How to get a business bank account

As a new small business owner, you’ve got a million and one things to do. Compared to hiring staff, designing your front of house aesthetic and running clever marketing campaigns to connect with customers, figuring out your business’ finances probably ranks pretty low on the list of things you actually want to do.

We get it. Navigating the financial landscape can be challenging to put it mildly. But if you want to run a successful business, there’s no way around it. Don’t worry — we’re here to help.

To build a strong foundation for your business’ finances, one of the first things you’ll want to do is open a business bank account. This financial tool is non-negotiable. Why? Business bank accounts offer countless benefits to help you manage cash flow, make tax reporting easier and enhance your business' credibility.

Whether you're just starting your business or considering a change to your current banking strategy, this comprehensive guide will cover:

Let’s get your business finance journey started.

Understanding small business bank accounts

First things first: What exactly is a business bank account? A business bank account is a type of bank account designed to cater to the specific financial needs of your business. Unlike a personal account, a business account separates your personal funds from your business funds. This makes it easier to manage your finances and keep accurate books for tax purposes.

Just like with personal accounts, there are two main types of business bank accounts. Each serves a different purpose:

1. A business checking account is used for daily transactions, including paying bills, receiving payments and managing cash flow.

2. A business savings account allows your business to earn interest on excess capital while still providing access to funds when you need them.

In addition to business checking and savings accounts, you’ll also need a merchant services account. This type of account is designed to process customer credit and debit card transactions. It’s a critical tool if you plan to accept card payments — whether you're operating an ecommerce store or brick and mortar business.

Why do small business owners need a business bank account?

Now that you know what a business bank account is, you might be wondering whether you really need one. We'll cover the benefits below, but first, here are a few reasons why having a bank account designated strictly for business use is an absolute must.

Keeping business and personal finances separate

Like oil and water, some things just don’t mix — including your personal and business finances. Blending personal and business money under the same account can create frustration, confusion and painful errors when it comes to managing cash flow, budgeting, accounting and preparing taxes. By having a business bank account with a business debit card that’s separate from your personal bank account, you can easily track all of your income and expenses — and avoid accidentally mixing funds together.

Legal protection and compliance

Your business is your baby. And you’d do everything in your power to protect it, right? Your business bank account can help. Keep your business safe and ensure you comply with tax laws and regulations by providing a designated place for withholding taxes from employees’ wages, paying sales taxes to your state and reporting your income to the Internal Revenue Service (IRS). Depending on the type of business you've registered, your business bank account can also help shield your personal assets from any business liabilities (lawsuits, debts or claims).

Credibility and professionalism

Want to prove you mean business? Having a separate business bank account demonstrates you’re serious about your business and strive to run it legitimately. It also means you can accept various types of payments including credit cards, mobile payments and wire transfers, which can increase both your sales and customer satisfaction. Plus, if you apply for a small business loan, lenders will see you're in a position to responsibly manage borrowed funds.

7 benefits of having a business bank account

Opening a bank account for your business isn't just about ticking a box for new business management. By starting off on the right track with your finances, you’ll unlock a myriad of benefits that set your business up for success. Let’s jump in.

1. Separation of personal and business finances

We said it before, but it warrants repeating. A business bank account is key to keeping your personal and business finances separate. Money management doesn't have to keep you up at night. With designated accounts, it’s easier to manage your business funds and protect your personal assets from business risks.

2. Better odds for business loans and credit

It’s likely at some point in your entrepreneurial journey you’ll need extra capital — whether it’s to open a second location, launch a new product line or cover everyday expenses in the off-season. A business bank account can help with that. How? With a business bank account, you’ll have an easier time getting approved for business loans and credit products. It can also play a key role in improving your business credit score, which could mean lower interest rates and increased borrowing capacity. In sum, it makes growing your business that much easier.

3. Simplified payroll and business operations

Wish payroll errors were a thing of the past? A business bank account can help you manage payroll efficiently and accurately by allowing you to pay employees, vendors and suppliers either electronically via ACH or by paper check. It can also help you automate your payments, deposits and transfers, saving you time and money while keeping you on schedule.

4. Access to online payment processing

If you operate any part of your business online, a business bank account is a must. It empowers you to use online payment processing services. That means it’s easier for your customers to check out and easier for you to get paid fast — whether customers are paying via debit card or credit card.

5. Integration with accounting and management systems

Good news. You can kick clunky, disconnected financial services systems to the curb. By integrating your business bank account with accounting software, you’re able to streamline your accounting and bookkeeping processes. You can also link your business bank account to project management and communication tools to manage jobs, tasks and your team without a hitch.

