Business Bank Account

In everyday life, most people own a bank account to digitally use their money and protect it from theft. When it comes to opening and operating a business, the method of keeping money safe is no different. Business bank accounts are used for business transactions only. They are used for accepting payments from clients, as well as paying employees and vendors.

When looking to incorporate (form a corporation) the IRS requires a business to have a business bank account specifically. You can do this as soon as you have obtained your EIN, which is like a social security number for businesses. Common business accounts include checking accounts, savings, credit card accounts, or merchant services accounts.

Benefits of a Business Bank Account

As a business, you will hopefully accept and spend money to generate revenue. As soon as this occurs, you will need to open a business bank account. There are various benefits of opening a business bank account, sometimes even added perks.

  • Protection: By participating in business banking, you will be offered limited liability protection. This will keep your funds completely separate from that of your personal funds. This is essential because when you go to do your taxes or look for funding, you need to have your finances organized. It also keeps your personal information secure.
  • Professionalism: By allowing customers to pay with credit cards, you will appear professional. You will also be able to allow your employees to deal with banking. None of this can be done without a business bank account.
  • Organization: When it comes to business banking, you will typically be offered a line of credit. This is an option for funding for growth, or quick cash if you find yourself in a business emergency.
  • Purchasing power: Business credit card accounts allow you to obtain funding for large purchases that might jumpstart your business, or to begin generating business credit.

When to Open a Business Account

As soon as you begin operation you should open a business bank account. This can be done upon receipt of your employee identification number (EIN) from the Internal Revenue Service. If you begin to accept money for transactions related to business, or even spend money, you should open a bank account to keep the funds separate.

How to Open a Business Bank Account

Opening a business bank account can be done at any bank or credit union. It is quite easy, you can go into your current bank or go online. You should be aware of what the bank will ask you for when you are opening your account.

  • Photo ID: To prove you are who you say you are.
  • Employer Identification Number (EIN): This is either a specific tax number from the IRS or a Social Security number if you are operating as a sole proprietor.
  • Your business's formation documents: For an LLC this might be the operating agreement and articles of organization. It may also be articles of incorporation for a corporation.
  • Ownership agreements: If you have purchased anything related to the business or have business contracts to prove its validity.
  • Business license: In most instances, you will require a business license to operate. This will be requested to open the account.

Costs Involved

Banks often charge maintenance fees when it comes to a business checking account. Typically if you have a specific amount of money in the account this will be waived, but it is a good idea to be aware of it. Transaction fees may also be involved. Whether that is when transferring money out, ATM fees, or early termination fees for closing your account. Savings accounts sometimes have requirements as well. You may need to keep a certain amount of a threshold in the account or pay a monthly fee regardless.

What to look for in a Business Bank Account

When opening a business bank account you should always look for low fees. Rather than waste your hard-earned business dollars on added fees to the bank, you should look for an account that offers all the services you want, with minimal monthly dues. Be sure to avoid early termination fees associated with bank accounts as well.

You might also want to look for fund protection. This is when your account will provide some return on the amount in your account. This is essentially interest and can help you to keep your money in savings accounts, and to grow that money without doing anything.

Sometimes you can find special offers when opening a business bank account. This might include cash sign-up specials, special offers, or deals based on how much you deposit into the account, and how long you keep it there. You may also want to look for good interest rates in lines of credit as well as savings and checking.

What Business Account is Right for You?

What is important to note is that every business should have both a savings and a checking account. This is true for that of an LLC, corporation, and even sole proprietor. This is because a savings account will provide you access to emergency funds, but it will help you to protect your assets. This is essential because the government only insures money in an account up to $250,000. This means that you can have two different accounts (one being a savings, and one a checking) each with up to $250,000 safely.

You might also want to separate funds for different reasons. Whether you want to have an account to earn interest, to provide a place to put savings, or to pay off bills each month in a checking account. It is important for businesses to categorize money and ensure that it is protected. This can be done by having both types of bank accounts.

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