Business Bank Account | B2B Finance Glossary

What is a Business Bank Account?

A business bank account is a bank account that is specifically designed for a business. The withdrawals and deposits made from this account will be for business activity alone – not personal activity.

The IRS requires every business to have its business bank account no matter how the business is structured. It’s important to open your business account as soon as you start your business so that your financial records can be organized and up to date. On top of that, a business bank account is a prerequisite for applying for any type of business loan or for finalizing any kind of investment.

Plus, you’ll need a special business account called a merchant account if you plan on receiving credit card payments from your customers. Therefore, a business bank account is necessary for any business activity.

What are the Different Types of Business Bank Accounts?

Just like there can be multiple different kinds of personal bank accounts, there are also different business bank accounts. Here are the most common:

Checking Account

A business checking account is similar to a personal checking account because it allows your business to send and receive daily transactions. However, a business checking account is entirely separated from any personal activity; all transactions that go through this account must be related solely to the business.

Through business checking accounts, businesses are also issued checks and debit cards to make purchases.

Savings Account

Again, a business savings account is similar to a personal savings account because it allows business owners to set aside funds that accrue interest and can be used only for emergencies or major investments.

Business savings accounts allow entrepreneurs and business owners to save up backup cash reserves. Remember that savings accounts are designed to have higher interest rates than checking accounts which reward businesses for storing their money for long periods. As a result, business savings accounts tend to limit the number of withdrawals that can be made each month and also usually require large balance minimums.

Merchant Account

Merchant bank accounts allow businesses to process credit card payments – something that’s an essential part of collecting revenue in today’s digital-first world. Businesses cannot take credit card payments unless they have their merchant account or are working with a specific payment processor or payment facilitator that can facilitate these types of transactions for them.

Investment Account

A business investment account is another name for a brokerage account – an account that holds a business’s cash and investments specifically set aside for a particular monetary goal. Funds are usually transferred to investment accounts to contribute to new business investments, including ETFs, mutual funds, stocks, and bonds.

What do you Need to Open a Business Bank Account?

Every bank has different requirements for opening a business bank account. Here are the requirements that are needed the most often:

• ID. To open a business bank account, you’ll need your driver’s license, passport, or other form of government-issued photo ID. You’ll also need to provide your date of birth, social security number, and sometimes even your home address.
• EIN. Your EIN is your employer identification number – the number that was issued to you by the IRS after you formed your company. You’ll need to share this number with your bank before opening a business bank account; however, if you started a sole proprietorship or LLC, you might be able to use your social security number simply.
• Official documents. If you have a corporation, you’ll need a copy of your articles of incorporation. If you have an LLC, you’ll need your articles of organization. If you have a sole proprietorship, you’ll need your business name registration certificate.
• Business details. You’ll also need your business name, DBA, and business entity type (LLC, corporation, or sole proprietorship). You’ll also need to detail what industry you’re operating in and what your business does.

What Should Your Company Look for in a Business Bank Account?

Every bank has different offerings, so it’s up to you to decide which banking partner has the most to offer for you and your business. Here are a few questions to get you started with the process:

• How high are the monthly fees?
• How high is the interest on business savings accounts?
• Is there free ATM access for both withdrawals and deposits?
• Are there any minimum balance requirements? Do these differ for business checking and business savings accounts?
• Are there any transaction limits?
• Is online and mobile banking offered?
• Does the business checking account offer you options that allow you to pay your bills easily?
• Does it integrate with accounting software and other financial tools that you’re using already?