6 Benefits of a Business Bank Account: Setting Your Business Up for Success

According to the U.S. Census Bureau, Americans submitted nearly 5.5 million new business applications in 2023 — a record high that indicates booming entrepreneurship. Whether you're building your side hustle from scratch or scaling up and hiring employees, handling your finances properly is critical, and opening a business bank account is an essential first step.

As a freelancer who runs my own business, I've found that the benefits of a business bank account are numerous for companies of all sizes. For example, it helps simplify my bookkeeping and streamline tax preparation.

Let’s look further into the potential perks for your business and the process of opening a business bank account.

Key takeaways

• Commingling your personal and business transactions can create a bookkeeping nightmare that a dedicated business bank account helps you avoid.
• Opening a separate business bank account makes managing your expenses and revenue easier.
• A separate business account also allows you to claim valuable tax deductions more easily, enhance professionalism, and potentially minimize your liability.
• You should consider factors like fees, available business services, and transaction limits to find the right account option.

What is a business bank account?

Business bank accounts are bank accounts specifically designed for business owners. While a business checking account is the most common option for everyday transactions, others include business savings accounts, money market accounts, certificates of deposit, and merchant accounts.

You can use your business checking account to receive payments from clients or customers. You may also use it to handle business expenses, such as paying your vendors, purchasing supplies, and replenishing your inventory.

You’ll usually open your business account under your company’s name. In the case of a checking account, you'll have checks with your company’s details printed on them, and you’ll often receive a debit card for business purchases and ATM withdrawals.

Most major banks and credit unions offer business accounts, potentially with multiple tiers. Depending on your needs and business size, you might opt for a barebones, low-cost account. If your business is larger, you might prefer an option with more perks, like the ability to earn interest on your checking balance or get access to a reserve line of credit.

Business accounts may have higher minimum deposit requirements and monthly fees than personal accounts, but I’ve found that they're well worth the cost. In my case, I have two accounts: one primary checking account for my day-to-day business expenses and a business savings account to set aside money for taxes.

6 benefits of a business bank account

If you’re wondering what opening a business bank account could do for you, consider these six key benefits.

1. Separate business and personal finances

When it comes to your finances, keeping your business and personal information separate is key. Depending on your structure, maintaining a separate business account may provide some legal protection and limit your personal liability. So, if you're involved in a business lawsuit, the delineation of your personal and business assets might help protect your personal finances.

This separation can also be useful for tax purposes. When the IRS tries to decide whether your business is a hobby or a legitimate company — a key distinction that affects what tax deductions you can take — one of the factors is whether you handle your activities in a professional manner. A business bank account might help you meet that requirement.

2. Enhance your professionalism and credibility

When you open a business bank account, you can get checks with your business information and receive payments made to the business under its name. This can add an impression of professionalism.

Without a business bank account, you may have to receive payments made to you with your personal checking account rather than the business account. That issue can make you look more like an amateur to potential clients who might take you less seriously.

3. Streamline everyday transactions and financial management processes

When you have a separate business bank account, managing your bookkeeping becomes much simpler. Most accounts sync easily with programs like QuickBooks or Quicken, and you can review your statements to see just how much you have coming in and how much you spend on expenses.

This offers some key advantages. First, you can use that financial information to generate reports on past spending or cash flow and prepare for the future by identifying trends and making projections. Plus, some programs even use your transaction data to calculate your estimated taxes for easier planning.

4. Access helpful business banking services

Many banks and credit unions have special banking services available to their business account customers. These can make it easier to track your finances, get support, handle specialized transactions, or make convenient deposits. While some services can come with your account, you would need to add others and potentially pay fees.

Some common types of services include:

• Special bookkeeping, cash flow, or expense management tools
• Payroll services
• Fraud prevention tools
• Remote deposit capture
• Merchant and payment processing services
• Treasury management tools
• Dedicated banking specialists

For example, Lending Club’s business checking customers can take advantage of the company's free AutoBooks tool. With AutoBooks, you can send professional-looking invoices, accept bank account and credit card payments online, and track payment activity.

5. Enjoy simpler record-keeping and compliance

A business bank account simplifies keeping your records in good order. That perk can come in handy at tax time (and your accountant will thank you). You’ll be able to complete your business tax return with fewer hassles, and by keeping track of your expenses throughout the year, you can claim every tax deduction for which you're eligible.

For example, by closely tracking your business spending, you may discover deductions you might have otherwise missed, such as the cost of shipping materials or postage. Having detailed records will also make it easier to provide evidence for such tax deductions — and avoid potential penalties and interest — in case the IRS decides to audit your business return.

6. Improve your chances of accessing business credit

By opening a business bank account, you might be able to access financing options more easily. The bank you choose may be more willing to issue you a loan or line of credit if you're an existing customer since it can quickly see how much money you have going out and coming in each month to determine your creditworthiness.

