Before there’s a logo or a launch, there is usually a founder paying for a domain out of her personal checking account. It feels harmless. The SBA’s advice is to stop doing it early: open a business account “as soon as you start accepting or spending money as your business.”
Why bother
The SBA gives four reasons for a dedicated account:
- Protection. Business banking offers “limited personal liability protection by keeping your business funds separate from your personal funds.” The word “limited” is the SBA’s. The page doesn’t explain how that plays out for different structures, so if liability is your concern, our guide to LLC versus sole proprietorship is the better starting point, and a business counselor or attorney is the right person to ask.
- Professionalism. Customers can pay your business by card or check, and you can authorize employees to handle day-to-day banking.
- Preparedness. Business accounts often come with access to a company line of credit for emergencies or equipment.
- Purchasing power. Business credit cards can cover large startup purchases and help build a business credit history. We cover that in how to build business credit.
There’s a boring fifth reason, and it’s ours rather than the SBA’s: a clean account makes bookkeeping and tax time far easier, because every transaction in it belongs to the business. See our notes on paying yourself as a business owner for how money should move between the two worlds.
What banks ask for
The SBA lists the common requirements:
- An Employer Identification Number (EIN), or a Social Security number if you’re a sole proprietorship
- Your business’s formation documents
- Ownership agreements
- A business license
It adds that some banks may ask for more, and that you can open an account once you have your federal EIN. If you haven’t done that yet, here’s the EIN walkthrough; for the license, see business licenses and permits. If you trade under a brand name, the DBA guide covers what the SBA says about opening an account under it.
What about beneficial ownership reporting?
You may have read that new companies must report their owners to FinCEN. As of FinCEN’s current page, they don’t: “U.S. companies are exempt from BOI reporting requirements and therefore, are no longer required to file BOI reports.” That is a federal filing requirement, though, and separate from your bank’s own onboarding questions, so expect to be asked who owns the business either way.
What to compare
The SBA’s advice is to shop around, since rates, fees and options vary. For checking or savings, it suggests weighing:
- Introductory offers
- Interest rates on savings and checking
- Interest rates on lines of credit
- Transaction fees
- Early termination fees
- Minimum account balance fees
If you want to accept card payments through a bank, a merchant services account adds its own fees. The SBA names the discount rate (the percentage charged on every transaction processed), per-transaction fees, address verification fees, ACH daily batch fees, and monthly minimum fees. It notes that payment processing companies are an alternative, but you’ll still need a business checking account to receive the money. The SBA page gives no dollar figures, and neither will we; fees change, so get the current schedule in writing.
One more check, from the FDIC: deposits are insured to at least $250,000 at each FDIC-insured bank. The FDIC page we read doesn’t spell out how that applies to business accounts, so confirm the rules for your account type on the FDIC’s own coverage pages before you hold large balances.
A simple order of operations
- Pick your name and structure, and register a DBA if you need one.
- Get your EIN.
- Gather formation documents, ownership agreements and any license.
- Compare two or three banks on the fees above, and ask each what it wants to see.
- Open the account, and run every business dollar through it from day one.
Frequently asked questions
When should I open a business bank account?
The SBA advises opening one as soon as you start accepting or spending money as your business.
What do I need to open a business bank account?
The SBA lists the common requirements as an EIN (or a Social Security number if you’re a sole proprietorship), your business’s formation documents, ownership agreements and a business license. It says some banks may ask for more, so call ahead.
Does a business bank account protect me from personal liability?
Only in a limited way. The SBA says business banking offers “limited personal liability protection by keeping your business funds separate from your personal funds.” It is not a substitute for forming a legal entity; ask a business counselor or attorney how it applies to your structure.
Do I still have to report beneficial owners to FinCEN?
Per FinCEN, U.S. companies are exempt from beneficial ownership information reporting and are no longer required to file BOI reports. Your bank may still ask who owns the business when you open an account.
Sources: SBA, “Open a business bank account”; FinCEN, beneficial ownership information page; FDIC, deposit insurance page. Requirements vary by bank, so confirm with yours before you go in. This is general information, not legal or financial advice.