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What Do You Need To Set Up Business Bank Account

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Steps to Setup a Business Bank Account

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      Opening a checking account is a fairly simple process, but you need to make sure you bring the right documentation with you. Checking accounts are deposit accounts that allow you to store your cash, make withdrawals and transfers, write checks, and pay your bills. Your bank or financial institution will also provide you with a debit card so you can do your banking at automated teller machines . If you want to do routine financial transactions, you can choose from a variety of checking account options.

      Once you choose a bank and fill out some paperwork, you can leave with a functioning account. But the process can get a little more complicated because you usually have to provide documentation to prove your identity. It can get frustrating and delay your ability to use the account if you dont provide the right paperwork. Read on to learn about what youll need to have with you in order to get your account up and running right away.

      Is It Better To Apply In Person Or Online

      Rampenthal said that some banks do not offer the option of opening a business account online, either to reduce the risk of identity theft or due to the nature of certain businesses.

      Banks that do offer the option of applying for a business bank account online may take more time to review your documents and set up the account than they would if you applied in person.

      If the bank you choose offers both application options, you’ll need to decide which option is more preferable: the convenience of applying online but waiting longer for your account to be set up or applying in person and having your account set up the same day.

      Matt D’Angelo and Simone Johnson contributed to the reporting and writing in this article. Some interviews were conducted for a previous version of this article.

      Business Bank Account Requirements For Startups

      • Personal or business identification: You must provide either personal identification, like a drivers license or Social Security card, for a sole proprietorship or EIN for the other business types.
      • Organizational documentation: You also need to provide the documentation used to organize your business, such as a fictitious business name certificate, LLC operating agreement, or articles of incorporation.
      • Business licenses: If your startup business needs a license, you will also need to provide your license documentation when opening a business account.

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      How Much Does It Cost To Open A Business Bank Account

      Rates and fees vary from bank to bank. Many bank dont charge a monthly fee, but they will require you to deposit a minimum amount to open the account.

      Minimum deposits can be as low as $25 for a bare-bones business bank account, though this comes with certain requirements like keeping a daily balance of $1500. Some banks even offer no minimum deposits and no minimum balance.

      There are also costs associated with getting the required paperwork to open a business bank account:

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      The companys cash flow situation becomes confusing and harder to predict when commingling business and personal funds.

      For example, the business might not have enough funds when an important business bill comes due. Why? Because the owner chooses that precise time to pay personal expenses from the business account.

      Some owners look at their bank balance, see theres money there, and think they can spend it. This could lead to a cash flow crisis.

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      Benefits Of A Business Bank Account

      Establishing a separate business bank account is an essential step in running your small business. While you may only have one personal bank account, your business likely needs multiple accounts.

      According to the U.S. Small Business Administration, most business bank accounts offer benefits and perks that personal bank accounts do not. Here are four reasons why you need a business bank account.

      Certificate Of Assumed Name

      Many businesses operate under a trade name that is different from their legal name. For example, ABC Bakery, LLC, might operate as ABCs. If this is true in your case, youâll need to file a fictitious business name, also known as a doing business as name , with your states secretary of state. The bank will ask for a copy of your DBA filing documents as proof of your businesss trade name.

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      What Bank Should I Use For My Business

      When youre looking to open a business bank account, you should take into account these factors:

      • Introductory offers
      • Fees
      • Interest rates
      • Discount rates for processing transactions
      • Charges for credit card transactions
      • Address Verification Service fees
      • ACH daily batch fees, charged after you settle daily credit card transactions
      • Monthly minimum fees, charged if you dont meet minimum transaction amounts

      Top contenders include the following:

      • Axos Bank: rewards checking and no ATM fees
      • Radius Bank: a full-service bank that operates entirely online
      • Bank Novo: simple business banking platform with no hidden fees
      • Chase Bank: great credit card options for businesses
      • Bank of America: branches across the company, range of banking options
      • PNC Bank: wide range of business accounts and services, easy to use mobile and online banking
      • Regions Bank: offers payroll and merchant services and includes multiple checking and savings options
      • SunTrust Bank: no fees on introductory checking accounts for the first year, strong credit cards and loan options
      • Capital One: great credit card options and excellent customer service in-person and online
      • U.S. Bank: flexible loan repayment lengths, lots of loan options available
      • BBVA: lots of loan options, especially for new businesses

      Apply For The Account

      How to Setup a Business Bank Account

      Many banks enable you to apply for a business bank account online, though a few may require you to visit a branch in person to do so. Applying shouldn’t take too long as long as you have all your paperwork in order.

