What you need to know about opening a business bank account

You've heard the saying about not mixing business with pleasure, but have you been applying that to your finances?

Opening a business bank account can help you keep your business and personal finances separate, and it may even limit your personal liability in company matters. Business bank accounts work similarly to consumer accounts, but they typically feature elements tailored toward specific business needs, such as seamless integration with business tools. The benefits they tend to provide are usually invaluable to business owners at all stages, whether you've just established a sole proprietorship or are a growing LLC.

If you're ready to streamline your accounting and tax processes, expand your business's purchasing power and more, then a business bank account may be your solution. Here's everything you should know before opening one.

The right business bank account should offer features and services that can help you efficiently run your business. It can also allow you to separate your personal and business finances, which can deliver some tax advantages and limit personal asset exposure.

A few unique benefits that business bank accounts may provide include:

• Liability protection: Keeping your business finances separate from your personal finances should help limit your personal liability, especially if you operate an LLC or a corporation, similar to how a business partnership requires clear separation of roles and responsibilities. If your business is found liable in a legal dispute, the risk to your personal finances may be lower when your personal account is not associated with your business earnings and expenses. A business bank account that offers merchant services may also provide protection for your clients by ensuring their information is secure. It's recommended that you consult a legal professional to determine what protections or benefits you should look for when considering a business bank account.
• Streamlined tax and accounting processes: Conducting business through a designated business bank account usually means simpler, more accurate reporting come tax time. It may also make it easier for your accounting team to track your business expenses, identify valuable clients and develop important business reports, like cash flow statements.
• Potential for expanded purchasing power: Some business bank accounts may offer access to a line of credit for your business. Lines of credit may boost your business's spending power by serving as a source of extra cash for your business, allowing you to better manage financial stress and allocate more resources toward expansion, product development or competitive marketing strategies ahead of a busy season.
• Potential to establish business credit: If your business bank account offers a line of credit, using it may help establish credit for your business. Establishing and maintaining good business credit may broaden or improve the financial opportunities available for your business in the future, which may be a key step in planning for the growth of your business.

There are several different business bank accounts for you to consider, each with its own benefits, features and considerations, which may vary between financial institutions.

Checking accounts for businesses are similar to common personal accounts. They typically allow you to make deposits and withdrawals, write checks, make wire transfers and use a debit card for the account to make purchases or withdrawals. They are also usually FDIC insured for up to $250,000.

Advantages:

• May offer introductory or promotional periods with additional benefits
• May integrate with other business tools, like accounting software
• May pay out interest on your balance

Considerations:

• May have monthly account maintenance fees
• May require you to maintain a minimum balance
• May have fees for large transaction volumes, deposits over a certain amount or early account termination

Savings accounts for businesses are also similar to consumer savings accounts and are typically FDIC insured up to $250,000.

Advantages:

• Earn interest on your savings account balance
• May not have transaction limits, as federal laws limiting business savings accounts to 6 withdrawals per month have ended
• Can be linked to your business checking account to prevent overdrafts

Considerations:

• May require a minimum balance to earn interest
• May have withdrawal limits, depending on financial institution
• May have monthly maintenance fees

Merchant services accounts allow your business to accept and process debit and credit card payments. Merchant services accounts are linked to your primary business bank account, and they verify funds before depositing them into your primary account. They charge a fee per transaction, usually a percentage (such as 1.5% or 3.5%) of the transaction amount.

Advantages:

• Verify that customers have enough available funds to cover their purchase
• Protect sensitive customer information, providing extra security
• Allow you to accept a popular payment method, potentially improving revenue and customer satisfaction

Considerations:

• May have setup, monthly, annual and incidental fees, like chargeback or statement fees
• May have a processing time that delays access to your money, which may range from a few hours to a few weeks depending on the payment processor
• May need strong business creditworthiness or high net worth to be approved for a reliable merchant services account

With each of these accounts, the terms will presumably vary by the financial institution. Consider consulting different banks to get information on their account fees, interest rates, account limitations and minimum balance requirements. Explore Capital One's business banking solutions to learn more about different types of accounts available for businesses of all sizes.

With the right documents, opening a bank account for a business is generally a simple process. The first step is deciding which bank you want to use, then going to their website or local branch to apply.

There are several documents and pieces of information you may need to open a business bank account. These include an employer identification number (EIN), your business license, your business’s formation documents and your business’s ownership agreements. Some banks may require additional information to open a business bank account. 

At Capital One, applicants should have the following basic information when applying for a business bank account:

• Personal information, like name, date of birth and Social Security number
• Contact information, including phone number and email address
• U.S. address (not a P.O. box) and owner establishment date
• Legal name and type of business
• Business establishment date with signer’s full name
• Ownership structure and number of employees
• Percent of ownership and annual gross revenue

Learn more about the application process and see what other documentation you should bring based on your business structure.

Your business's federal employer identification number (FEIN, also known as an EIN or tax identification number) is essentially its Social Security number. Sole proprietorships and single-member LLCs with no employees may not need an EIN. If your business doesn't have an EIN, you may be able to use your personal Social Security number to open a business bank account.

Not sure if your business needs a FEIN? Visit the IRS’s website to find out.

Information needed to open a business bank account often includes your business address, your business trade or doing business as (DBA) name and your business's entity type. Different entities often need different documentation to open a business bank account, alongside their EIN and basic personal information.

• Sole proprietorships typically need their business license and business name registration certificate.
• Partnerships (including general partnerships, limited liability partnerships and limited partnerships) typically need their business license and business name registration, plus a signed and dated partnership agreement and/or certified evidence of registration with the secretary of state.
• LLCs typically need their business license, a signed and dated operating agreement and a certified certificate of organization.
• Corporations typically need their business license, corporate bylaws and certified articles of incorporation.

A business bank account often requires an initial deposit at account opening. The amount of the initial deposit may vary by financial institution and account type (for example, a business savings account may require a higher initial deposit than a business checking account). Most initial deposits range from $5 to $1,000 and may align with the account's minimum required balance. 

Work with your local banker to discover which business account works best for your needs and has an initial deposit amount that you can comfortably manage. Some financial institutions may even waive initial deposits or contribute to them for qualifying accounts or as part of an introductory offer.

As a business owner, you've got a busy life. Between adjusting pricing strategies and maintaining positive client relationships, there isn’t much room for sorting through scrambled finance sheets or mixed expenses.

A business bank account may make your life easier by separating your personal and business finances. Plus, features like card payment processing, access to a business line of credit and integration with other business tools may add value and save time for your business.

At Capital One, each business is unique and deserves unique banking solutions. Capital One's small business products and services offer convenience, control and exceptional perks, like virtual cards and next-day access to card payments. Explore Capital One's business banking products to see what options are available for your organization.