Takeaways
- You can open business bank accounts once you have company formation documents.
- Business bank accounts facilitate transaction management and vendor payments.
- Business bank accounts include checking, savings, and merchant services accounts.
- Banking relationships can help achieve business goals by giving access to banking products.
- Business bank accounts facilitate easy tracking of business expenses, transfers, payments, cash flow, and other business transactions.
The fact that you are considering opening a business bank account means now is the right time. Whether starting your own business, working for a growing startup, or operating as a freelancer, keeping track of business expenses in a business bank account is a smart move.
The earliest you can open a business bank account is once you have company formation documents. For example, once you set up a C Corp, Limited Liability Company, or Nonprofit, you can apply for a business bank account. Alternatively, you can wait until your business starts growing and you feel confident about managing money on behalf of your business. It will become necessary in a success state scenario, so you should be proactive.
There are different business accounts, including checking, savings, credit, and merchant services accounts. As you may have guessed, each account type serves a specific purpose. For example, a merchant services account allows you to accept customer credit and debit card payments.
A significant advantage of business banking is the added protection it provides. You gain protection by keeping your business funds separate from your funds. Also, merchant services accounts offer purchase protection for your customers and contribute to keeping their personal information secure during transactions.
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What Is a Business Bank Account?
When you start your own business, you want a separate business bank account to house your company’s cash, marketable securities, and investments. This allows you to easily keep track of business expenses, transfers, payments, and cash flow for your business.
A business bank account is beneficial for creating your company’s financial statement, preparing tax documentation, and getting a business loan. A business account is solely dedicated to managing transactions related to your business operations.
Although a business bank account has a different objective than a personal bank account, it functions similarly. A business bank account allows you to manage transactions in different currencies, automate payments to vendors, and accept deposits, checks, and other sources of revenue.
No matter what type of business you run, getting a business bank account will benefit your company (and provide you with peace of mind). From everyday business checking accounts to savings accounts designed to help you grow your business funds, you can open different business bank accounts based on your needs.
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5 Advantages of Relationship Banking
A business banking relationship has several advantages. Unlike personal banking, relationship banking involves working with a business banker who recommends, provides, and approves products specifically curated to help you reach your business goals.
Let’s take a closer look at the main advantages of business banking below:
1. Checking Account
When you open a dedicated business checking account, you set yourself up for success. One of the main advantages is the clear separation it creates between your personal and business finances.
A standalone business account is imperative when writing checks from a C Corp, Limited Liability Company, or Nonprofit. Additionally, a dedicated account makes it easier to track business expenses.
2. Credit Cards
A successful business involves paying for many items quickly. A business credit card is a convenient way to make purchases, whether buying supplies, paying vendors, or covering everyday office supplies.
Depending on the business credit card, you can sign up for rewards programs customized for your business spending patterns, such as cashback, travel rewards, or discounts on business-related purchases.
3. Investing Accounts
You might be surprised to learn that a business needs an investing account. Companies that have excess cash from profits, raised cash from an equity offering, or divested a portion of their business need to be able to grow their cash and earn interest income.
Investing accounts are interest-bearing accounts managed by a company’s treasury department. This department oversees and maximizes investment allocation. Companies usually invest in assets like U.S. Treasury Bills, corporate bonds, or money market accounts to earn passive income.
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4. Business Loans
With a strong business banking relationship, you can also take out a traditional business loan. For example, if you need cash to fund an expansion project or cover working capital needs, the bank will likely offer you access to a term loan with competitive interest rates. (Read more about how the Federal Reserve affects interest rates through the federal funds rate.)
5. Lines of Credit
Unlike traditional term loans, which provide a lump sum upfront, lines of credit allow you to borrow money up to a predetermined limit and repay it as you use it. They give business owners the flexibility and access to liquidity they need to react in dynamic businesses.
6. Revolving Credit
Unlike a line of credit, a revolving credit facility does not have an end date and is an open-ended agreement between a business and a bank. It allows you to access credit when needed, pay back the debt according to the agreed-upon facility interest rate, and borrow in different amounts and intervals.[1]
Pros of Opening a Business Account
You might feel like opening a business bank account is not a priority, but the sooner you can open this type of account, the better. After all, there is nothing more important than protecting your business assets. Here are the main pros of opening a business bank account right away:
- Scale Your Business: Even if you are a solo freelancer, setting up a business account allows your business to scale with your growth. One business account can accommodate payroll to hundreds of employees, pay thousands of vendors, make countless deposits, and automate your financial ecosystem.
- Make Tax Preparation Easier: A dedicated business bank account can make tax preparation much more accessible. You or your accountant can easily link these transactions with tax preparation software by running all your business income and expenses through a single account.
- Automate Your Bookkeeping: A business bank account makes automating your bookkeeping easier. Regularly syncing your account with bookkeeping software will allow you to monitor cash flow and keep track of your income and business expenses.
- Protect Yourself from Business Debt Liability: If your business is a corporation or a limited liability company, having a business bank account can protect your assets. Keeping a separate business account ensures that your personal and business assets are safe, secure, and not intermingled.
Business vs. Personal Bank Accounts
Business and personal bank accounts share many similarities. Both provide debit card, ACH payments, and wire transfers and offer access to online platforms and apps for monitoring balances, transaction history, and pending transactions. However, the main difference between these two types of bank accounts is how each is used.
Business checking accounts are designed explicitly for managing business transactions. Most business owners use these accounts to pay suppliers, receive sales revenue, and act as the hub of financial transactions.
On the other hand, personal checking accounts are for personal financial matters, such as paying rent, groceries, car payments, etc. Some banks offer high-yielding checking accounts with additional benefits and features.
When it comes to personal finances and business finances, dividing the house is a smart move. Financial experts recommend setting boundaries between these two accounts. If you run a business, simply keep your personal credit card and your business credit card in your wallet and use them appropriately.
The best time to open a business banking account is when you are ready to handle the additional responsibility. Setting up a business bank account is not something you should push to the side or take lightly. Creating an account can professionalize your business, big or small, and give you the resources to streamline accounting, payment processing, and cash flow management.
Smart Summary
The advantages of getting a bank account for your business are tremendous. Professionalizing your business with a checking account that centralizes your payment processing will let you focus on building your business. Before opening a bank account, research the best business checking accounts available and select one that works best for your business needs.
(1) PWC. 1.3 Lines of credit and revolving-debt arrangements. Last Accessed January 15, 2025.
