In January 2022, around 1.45 million businesses were registered in the United States. That’s a lot of companies!
Lack of business banking can lead to many problems, such as making tax preparation more difficult, not establishing a business credit score, and having trouble applying for loans or government support.
But before you run to your local bank and try to open an account, there are a few things you need to know. This guide will tell you everything you need to open a business bank account.
Why Open a Business Bank Account
Before we get into the nitty-gritty of opening a business bank account, let’s first discuss why you need one.
So how many people don’t have a business account and still run a business? You’d be surprised. A 2015 study showed that more than a quarter of small business owners still use their bank accounts for business expenses.
While there are a few reasons why people choose to do this, the main reason is that they don’t think they need a business account. They figure, “Hey, it’s just me running this business, so why do I need a separate account?”
There are quite a few reasons you should have a business account, even if you’re a one-person show.
● Make Tax Preparation Easier
If you’re a sole proprietor, you can use your bank account for business purposes. But there are some serious disadvantages to this.
For one, it makes tax preparation more difficult. You’ll need to go through all your transactions and determine which ones are business-related. This can be time-consuming and frustrating.
It’s much easier to have a separate business bank account. Then, at the end of the year, you can give your accountant or tax preparer a printout of all your business transactions.
● Establish a Business Credit
Another reason to have a business bank account is to establish a business credit history. That can be helpful if you ever need to take out a loan or apply for a line of credit.
Lenders often look at your credit history when applying for a business loan. But if you have a business bank account and a good track record of making timely payments, that can help you get approved for a loan.
● Apply for Loans and Government Support
Another reason to have a business bank account is that it can help you apply for loans and government support. Some government programs require businesses to have separate bank accounts.
For example, the Paycheck Protection Program (PPP) provides loans to small businesses to help them keep their employees on the payroll during the COVID-19 pandemic. You must have a business bank account to apply for a PPP loan.
● When to Open a Business Bank Account
Now that we’ve discussed why you need a business bank account, let’s discuss when you should open one.
Generally speaking, you should open a business bank account as soon as you start your business. That way, you can build a good credit history and have everything in place if you need to apply for a loan.
If you have an LLC, you must have a business bank account. This is because LLCs and corporations are separate legal entities from their owners. So, all their financial transactions must differ from the owner’s finances.
There are a few different types of business bank accounts you can open. The type of account you need will depend on your business and your financial needs.
- Checking Account: A checking account is a basic bank account that allows you to deposit money and write checks. That is helpful if you need to pay suppliers or employees.
- Savings Account: A savings account is an account where you can save money. This can be helpful if you want to set aside money for taxes or unexpected expenses.
- Merchant Account: A merchant account is a type of bank account that allows you to accept credit card payments. You’ll need a merchant account to sell products or services online.
- Credit Card Account: A credit card account is a line of credit used to make purchases. This can be helpful if you need to buy supplies or inventory for your business.
How to Open a Business Bank Account
Now that we’ve discussed why you need a business bank account and when you should open one, let’s discuss how to open a business bank account.
● Step #1: Choose a Bank
The first step in opening a business bank account is to choose a bank. There are many different banks to choose from, so it’s essential to do your research.
You’ll want to consider the fees, the type of accounts offered, and the bank’s location. Once you’ve chosen a bank, you can begin opening an account.
● Step #2: Gather Required Documentation
The next step is to gather the required documentation. The specific documents you’ll need will vary depending on your chosen bank. Here’s a list of standard documents that may be necessary:
- Business license;
- Tax ID number;
- Articles of incorporation;
- Partnership agreement.
Some banks may also require a personal guarantee. This means you’ll be personally responsible for any debts your business incurs.
● Step #3: Open the Account
Once you’ve gathered all the required documentation, you can open the account. The process will vary depending on the bank, but generally, you’ll need to visit a branch and meet with a bank representative.
You’ll need to provide the required documentation and complete the necessary paperwork during the meeting. Once the account is opened, you can deposit money for your business needs.
Then you can start writing checks, making payments, and enjoying the benefits of having a business bank account.
In Conclusion
A business bank account is a must-have for any business. It can help you manage your finances, build a credit history, and apply for loans.
When choosing a bank, consider the fees charged, the type of accounts offered, and the bank’s location. You’ll also need to gather some required documentation before you can open an account.
Once you’ve opened your account, you’ll be able the do things that will help you take your business to the next level.
