If you’re one of the 31.7 million small businesses operating in the United States, congrats! You’ve already taken the first step in making your dreams a reality. Now, you’re wondering how you can maximize your protection.
Opening a business bank account is one of the best ways you can ensure your assets remain safeguarded. Signing up for one is quick, easy, and can offer you a ton of advantages, including liability protection, the ability to build business credit, and simplified taxes and bookkeeping.
In this article, you’ll learn about the benefits of a business bank account, the types of business bank accounts available to you, and of course, what documentation you’ll need to get started. So, grab your pen and paper because you’ll want to take notes!
Benefits of a Business Bank Account
One of the biggest benefits of opening a business bank account is that you will no longer be at risk of your personal and business assets being commingled. This is useful when it comes to facing liability and filing your taxes.
Other notable advantages of a business bank account include:
- Line of Credit – Need to make a large purchase in order to get your business up and running? A business bank account can make that happen. Your line of credit can also be used as a safety crutch in the event of an emergency.
- Obtain Business Loans – You’ll be able to apply for business loans instead of being limited to personal loans. Business loans are higher in monetary value and allow a longer period of time to be paid off.
- Clean Financial Records – A business bank account makes bookkeeping easier since you won’t have to worry about separating your business and personal expenses. It’ll also help simplify budgeting, prevent overspending (which is important during the early stages of business formation), and give you a clearer vision of your overall finances.
- Simplified Taxes – Having organized records can make filing your business tax returns less complicated. Plus, you’ll have a transparent audit trail should you need it in the future. Failure to separate your business and personal expenses means that one slight miscalculation can cause a week’s worth of stress while you spend hours (or even days) searching for an old receipt. You’ll also have a higher chance of being audited by the IRS, and tax penalties can be steep!
- Professional Business Image – A business bank account can help your company look more like a legitimate business and less like a hobby. As a client, would you feel more comfortable doing business with Party Planners LLC or Jennifer Smith? Customers are far more likely to trust your company if they see that checks and/or invoices are coming from an actual business rather than a personal account.
Imagine sifting through all of your business and personal transactions each time you’re looking for a specific purchase or need to make a tax deduction. Talk about a major inconvenience! A business bank account can help you stay organized, cut costs, and save valuable time so you can focus on what matters most to your business.
Types of Business Bank Accounts
Now that you know the power of a business bank account and why every company should have one (if you skipped the first half of the article, here are the cliff notes: it protects your personal assets, helps you build credit, and simplifies bookkeeping), let’s talk about the types of business bank accounts available to you.
There are six different types of business bank accounts you can opt into: business checking, business savings, money market, certificate of deposit, a merchant account, and a trust account.
Out of those six, the three most popular are these:
- Business Checking Account – A business checking account is used for everyday business transactions. The way it works is similar to a personal checking account – you can write checks, make deposits, and withdraw cash as needed. However, whereas a personal checking account is often free or inexpensive, a business checking account will cost you a bit more to open and maintain depending on the bank you select. Feeling overwhelmed? You may want to start here: 5 of the Best Business Checking Accounts for an LLC. If those aren’t enough, here are the 10 Best Business Bank Accounts for LLCs.
- Business Savings Account – A business savings account is used to store surplus cash and build interest. This type of account earns you more interest than a business checking account, but you may face higher minimum requirements.
- Merchant Services Account – A merchant services account is an intermediary account that accepts and processes payments before money is sent to your business checking or savings account. If your business accepts credit card payments, you’ll want to have a merchant services account.
Not all business bank accounts are created equal. While some charge lofty startup fees and require minimum monthly balances, others might cost you little to initiate and maintain. A quick Google search can provide you with comparisons of the best business bank accounts available at present time.
When trying to decide which bank account will work best for you, you may want to make a list of factors that play a role in your decision, like your budget, the size of your company, and what your goals are for your remote business (i.e. accepting credit card payments or operating as a cash/check only vendor).
Once you’ve chosen which type of business bank account you’d like to open, you can focus on the next step: acquiring the required documentation.
What You’ll Need to Open a Business Bank Account
Since many of the documents required to open a business bank account overlap with LLC formation requirements, you should have copies of most (if not all) of the documents you need already. However, required documentation will depend on the financial institution and type of bank account you choose.
Here’s a list of what you’ll need to bring with you when you open a business bank account:
- Employee Identification Number (EIN) – This is free, can be acquired online, and is used to prove your business’s identity.
