Small Business Banking—Here's What You Need to Know

You’ve probably discovered that running a business, even a small local operation, takes plenty of ongoing coordination. Diligent organization and proactive planning are essential, particularly within your financial department. If you own a business, it’s a wise move to open a business bank account to handle those transactions, and you might even be legally required to do so based on the type of entity you register.

A business account with a reputable bank will help you maintain accurate records that will come in handy throughout the year while also informing smart financial decisions. But if you think all banking is bland, it might surprise you to discover how useful online banking for small businesses has become in modern times. 

The rise of Fintech (financial technology) is changing the dusty landscape of banking with online integrations, making it easier to conduct business from anywhere in more ways than you imagined. Keep reading to find out why establishing a business bank account is so important and how online banking has spiced up the industry.

Why Do I Need a Bank Account for My Business? 

Even if you’re a sole proprietor with no employees on payroll, keeping personal and business banking separate will help you avoid painful financial headaches. Below are just a few reasons opening a business checking account is a beneficial move worth prioritizing.

Legitimize Your Business

If you’ve chosen a business name that doesn’t match your legal name, you need to develop your brand image to gain credibility under that identity. Banking transactions with vendors and customers that include your business name will come across as more professional and prevent any confusion upon reviewing those records. A separate bank account will also help legitimize your business as more than a hobby should the IRS question its classification.

Track Cash Flow and Expenses

Separate bank accounts create better bookkeeping, allowing you to track any funds entering or exiting your account without needing to subtract any personal transactions from the mix. Knowing exactly where your business stands at a glance with each statement can prevent costly financial mistakes as you plan out the best moves to make in the future.

Separation Simplifies Tax Season

As mentioned above, accurate accounting is vital for small businesses. You’ll be grateful you did when taxes are due, as you determine your revenue and deductions. Separate bank accounts make it a breeze to scan through each item, looking for the right data to plug into every tax form. Additionally, if you ever get audited, the process will be far less stressful if you have a bank account used exclusively for business purposes.

Business Loans Require Reliable Records

Lenders are looking for solid evidence they can count on you to make timely payments, and business loans have strict processes for approval, including the existence of a business bank account. You’ll need to provide financial proof that shows responsible record keeping, with accurate and organized information that lenders can easily analyze. Banish any ambiguity and prove you’re a trustworthy borrower with pristine paperwork.

Legal Requirements and Protections

If you are operating your business as a separate legal entity, such as an LLC or corporation, the IRS requires you to separate all of your accounting and bookkeeping from anything personal. Opening a business bank account and using it appropriately will fulfill this stipulation, and in some circumstances, separating finances can also shield your personal assets from issues that arise from business liabilities or fraud.

Small Business Bank Accounts vs. Personal Bank Accounts—What’s the Difference?

Personal and business bank accounts have some similar functions, but there are often differences that vary by each financial institution, so you’ll need to take the time to compare your options. Here’s a rundown of some of the most common differentiations you’ll notice between individual and commercial accounts.

Personal Banking Accounts

Opening a personal bank account allows an individual to transfer money, make deposits, withdraw funds, and use debit cards from a reliable FDIC-insured institution. Today’s banking for personal use strives to make it easy to track every dollar you spend or receive, whether in person or online. 

The most common types of bank accounts for personal use are checking and savings. Each account will have requirements that vary by bank or credit union, with some offering tantalizing incentives, such as removing monthly maintenance fees with regular paycheck deposits or maintaining a minimum balance at all times.

Business Banking Accounts

Bank business accounts are also designed to track the ebb and flow of your funds, but specifically for business purposes only. A bank or credit union might require evidence that you’re a registered business with a minimum deposit and minimum balance. Their fee structure might differ from personal bank accounts, too. 

​​Another significant distinction with business bank accounts is that they can include features intended for financial transactions conducted only by businesses, including payroll processing, merchant payment processing, and employee debit or credit cards. Some offer bookkeeping features and financial services, either as part of the package or for additional fees. 

You may even encounter online banking for small businesses with integrations to help you run your business smoothly from a single platform.

What to Look for in a Business Checking Account

Choose your business banking for small businesses carefully, based on your specific needs. Do you want a brick-and-mortar bank you can physically visit for transactions (including those involving cash deposits), or do you prefer the possibility of lower fees with the flexibility of online banking? 

Here are a few questions to ask when seeking the best business checking accounts:

• How easy is it to access funds from this bank, and are there ATM fees?
• Does this account come with any useful tools, integrations, and features?
• Are the monthly fees reasonable, and are there any hidden fees?
• Do the interest rates offered by this bank meet your expectations?
• Is there a sign-up bonus or other introductory offer sweetening the deal?
• Will this bank provide the essentials needed for my business and employees?

While searching for online business banking, you may encounter Fintech apps partnered with established financial institutions, often called Neobanks. These digital-only banking partnerships offer a wider variety of tools and integrations. For example, most offer apps for invoicing, accounting, and more.

Centralizing everything onto one platform can make business management easier. The trade-off with Neobanks is that not all of them offer some of the more traditional business banking services, such as credit and lending, and many only offer business checking accounts. Also, since Neobanks aren’t actual banks, they don’t have charters and aren’t subjected to as much regulation.

Not all online banking is done through Neobanks, however. Nearly every brick-and-mortar bank offers an online counterpart to complete your financial transactions, while many other online banks only exist digitally while providing their own benefits for opening business checking accounts.

Since every business is unique, we can’t provide you with financial advice. You’ll need to weigh the specific circumstances of your business situation with the guidance of professionals who handle finance, accounting, and law related to the type of company you own for the best results. But we hope this article provided a good starting point to continue your investigations into a compatible business bank account for your venture.

Step-by-Step Guide to Opening a Small Business Bank Account

Okay, let’s talk details. Here’s a general step-by-step guide to opening a small business bank account.

Step 1: Choose the Right Bank for Your Business

When selecting a small business bank account, it’s important to pick one that fits your needs. Research banks in your area to compare factors such as fees, customer service, online banking capabilities, loan options, and ATM access.

Step 2: Gather the Necessary Documents

Typically when opening an account, you’ll need to provide some documentation. This might include paperwork such as your tax identification number (EIN) or driver’s license, proof of business ownership, a voided check from your other business accounts, etc.

Step 3: Fill Out an Application

Once you’ve compiled all necessary documents on hand, fill out an application at the bank of your choice. In some cases, this may be done online. Depending on the type of account and the bank you choose to go with, you may have to schedule an in-person appointment.

Step 4: Make Initial Deposits

After your application is approved and your new account is active, make any initial deposits that may be required by the bank to cover processing fees and minimum balance requirements.

Step 5: Set up Mobile Banking and Payments

Small businesses rely on mobile banking tools like digital wallets and payment apps to stay competitive in today’s market. Be sure to ask the bank about their mobile offerings so you can take advantage of helpful features such as automated payments and spending-tracking tools.

Bonus: Tips for Modernizing Your Payment Processes

Now that we’ve explored online banking for small businesses, it’s a good time to tackle other financial topics such as sleek and effective payment methods. Modern consumers are looking for flexibility and convenience that won’t disrupt the cadence of their day, and there are several ways to make this happen.

We’ve put together a payment processing guide to show you how your business can meet those demands and streamline incoming revenue. With the right foundation in place, both parties can achieve their goals with satisfying simplicity.

This article is for informational purposes only. It is not intended as legal advice or a comprehensive summary of the law. You are encouraged to retain your own legal counsel to review this article and assess your unique business scenario.