6. Untethered online banking for business transactions

As a business owner, we’ll bet you're often on the go. With online banking, you can easily manage cash flow and access your account balance, statements and transaction history online — from anywhere, at any time — via your bank's mobile app. You can also download or print your records for simplified bookkeeping.

7. Easier tax filing and compliance

Tax season doesn’t have to equal heartburn. A business bank account provides you with clear, organized records of your income and expenses, so you can accurately file taxes with ease. Additionally, you can comply with tax laws and other regulations required by law by withholding taxes from your employees’ wages, paying sales taxes to the state and reporting your income to the IRS.

Costs associated with business bank accounts

Now that we’ve talked about the benefits, it’s time to address the costs. Just like with personal accounts, business bank accounts come with usage fees — but you can deduct certain fees and charges associated with your account from your taxable income. These fees may include:

• Monthly fees: Monthly maintenance fees are charged for maintaining the account. They can range from $5 to $25 or more, depending on the bank and type of account you choose to open with them.

• Transaction fees: Transaction fees are charged for each deposit, withdrawal, transfer or payment you make with your account. They can vary from a few cents to a few dollars per transaction.

• Cash deposit fees: Cash deposit fees are charged for depositing cash into the account. These fees can be a percentage of the amount deposited or a flat fee per deposit depending on the bank.

Ways to potentially waive banking fees

Don’t be quick to assume you’ll be swimming in fees. There are lots of things you can do to reduce costs. You may be able to have some of the above fees waived by:

• Keeping a minimum balance

• Using online banking

• Bundling multiple accounts or services with the same bank

• Limiting the number of transactions per month

• Using electronic payments

• Depositing large amounts less frequently

• Using checks or direct deposits

• Choosing an account that offers a certain number of free monthly transactions or cash deposits

Choosing the right bank for your business

OK, we’ve covered why business bank accounts are important, and the benefits and costs associated with them. Next up is picking your bank.

Choosing the right partner is always an important decision. Your banking partner is no different. The bank you work with will influence your daily operations, financial management and long-term business growth. That's why it's crucial to thoroughly evaluate the specific banking needs of your business and answer a few questions to ensure you make the right choice:

• Are you a small local business, or do you operate across multiple states or countries?

• Do you need high transaction limits, or are you more focused on saving and growing your capital?

• Do you require advanced online banking features, or do you prefer more personalized in-branch services?

Once you've identified your needs, you can then compare different banks and accounts. Review their fee structures, interest rates, account types, loan options, customer service and technological capabilities. Be sure to spend some time reading customer reviews as well to get insight into the bank's reliability and quality of service from business owners who’ve worked with them firsthand.

What to consider when selecting a business bank account

We’ve established it’s important to be choosy about which bank you go with, but how to select the right one? There are several factors you’ll want to look at when opening a new business bank account — but you don't have to run each bank through the wringer with a laundry list of questions. Here’s a focused list of the most important things to ask about before making your decision:

• Fee structure: Banks often charge various fees for maintaining and using a business bank account, such as monthly service fees, transaction fees or ATM fees. Make sure you understand the bank's fee structure and how it aligns with your business' financial capabilities and operational needs.

• Interest rates: Interest rates on business savings accounts or loans can significantly impact your business' financial health. Compare rates from different banks to ensure you're getting the most value for your money — especially if you plan to save large amounts of cash or apply for financing.

• Accessibility and convenience: Some businesses need frequent access to physical branches, while others are best served through online banking. Determine what's most important to your business and review branch locations, ATM networks, mobile banking apps and online services.

• Customer service: It’s no secret that good customer service makes it easier to get your banking done efficiently. Be sure to inquire about response times, problem-solving capabilities and communication channels. A bank that provides reliable, responsive support will save your business a lot of stress and time down the road.

Online banks vs. traditional banks: Which one is better?

The answer to this particular question largely depends on your business' specific needs and preferences. Let’s run through the pros and cons.

Online banks

Online banks offer significant advantages such as lower fees and higher interest rates because they have low operating costs (that’s the perk of not having a physical location). They also provide 24/7 access to banking services, which can be a big plus for businesses that operate in different time zones or need advanced support. That said, online banks often lack personal customer service. Activities like cash deposits or dealing with checks can also prove challenging.

Traditional banks

On the other hand, traditional banks and financial institutions offer personalized services. You can connect directly with representatives, which is useful if you deal with complex financial transactions or need financial advice. Traditional banks typically provide a broader range of services, too, including business loans, lines of credit and investments. The downside? Interest rates and fees will be higher, and banking hours don't always provide the window or flexibility that some business owners need to complete their financial transactions efficiently.