- Personal Identification – You’ll need at least two forms of ID to get started. Some examples include a driver’s license, state-issued identification, or a passport.
- Business Address – There are a few rules you’ll need to abide by when selecting a business address to use for a business bank account. You cannot use a PO box, a registered agent address, or a virtual mailbox address. Some banks require additional proof of address to verify your workspace.
- Mailing Address – You’ll also need to provide a mailing address. Don’t want to list your home address? Sign up for a VPM virtual mailbox and use your new commercial mailing address on documentation instead.
- Registered Agent – You’ll need to list the name and address of your registered agent. If you have an LLC, you should already have a registered agent. If not, VPM offers this service FREE of charge with select virtual mailbox plans.
- DBA, or Fictitious Name Certificate, if Applicable – You can obtain a “Doing Business As” (DBA) certificate through your local county agency. This is important if your business operates under a trade name that is different from your legal name.
- Business License or Business Permits – Required business permits will depend on your location and industry.
- Articles of Organization – Depending on which state you’re in, this will either be your LLC’s Articles of Organization or Certificate of Formation.
- Operating Agreement – Many banks don’t require this, but because some do, it’s better to have it on hand in case it’s needed. If your LLC has multiple members, your operating agreement allows the bank to verify who can withdraw funds from the account.
Some banks will allow you to open a business bank account online, while others require that you make an appointment with a bank representative and complete the process in person. If you choose the latter option, you’ll want to call the bank ahead of time to see if all LLC members need to be present, as well as verify what documents you’ll need to bring.
What You’ll Need to Open a Business Bank Account as a Non-Resident
If you’re not U.S. based, no worries! Non-residents can now open a business bank account for their U.S. incorporated company from anywhere in the world using Mercury, an online banking website designed for startups. To get started, you’ll need a federal Employee Identification Number (EIN), a picture of your government ID (i.e. a passport or driver’s license), and your company’s formation documents (either your Articles of Organization or Certificate of Formation). There are no initiation fees, overdraft fees, or account minimums involved.
How to Obtain Proof of Address
In addition to a physical address, many financial institutions require proof of address to verify that you are working from a tangible location.
The following are considered acceptable forms of proof of address:
- Property Tax Receipt – This verifies that you’ve paid taxes on a property owned by you.
- Postal Mail – Acceptable postal mail will need to have both your name and address on them.
- Insurance Card – This can be for a homeowners, renters, or life insurance policy.
- Valid Driver’s License – This defines your place of residence and is one of the most common forms of identification.
- Voter Registration Card – If you’re a registered voter, you should have received this in the mail at some point.
- Lease Agreement/Mortgage Statement – Since this shows your dedicated address, it can be used to prove your place of residence.
- Utility Bill – This should be recent and can be a bill for electricity, gas, water/sewage, or internet services.
If you don’t have any of these, don’t worry! VPM’s TruLease plan offers an easy way for you to obtain proof of address to open your business bank account.
Here’s how it works: VPM partners with commercial office buildings to provide you with a real physical space. You’ll then sign a legal lease agreement that shows you have rights to the space. If needed, you can get a utility bill that also verifies your physical workspace.
Most Frequently Asked Questions
If you still have questions regarding business bank accounts, feel free to scroll through the FAQ below to see if you can find an answer.
What questions should I ask before opening a business bank account?
As with most things in life, you’ll want to do some research before getting started. Here are a few questions to consider when searching for a bank account that will fit your business’s needs:
- Are there monthly fees?
- Will the money be insured?
- Is there a minimum balance required to get started?
- Is overdraft protection available? Will I need it?
- Will my account earn interest? How much?
- Is there a transaction limit?
Can I open a business bank account without proof of address?
It depends. Some banks require additional proof of address in order to open a business bank account, while some do not. If you need a physical address or utility bill, you can check out VPM’s TruLease plan.
Do I need an EIN for my business bank account?
Whether or not you need an EIN will depend on the individual bank and its policies. Many banks require an EIN when applying for a business bank account, but there are exceptions. Others may allow you to register with a Social Security Number (SSN) in lieu of an EIN.
Single-member LLCs and sole proprietorships are not required to have an EIN as they are taxed as individuals.
Get Started Today
Opening a business bank account is easy. Choose a bank, figure out which type of business bank account will work best for you, and gather any required documentation necessary to get started. With a business bank account, you’ll get to enjoy benefits like liability protection, organized financial records, and the ability to build credit for your business.
Still need proof of address? Don’t forget about TruLease – VPM’s ultimate solution to helping business owners verify their address!