Anyone who runs a business with fewer employees or less revenue than a corporation or regular-sized business is considered a small business owner. If you fall into this category, you might be thinking about where to open a business account.
While the definition of a small business is somewhat loose, small businesses tend to operate on a more limited scale with fewer employees and may not have the same resources as a corporation or bigger business. Still, small businesses comprise a large portion of the business world. According to the U.S. Census Bureau, the majority of U.S. businesses in 2021 (56.6 percent) had fewer than five employees.
Key takeaways
Opening a business account can help protect business transactions, give a professional image and provide access to better deals and funding.
In addition to a business checking account, it may be beneficial for small businesses to also open a business savings account for storing earnings and preparing for future expenses.
Opening a bank account for a small business is an essential step to help manage the business and keep its finances in order. If you’re a small business owner looking to find the right business account, here’s where to get one, what to look out for and how one of these accounts can help you.
Key statistics about small business banking
There are estimated to be over 33 million small businesses in the U.S. (U.S. Small Business Administration)
Over 61 million, or about 46.4 percent of private sector employees, are employed by small businesses. (U.S. Small Business Administration)
As of 2021, there were over 4.6 million established businesses with under five employees. (U.S. Census Bureau)
Only 57 percent of small businesses say they receive financial advice from their bank. (J.D. Power 2023 Small Business Satisfaction Study)
In J.D. Power’s most recent Small Business Satisfaction Study, Capital One scored the highest for overall customer satisfaction.
Best small business bank accounts
Several banks and credit unions offer business checking accounts that are especially suited to small business owners.
Here are some of the top options to choose from, along with what fees to look out for and what perks they come with.
Bank account | Monthly fee | Minimum balance requirement | Transaction limits | Additional features |
|---|---|---|---|---|
Axos Basic Business Checking | None | None | Unlimited free digital transactions | Unlimited domestic ATM fee reimbursem*nts-Free domestic incoming wire transfers |
Bethpage Federal Credit Union Free Business Checking | None | None | Unlimited free transactions | Earns 0.20 percent APY on all balances-Free business debit card |
Bluevine Business Checking | None | None | Unlimited free transactions | Earns 2.0 percent APY on balances up to $250,000 when qualifications are met-Free incoming wire transfers |
Capital One Basic Business Checking | $15 (waived if certain criteria are met) | None, but $2,000 daily balance required to waive monthly fee | Unlimited free digital transactions | Free business debit cards |
Chase Business Complete Banking | $15 (waived if certain criteria are met) | None, but $2,000 daily balance required to waive monthly fee | Unlimited free digital transactions; 20 free transactions by teller or paper check, 40 cents per transaction after | Associate Debit cards available-Accepts credit card payments with Chase QuickAccept-Comes with fraud protection services |
LendingClub Tailored Checking | $10 (waived if minimum balance is met) | $100 to open, $500 daily balance required to waive monthly fee | $10,000 in incoming and $10,000 in outgoing transactions per day | Earns 1.50 percent APY on up to $100,000, and 0.10 percent APY on any balance over-Unlimited domestic ATM reimbursem*nts-The debit card earns 1 percent cash back on qualified purchases |
Live Oak Bank Tidal Business Checking | None | None | Unlimited free debit transaction | No overdraft fee or incoming wire fee |
U.S. Bank’s Silver Checking Package | None | $100 | 125 free transactions per month, 50 cents per transaction after | 50 percent discount on first check order up to $50-Comes with check fraud prevention tools |
Benefits of a small business banking account
There are four primary benefits of having a business account for your small business that the U.S. Small Business Administration lists:
It’s easier to track expenses and look out for errors when you have all your business transactions in one place. Plus, if you face a personal financial crisis, it won’t negatively affect the business’s credit score.
Clients can write checks out to the business, rather than to a personal account. Having a professional account may also mean securing better deals for your business, not the least of which is being approved for a business loan. With 70 percent of business owners getting turned down for a loan if they don’t have a business account, whether you have one of these accounts can have a serious impact on your ability to cover business-related costs.
The U.S. Small Business Administration states that business accounts help business owners stay better prepared for emergencies, because they often come with a line of credit option. U.S. Bank, for example, offers four types of lines of credit for businesses, which can help manage cash flow, protect from overdraft charges and purchase materials.
With a separate bank account comes a separate business credit score, which lenders use to assess the creditworthiness of a business. Better credit may provide access to more funding – therefore, more purchasing power.
One final benefit of having a business account, not listed by the Small Business Administration, is taking advantage of tax deductions. If you report tax deductions for a business from a personal account, it may trigger an audit. Some valuable small business tax deductions include utility costs, inventory expenses and loan interest.
Small business checking accounts vs. small business savings accounts
While business checking accounts are a must for managing the daily expenses and transactions for the business, it can also be a good idea to open a business savings account to store earnings that won’t be needed on a whim. The money in a business savings account can serve as an emergency fund or savings for large future expenses.
Business savings accounts may also come with benefits that aren’t offered through a business checking account, such as higher annual percentage yields (APYs). They may not be worth it, though, if you can’t meet the minimum balance requirement to avoid a fee.