      If you run into any problems when applying online or you have any questions about the application process, don’t hesitate to reach out to the bank. You want to make sure everything’s done correctly so you don’t run into issues with your bank or the IRS later.

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      Use Separate Credit Cards

      Another poor practice is when the owner uses the same credit card for both personal and business.

      This causes accounting confusion. It can lead to mistakes when its time to claim tax deductions.

      It also adds extra steps to your bookkeeping. You cant simply download your monthly transaction history into your accounting software and have all business charges in one place. Just like with your bank account records, you have to manually sort through them.

      Apply for a business credit card as soon as you have revenue coming in regularly. It will also help establish a separate credit history for the business.

      Pros And Cons Of A Startup Business Account

      Pros

        Some accounts offer integrations with accounting softwareMany offer innovative features such as budgeting tools and invoice creation to help you better manage your business financesOpening an account helps you to keep your business and personal finances separateMany accounts can be managed via an app so you can bank on the goNot all accounts require a credit check

      Cons

        A monthly fee may applySome accounts also charge for day-to-day transactionsYou may not have access to an overdraft

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      Why You Need A Business Bank Account

      If youre still convinced that incorporating your business finances with your personal money is a good idea, here are some reasons why you should think again:

      The concept of a hobby businessItd be extremely difficult to prove to the government that you are trying to run a legitimate business if your finances dont reflect this.

      Its a rule that only true businesses can deduct business expenses running your business with your personal account may seem as though its more of a hobby business , and you may have to prove otherwise.

      The time of the tax returnTrying to get your taxes in order can be a pain at the best of times, let alone when youre trying to navigate your way through your personal finance statements to find the business-related expenses.

      Personal transactions have to remain completely separate from business ones, which is bound to be more complicated if youve combined them.

      It would also be easy to miss deductions if youre searching through your personal current account.

      Whether its you, or an accountant, who completes your tax return, tidier, well-kept records will ensure that you can claim back every penny.

      If you operate from a separate business bank account, youll be able to provide a clear audit trail, too.

      ProfessionalismIf your business operates from its own separate business account you will be demonstrating complete professionalism too definitely a plus point when working with clients and attracting new business.

      Opening A Business Bank Account With Other Business Products

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      Business owners may want to consider opening a business bank account with additional business products for a more streamlined and efficient way to run their finances. For example, combining your business bank account with your business credit card and merchant processing allows you to see the big picture of both your income and expenditures.

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      Give Others Access To Company Funds

      When you’re running a partnership or corporation, you probably won’t be the only person who needs to make a business purchase or access the company’s funds. You don’t want your business associates using your personal bank accounts, so a business bank account for an LLC or corporation is a better arrangement.

      Things To Consider When Choosing A Bank For Your Business Account

      Business owners have many banking options, and every bank offers something a little different. Take your time perusing the various options until you find the right bank for your business.

      “Always shop around,” said Mike Swigunski, founder and CEO of Global Career. “Banks are as keen to gain new customers as they are to retain current ones, so use this to your advantage to get better deals.”

      Here’s what to consider as you evaluate different banks:

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      Choosing A Business Bank Account

      There are a number of factors you should consider when choosing a business bank account.

      • How competitive are its fees?
      • Does it offer useful features for small businesses?
      • How is its customer service?
      • Does it offer an appropriate tariff for the size of your business?

      Be aware that some banks may not charge monthly fees, but might have less obvious transfer charges which end up costing you more than expected. Others offer a period of free banking.

      Parkes says that while certain bank accounts offer tailored services for particular industries, you should at least make sure the provider you choose offers the following:

      • A mobile app for making payments on the go
      • Free or low-cost monthly account fees
      • Low transaction fees
      • Overdraft facility
      • Free cash withdrawals

      In the end, youre often comparing like with like when it comes to business bank accounts. Theres little variation in features between different providers, and the myriad ways fees and charges can be split and arranged can make it difficult to establish which provider offers the best rates.

      Therefore, consider how different fees or transfer charges affect your business. Or, if you plan to use your bank overdraft as a form of finance, choose a bank with comparatively low overdraft fees.

