Opening a business bank account requires more effort than opening a personal account – there are documents that need to be gathered, names to be determined and licenses to get in order – but all the work is worth it.
“A business bank account is essential,” said Joe Bailey, operations director at My Trading Skills. “It legitimizes your business [and] opens up avenues for acquiring a business plan.”
Benefits of a business bank account
According to the U.S. Small Business Administration, most business bank accounts offer benefits and perks that personal bank accounts do not.
- Protection – Business banking helps protect your company by keeping business funds separate from your personal funds. Merchant services also provide purchase protection for your customers and protect their personal information.
- Professionalism – A business bank account allows checks to be made out to the business, customers to pay with credit cards, and employees to handle banking tasks on behalf of the business.
- Preparedness – Some business bank accounts come with an option for a line of credit that you can use in an emergency.
- Purchasing power – A business account allows you to build a credit history for your fledgling business.
Before you apply for a business bank account, however, make sure you have all your documents and information together. This will help the process move forward quickly and more smoothly.
“There are various factors business owners should consider when opening a business bank account,” said Chas Rampenthal, general counsel at LegalZoom. “It’s essential to prepare all necessary documents from the get-go in order to facilitate a painless process.”
Here is everything you’ll need for a business bank account.
Doing-business-as name (DBA)
A DBA, often referred to as a “fictitious name,” allows you to conduct business “like marketing or advertising, or accept money under a name that differs from the existing name of your business,” said Deborah Sweeney, CEO of MyCorporation.com. Sweeney added that most banks require a certified copy of a DBA to open a business bank account since entrepreneurs aren’t allowed to use their personal accounts under their business name.
“Filing for a DBA allows entities to do business under another name without having to form a new organization. For example, imagine an entrepreneur named Tom Johnson. Tom is a sole proprietor who runs his own business and wants to open up a sandwich shop called Subs ‘n Chips. Tom wants this business to operate under the Subs ‘n Chips name and not under his own name, Tom Johnson. As such, he would need to register for a DBA so he could do business under this name, including accepting and signing checks made out to and on behalf of Subs ‘n Chips.”
Employment Identification Number (EIN)
If you’re a sole proprietor, you will need an EIN, your Social Security number, and a driver’s license or passport, according to Levi King, founder and CEO of credit solutions and monitoring firm Nav.
“These are used to prevent identity theft, fraud, terrorism, laundering, etc.,” said entrepreneur Jay Coates. King added that, while some banks allow sole proprietors to open accounts without an EIN, it’s still a good idea to create one.
Rampenthal said that the EIN is an integral tool for managing taxes and paying employees.
“Sole proprietors may use their Social Security number for business tax purposes in lieu of an EIN,” he added. “You can obtain an EIN for your business by filing with the IRS.”
Articles of incorporation
Articles of incorporation show the bank how the business is structured, and you use them to register your business with the state and other entities.
“If you form a business as an LLC, limited partnership, corporation or other separate legal entity, to open a bank account, you will need the articles of incorporation that you filed with the state if you are the sole owner,” said Tiffany Wright, president of The Resourceful CEO, a financing advisory firm for small and midsize businesses, and project director at Cogent Analytics LLC.
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