There are a lot of options. To find the best business checking account, think about what kinds of services you need. Will you want to send branded invoices? Do you plan to give other leaders of the company the ability to sign checks? Are you hoping to connect your account with a software like Quickbooks or NetSuite? Will you need to visit a physical branch to make deposits, or could your business function easily without in-person interaction with a teller?

There are a number of business checking accounts for new businesses that offer low or no fees for owners in the early stages. Those accounts just include the basics: a place to park your money, a debit card and not much else. To take advantage of an account with expanded features while avoiding fees, though, you may need an accurate forecast of how much money you’ll be earning and spending on a regular basis.

For example, consider Bank of America’s two business checking options: Fundamentals vs. Advantage. To avoid the monthly fee on the Fundamentals account, you need to spend $250 each month on a business debit or credit card and maintain a monthly balance of $5,000. The Advantage account offers bigger benefits such as no-fee stop payments, no-fee incoming wire transfers and the ability to customize access for employees, but it comes with a higher monthly fee. Avoiding that extra cost carries a much taller order than the Fundamentals threshold: $2,500 worth of purchases on a business credit card and a monthly balance of $15,000. Some other big banks such as HSBC have a similar model: lower-priced business checking accounts in exchange for fewer features.

“Before you open a business checking account, do your research,” Pica says. “Shop around and see what kind of offerings are available in the market for small businesses. Consider fees, interest, transaction limits, cash deposit limits, account maintenance requirements and access to digital business banking tools.”

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Written by
David McMillin
Contributing writer
David McMillin writes about credit cards, mortgages, banking, taxes and travel. David's goal is to help readers figure out how to save more and stress less.