      It would be near impossible to provide the rates and fees of every business bank in the UK, but the table below gives an idea of what you can expect to pay for a business bank account.

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      Do I Need A Separate Business Bank Account

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      Youre starting a new business and youre wondering whether you should open a separate business bank account. Youre aware that many banks offer free business banking for an introductory period. But then charges kick-in. So, do you really need a separate account?

      Limited companies

      If you are setting up your business as a limited company, then you and your company will be separate legal entities. As such, your company must have its own business bank account.

      You should not use your personal account for your companys banking transactions.

      For more information on the key differences between operating as a sole trader and limited company, see:Sole trader or limited company key issues.

      Sole traders

      If you plan to be a sole trader, you can in theory use your personal account for both personal and business matters. You and the business are the same thing there is no separate legal entity.

      So, youre not legally required to open a separate account. However, we strongly recommend that you do so.

      Key reasons for keeping things separate .

      Simpler book-keeping and lower accountancy fees. If you have one account, your business and personal transactions can easily become mixed up. Youll have to sift through your bank transactions to figure out whether they are business or personal. Youll then have to extract the business receipts and payments, to do your business book-keeping.

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      Business Bank Account Requirements

      Opening a bank account of any type requires some personal information, and a business bank account is no different. Heres what youll need:

    • Your legal business name as it appears on documents filed with your state or the IRS. If youre a sole proprietor, you may need a fictitious business name certificate or a doing business as certificate.
    • Your Employer Identification Number . The bank will use this tax identification number to ensure your business is legitimate.
    • Your business address. This should be the same address you used to license your business. If youre a sole proprietor or dont have a separate business address, you may want to invest in a PO box or alternate address.
    • Your basic contact information, including your company phone number, website, and email address.
    • Your Social Security number, especially if your business is a sole proprietorship.
    • Your drivers license. Your bank will likely make a copy.
    • Your proof of identification, such as a passport or other form of photo identification.
    • If your business is registered as an LLC or corporation, the bank may also request copies of the following documents:

      • A partnership agreement if your business is a partnership
      • Articles of the organization if your business is an LLC
      • Articles of incorporation if your business is a corporation
      • Your business license

      Having these documents primed and ready can streamline the application process and get your account opened faster.

      What Do You Need To Open A Business Bank Account

      There are four documents you need to open a business bank account: an Employer Identification Number, business formation documents, personal identification documents, and a business license.

      Employer Identification Number

      You can apply for an Employer Identification Number from the U.S. government online, provided that you meet these requirements for eligibility:

      • Your business must be located in the United States or its territories.
      • You must have a valid Taxpayer Identification Number .
      • You must apply for only one EIN per day.

      Business Formation Documents

      The business formation documents required depend on the needs of your particular business. Consider this list of common startup documents when you choose which to include for your business:

      If youre unsure which you need, you can check with the bank where youre looking to open an account.

      Personal Identification Documents

      Youll typically need multiple forms of personal identification to open a business bank account. The exact types of personal identification documents that are accepted vary depending on the bank, but typically, at least one will need to be issued by a government agency, like a passport or a drivers license.

      Business License

      Some small businesses need special licenses in addition to the base formation documents. Different government agencies provide these licenses based on what business activities they cover.

      The following are business activities that require special licenses:

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      How Much Do You Need To Open A Business Bank Account

      The answer depends heavily on the bank and its requirements. Some banks require hefty deposits to open a business bank account. Others require as little as $25 or even less.

      Check the bankâs other requirements before you open an account, however. A bank that has little to no minimum requirement to open a new account may require you to keep a hefty daily balance of $1,500 or more. If you fail to keep the balance, you may end up paying fees.

      Read all the fine print on minimum opening requirements, minimum daily balances, and any associated fees before deciding if a bank is right for your business.

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      The founder of WeWork discovered this the hard way. The high-flying company, once valued at $47 billion, filed for an IPO in the summer of 2019. The filing disclosures revealed the founders self-dealing, including personal loans he got from the company at below-market rates.

      In other words, the founder was diverting company funds to personal purposes.

      The companys biggest investor forced him out as CEO. In the end, he had to resign from the company he founded!

      WeWork is a high profile example. Remember, though, even in a small business with no plans for an initial public offering, stakeholders could sue for misappropriation of funds, fraud or breach of fiduciary duty. So if there are other owners or investors, paying personal expenses from a business account will eventually catch up with you.

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