When to consider switching your business bank account

If you're stuck paying high fees, aren't getting a favorable interest rate on your savings or aren't happy with the level of customer service you're receiving, it might be time to consider switching banks and opening up a new business bank account.

Businesses change. And the bank that once served your needs may not be able to support what your business has grown into today. If that’s the case, don't worry. Simply evaluate the factors for selecting a bank that we went over above, then close out your old accounts once you’ve selected a new one.

3 steps to open a business bank account

Once you’ve decided which type of bank is right for you, the next phase is opening your account. Here’s a step-by-step checklist:

1. Gather necessary documents

   1. Obtain your Employer Identification Number (EIN) or Social Security Number (if you're a sole proprietor)

   2. Gather your business formation documents (Articles of Incorporation or Articles of Organization)

   3. Get a copy of your business license from your state or municipality

   4. Collect ownership agreements (if applicable)

   5. Bring personal identification documents, such as a driver's license

2. Fill out the application

   1. Provide your personal and business information, including your EIN, business name, DBA (doing business as) and contact details

   2. Select the type of business account you want to open (such as a small business checking account)

   3. Agree to the terms and conditions of the account

   4. Complete and submit the application either online, via mail or in person (depending on the bank's process)

3. Deposit funds into the account

   1. Determine your initial deposit amount (based on the bank’s requirements)

   2. Transfer your qualifying deposit into the account using either a bank transfer, cash deposit or check

   3. Once the initial deposit has cleared, your business bank account should be officially open and ready to use on the same business day

Understanding the application process

To recap, opening a business bank account typically involves three main steps: 1) providing the required documents, 2) completing an application form and 3) making an initial deposit.

It sounds simple enough, but be on the lookout for potential pitfalls such as not having all the required documents or being unable to meet the minimum deposit amount. Be sure to review all the application requirements in advance so you can choose an alternate bank if necessary or take additional time to gather what you need.

Tips for managing your business bank accounts

After your business bank account application gets approved, the trick is to manage your account responsibly. Here are a few tips for how to do just that:

How to maintain a healthy business bank account

So, your account is open. That’s awesome! To maintain good standing, you’ll want to review your business bank account regularly to ensure everything remains accurate. This is also a good way to identify spending trends. Proactive cash flow management is crucial to keeping a positive balance and planning for future costs your business may need to incur. Setting up overdraft protection or keeping a cash buffer is a smart move, since proper account management supports smooth business operations — plus, your bank will love you for it.

How to make the most of online banking

To name a few of the top benefits, online banking is convenient, saves time and helps you visualize real-time transactions so you can monitor your spending. Taking advantage of online banking features like 24/7 deposit account access, mobile check deposit, electronic invoicing, automatic bill pay and real-time alerts makes it much easier to keep track of your daily balance and overall business finances. If you want to up your strategic planning and decision-making game, you can also access online financial tools for better budgeting, forecasting and reporting.

How to manage multiple business bank accounts

Sometimes less isn’t more. Your business may need to open multiple accounts in order to keep your business finances organized. If you fall into this category, it's crucial to maintain separate records for each account so you can avoid confusion or errors. It’s a good idea to leverage financial management software to automate various aspects of account tracking and monitoring — and provide real-time updates on your balances and transactions.

How to build up your business credit score

Been worrying about how to get a good business credit score? Opening a business bank account is the first step in building up your score. While simply having an account won't raise your score, the way in which you manage it can. You can demonstrate financial responsibility by ensuring you keep a positive balance, clear any overdraft as soon as possible and make any business loan or business credit card payments on time.

Displaying positive financial behavior influences how your bank reports to credit bureaus. Even though it might sound scary, this is ultimately a good thing. It gives you autonomy over your situation. By properly managing your business bank account, you can actively demonstrate your business' credibility.

Frequently asked questions (FAQs)

Ready to work with a partner who knows what it’s like to start a business?

If you made it this far, congratulations! You’re ready to take the first step on your small business finance journey.

From opening your business bank account to applying for a small business loan and everything in between, Heartland can help you every step of the way. We have powerful tools, rich resources and expert support you can leverage to manage your small business finances like a pro.

Reach out whenever you're ready to learn more about how we can help you take charge of your finances and unlock growth for your business.

Disclaimer: The information provided in this document does not, and is not intended to constitute legal advice; instead, all information, content, and materials available are for general informational purposes only. Information provided may not constitute the most up-to-date legal or other information, and readers of this information should contact their attorney to obtain advice with respect to any particular legal matter, in the relevant jurisdiction. All liability with respect to actions taken or not taken based on the contents here are hereby expressly disclaimed.

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