Simply having a bank account doesn't guarantee you'll qualify for a loan since lenders will still look at your company’s finances and credit history. However, being responsible with your business bank account and keeping good records can provide documentation that eventually helps with securing loans or lines of credit.

How to get a business bank account

If the advantages of having a business bank account sound appealing, you can follow four simple steps to find the right account and submit a successful application.

1. Find the right account

When shopping for a business bank account, consider the type of account you need for your typical business transactions. For most small businesses, a basic checking account is a good starting point since you can use it to pay your business expenses and receive payments.

There are several factors to consider when comparing your business banking options.

Transaction limits: While some business bank accounts don’t limit your monthly transactions, others charge fees after you make a certain number. They often also limit your monthly cash and currency deposits before fees apply. Review your typical transaction types carefully to pick an account that minimizes your transaction fees.

Fees: In general, business bank accounts have higher monthly maintenance fees than personal accounts. With some banks, you can qualify for a monthly fee waiver if you meet minimum deposit or balance requirements. For example, you can avoid the $10 monthly fee for the Wells Fargo Initiate Business Checking account if you maintain a minimum daily balance of $500 or an average ledger balance of $1,000.

Rewards and interest: Some banks offer added rewards and perks, such as cash back on select purchases. For instance, the Grasshopper checking account offers unlimited 1% cash back on online and signature-based purchases that you make with your debit card. You might also want a competitive interest-bearing account. You can currently get a 1.30% APY (as of 10/28/24) annual percentage yield (APY) with the American Express Business Checking account on balances up to $500,000.

Insurance: Make sure you choose an account that's backed by the Federal Deposit Insurance Corporation (for banks) or the National Credit Union Administration (for credit unions). If your account is insured, your deposits are protected against bank or credit union failures for up to a maximum of $250,000 per account ownership category, per financial institution.

Accessibility: Whether you plan to do your business banking online or in person, make sure the account is accessible enough for all your business needs. This includes having nearby branches (for brick-and-mortar banks), convenient ATMs, online banking tools, and available customer support options.

Other products: As your business expands, you may need more than a simple deposit account. If you might eventually need lines of credit, business credit cards, or loans, selecting a bank with such products can help you later. The best banks offer special discounts or interest rates for existing business customers. For example, Chase offers an interest rate discount as high as 1% on loans and lines with credit through its relationship pricing program.

2. Gather important application documents and information

While individual credit unions and banks can have more requirements, you typically need the following items to open a business bank account.

• Employer Identification Number (EIN): An EIN is usually required to open a bank account for an LLC and several other business types. After you apply for free online, the IRS will assign an EIN to your business. If you're a sole proprietor, you can often use your Social Security number (SSN) instead but check the bank’s policies.
• Business formation documents: Banks will often ask for copies of your business formation documents, such as your articles of organization or state regulatory filings. This might not apply if you’re a sole proprietor.
• License: Depending on your industry, you may need a copy of your business license.
• Ownership contracts: If you’re not the sole owner of your business, bring any contracts or written agreements you have in place that outline the business's structure and ownership.
• Personal identification: The institution will likely need two forms of identification, such as a driver’s license and proof of address, for each business account owner.
• Initial deposit: Business bank accounts often require a deposit to open the account. In general, you should expect to deposit between $25 and $100, but some of the best business bank accounts for freelancers have no minimum requirements.

3. Apply for and fund your business bank account

Many institutions let you apply for and open a business bank account online. However, some require visiting a branch so that a business banking representative can review and verify your documents. When you apply, you'll also provide information such as your company’s name and structure, your EIN or SSN, and personal details for owners.

In my case, because my business was brand new, I had to visit a local branch and go over my documentation with the banker. From the time I walked into the building until I logged into my new business bank account, the entire process took less than 20 minutes.

Once the bank or credit union verifies your information, you’ll make any required initial deposit. You can usually deposit the money by transferring money online from another account, but if you're at a branch, you might make a cash deposit or write a check instead.

4. Start using your new account

The institution will open your business bank account after it approves your application. If you apply online, you'll receive your new debit card, checks, and other information in the mail. If you open the account in person, you might receive your new debit card as soon as the same day. You'll also get online banking details so you can view your transactions and make payments.

Once the account is active, get in the habit of reviewing it regularly to make sure you recognize all of the transactions happening. And, if your bank offers special promotions for new customers — such as cash bonuses if you meet certain spending or balance requirements — make a note of any deadlines to meet. You should also consider setting up any business banking services you plan to use and review tutorials for getting the most out of your account.

FAQ

Bottom line

Although it may seem like a hassle, opening a separate account for your business is an essential step. You could not only limit your personal liability by separating your finances, but you can also streamline your bookkeeping processes, improve your image, and have essential records for compliance and taxes.

You can find many business bank accounts with low fees, low deposit requirements, and added perks, such as invoicing or cash flow analysis tools. Just do your research to compare multiple accounts with your specific business needs in mind. To get help finding the right account, check out our list of the best business bank accounts for small businesses.