Here’s a breakdown of the different uses and benefits between business checking and savings accounts:
Small business checking account | Small business savings account |
|---|---|
Primarily for everyday transactions | Primarily for storing funds |
Lower APYs (and often noninterest bearing) | Higher APYs, which can be part of an investment strategy |
Check-writing privileges | Limited withdrawals allowed per month (typically six) |
Higher liquidity, since it allows for frequent debit and credit card transactions | Better for saving for future expenses or emergencies |
Frequently asked questions
What is a small business bank account?
A small business bank account is designed for managing a company’s financial transactions separately from the owner’s personal funds. It allows for payments in the business’s name and offers services like salary processing, foreign currency transactions and credit checks on businesses and suppliers. These accounts cater to various business structures, from sole proprietors to partnerships and limited companies.
What should you look out for when choosing a small business account?
Different business accounts are suited to different needs. There may be minimum balance requirements the bank imposes to avoid a monthly fee — look for an account with a minimum balance you know you can meet. Many accounts also come with transaction limits. Depending on the size and needs of your business, it’s important to consider how many transactions you expect to make or whether you can afford to pay the bank’s transaction fees. You’ll likely come across a variety of unique features offered by different accounts, such as ATM reimbursem*nts or enhanced fraud protection services. These extra features may be more or less important to you, but sometimes they come with certain requirements for the customer to be eligible for them.
Do you need a business checking and business savings account?
It’s not always necessary to have both a business checking and business savings account, but it can make it easier to track spending and incentivize you to store away extra earnings. A business checking account is primarily used for frequent, everyday transactions while a business savings account is primarily for storing the money you don’t need right away. It’s more likely that you’ll need a business checking account. Still, having a business savings account is a good idea if you have some extra revenue that can be saved for future expenses or emergencies. Business savings accounts also tend to offer higher APYs, which can help boost your savings.
What’s needed to open a business account?
First, you’ll need to have a federal Employer Identification Number (EIN). The EIN is needed for verifying the business and managing taxes. If the business is a sole proprietorship, then a Social Security number will suffice in place of an EIN. Also, you may need an initial deposit amount for the account if it has a minimum opening deposit requirement.
Other documentation a bank may ask for includes:
The business’s formation documents
Ownership agreements
A business license
Personal identification, such as a passport or driver’s license.
Bottom line
With millions of new businesses opening every year, they occupy a significant role in the economy. Most of the owners of these small businesses handle accounting for the business themselves — and with all the responsibilities that come with running a business, finding a business account that suits the business’s needs can help make managing its finances smoother.
It’s important for small business owners to open a business checking account that can be used for sending and receiving payments under the business name and for taking out business loans. When shopping around for the right business account, look for what fees it comes with, transaction limits and what features the account has to offer.
Depending on the business’s needs and earnings, you may also want to open a small business savings account. Just make sure you can meet the minimum requirements to avoid paying a monthly fee.
As an expert in the field of small business management and finance, I bring a wealth of knowledge and practical experience to guide you through the intricacies of opening a business account. I have worked closely with numerous small businesses, understanding their unique challenges and needs, and have provided tailored financial advice to ensure their success.
Now, let's delve into the concepts discussed in the provided article:
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Small Business Definition and Statistics:
- Small businesses are generally characterized by fewer employees and lower revenues compared to corporations or regular-sized businesses.
- According to the U.S. Census Bureau in 2021, 56.6 percent of U.S. businesses had fewer than five employees.
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Importance of Opening a Business Account:
- Opening a business account is crucial for protecting business transactions, maintaining a professional image, and gaining access to better deals and funding opportunities.
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Types of Business Accounts:
- Business Checking Account: Used for daily transactions and managing expenses.
- Business Savings Account: Ideal for storing earnings for future expenses or emergencies, often offering higher annual percentage yields (APYs).
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Statistics on Small Business Banking:
- The U.S. Small Business Administration estimates over 33 million small businesses in the U.S., employing over 61 million private sector employees.
- In 2021, there were over 4.6 million established businesses with under five employees.
- Only 57 percent of small businesses report receiving financial advice from their bank.
- Capital One scored the highest in J.D. Power's Small Business Satisfaction Study.
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Best Small Business Bank Accounts:
- Various banks and credit unions offer specialized business checking accounts with different features, fees, and perks.
- Examples include Axos Basic Business Checking, Bethpage Federal Credit Union Free Business Checking, Bluevine Business Checking, Capital One Basic Business Checking, Chase Business Complete Banking, LendingClub Tailored Checking, Live Oak Bank Tidal Business Checking, and U.S. Bank’s Silver Checking Package.
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Benefits of Having a Small Business Banking Account:
- Protection: Separating business and personal accounts safeguards business transactions.
- Professionalism: Business accounts enhance the professional image of a company.
- Preparedness: Many business accounts offer lines of credit for emergencies.
- Purchasing Power: Establishing a good credit history through a business account increases purchasing power.
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Different Uses of Business Checking and Savings Accounts:
- Business Checking Account: Primarily for everyday transactions with lower APYs.
- Business Savings Account: Ideal for storing funds with higher APYs and limited withdrawals, suitable for future expenses or emergencies.
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FAQs on Small Business Banking:
- What is a small business bank account?
- What to look out for when choosing a small business account?
- Do you need both a business checking and business savings account?
- What's needed to open a business account?
In conclusion, a well-managed business account is a cornerstone for the success of small businesses, providing financial protection, professionalism, and strategic advantages in the competitive business landscape. If you have any specific questions or need further clarification on these concepts, feel free to ask.
