What Is A Business Checking Account? | Why You Need One as a Small Business Owner

Banking
Updated: 11th Mar 2021
Written by Kim Pinnelli
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Banking
March 11, 2021
Written by Kim Pinnelli

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You run a small business and think it’s fine to run your personal and business finances together, right?

Don’t.

You need a business checking account. It’s not as much work as it sounds like, and it will save you time, frustration, and even money as you run your business.

Here’s everything you must know about a business bank account.

What is a Business Checking Account?

A business checking account, as you can assume, is for business use rather than personal. But who needs one is where things get confusing.

The big restaurant chain down the street has a business checking account but does your little self-employed business with just you and your computer need one too?

Probably. Here’s why.

A business checking account keeps your business income separate from your personal income. It all comes together at some point, I know, but you’ll be grateful you have your money separate at tax time.

How Do Business Checking Accounts Work?

You don’t have to know anything special about business checking accounts as far as how they work. You deposit money and can withdraw via check, ATM card, or Visa debit card.

The difference is the money is from you doing business – it’s money directly from customers, vendors, or any other way your company collects money.

Business Checking Accounts vs Personal Checking Accounts

Like I said before, business checking accounts work just like personal checking accounts as far as writing checks, making deposits, and using your debit card. There is one difference – the fees.

You’ll rarely find a free business checking account or an account with the option to waive the fees like you would a personal checking account.

You may find an account with lower fees or one for independent contractors with no fees, but you’ll have limited transaction opportunities.

Finally, business checking accounts may offer the option to order Visa debit cards for multiple employees.

You can still control how much they can withdraw and how often, but giving employees the freedom to use the cards may help alleviate some of your legwork.

5 Reasons to Get a Business Checking Account

If you don’t have a business checking account, here are five reasons to consider one.

#1. Taxes Become Easier

Tax time is stressful enough. Don’t add the confusion of separating business and personal income and expenses from one personal bank account.

When you have a business bank account, there’s no second-guessing whether an expense is personal or business. You’ll also know exactly what income you brought in and how to account for it.

#2. Protects You Personally (Liability Protection)

Running a business incurs certain risks. If you’re sued, and your personal and business funds aren’t separated, you may lose any protection an LLC or other business entity may provide.

Don’t put your personal finances at risk – keep business and personal income separate so you have the liability protection should something happen.

#3. Bolsters Credibility and Authority

You’ll look more ‘business like’ if you have a business bank account rather than making and accepting payments in your personal account.

When you write checks or make payments from an account in your business name, it gives you credibility rather than looking like you run a hobby and make a little money off it.

Owning a business bank account also helps when you apply for business financings such as a business loan or credit card.

#4. Helps You Track Business Expenses and Performance

With business finances clearly separate from personal expenses, you’ll see firsthand how your business is doing.

It’s easy to overlook problems or to see your success when the money goes straight to your personal account.

You can’t differentiate between personal and business expenses easily and may overlook something your business needs or opportunities to grow even more unless you separate your finances.

How to Choose a Business Checking Account

Like personal checking accounts, you have many options when opening a business checking account. Here’s what to look for when deciding.

#1. Compare Fees

Carefully evaluate the fees. You will pay them. It’s just a matter of how much you pay. Don’t pay more than necessary, especially if the account includes features you won’t use.

Know the bottom line and what requirements you must meet to waive the fees if that’s an option.

#2. Compare Interest Rates

Checking accounts don’t pay much interest across the board but compare your options anyway. Even if you earn only 0.01%, it’s better than nothing.

Look for the business checking account that pays the most interest and has the lowest fees.

#3. Withdrawal & Transaction Limits

Watch the limits – business checking accounts are notorious for them. Think about what you need – how many withdrawals or transactions you’ll make on average before choosing an account.

If you need an account for the occasional transaction, for example, don’t pay for an account that allows unlimited transactions. But, if you need unlimited transactions, look for the least expensive account.

#4. Online & Mobile Friendly

Unless you work during banking hours only, you’ll love having access to your business bank account online and on-the-go.

Mobile deposits are the best thing ever invented – think instant deposits the minute you get them instead of running to the bank multiple times a week. Genius!

Having online access to your account is important too. You can check your balance or look up transactions 24/7 without waiting for the bank to open.

#5. Great Customer Service

Good customer service goes a long way. Your business bank account is the life of your business. When you have a problem or need a question answered, you need to know someone will be there for you.

Look for a bank with great customer service hours or 24/7 online chat rather than making you wait for regular banking hours.

#6. Sign-Up Bonuses

Might as well make the most of needing a business bank account, right? Many banks offer sign-up bonuses, so take advantage!

You may get a bonus just for signing up for a business checking account, or you may earn it after a certain number of transactions. Read the fine print to find out.

#7. Physical Branch Locations

If visiting a bank in person is important to you, check out the bank locations, especially the ATM locations.

You want a bank with ATM locations, and physical branches that are convenient – running a business is hard work, make at least some of your tasks easy on yourself.

Are Business Checking Accounts Safe?

As long as you choose an FDIC-insured bank, your money is safe. Do your research and use a bank you know not only has FDIC insurance but takes security seriously.

Do I Need Revenue to Open a Business Checking Account?

No, you can (and should) open a business checking account before you start your business. You’ll start off on the right foot and avoid any confusion later.

What Documents Do I Need to Open a Business Checking Account?

Like a personal checking account, you’ll need personal identifying documents (state-issued ID and proof of your Social Security number).

But you’ll also need proof of your business, whether a business license, Articles of Incorporation, or any other business document you have.

Bottom Line: What Is a Business Checking Account?

If you own a business, don’t mingle personal and business finances. Open a checking account just for your business and keep it that way.

You’ll appreciate the efforts at tax time and while you run your business. A business checking account simplifies things and keeps you aware of your business’s operations.

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Kim Pinnelli
Kim Pinnelli
Kim is a personal finance expert with a Bachelor’s degree in Finance from the University of Illinois at Chicago. She has been freelance writing for 13 years for a number of large publications. Kim thoroughly enjoys helping people take charge of their personal finances.