Opening A Bank Account For A Business – Just like a personal bank account, business bank accounts provide a level of protection when it comes to managing your company’s finances. Business bank accounts are often a necessary step to formally separate your company’s finances from your personal income and expenses.
However, there are a few steps you need to take care of before you just walk into the bank and apply for a business bank account. Read our guide to learn about business accounts and what you need to do to open accounts for your company.
Opening A Bank Account For A Business
Business bank accounts are financial accounts intended solely for business expenses or income. These include business savings accounts and business checking accounts.
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Business bank accounts typically offer unique benefits that differ from personal bank accounts, including higher transaction limits and company-issued fees. Opening a business bank account is also necessary to help build a business credit profile, and is usually an application requirement for most small business loans.
Business bank accounts are different from merchant processing accounts, which help small businesses process credit card payments. If you want to accept credit card payments, you’ll need a merchant processing account along with a business bank account.
Small business bank accounts are available from traditional banks and credit unions, as well as online banks and other financial institutions. Opening a business bank account for your company takes just a few steps:
One of the first steps in starting a business is to obtain the appropriate business licenses to operate your plant. You will also need a business license to get a business bank account. In order to obtain the appropriate license for your business, you may need a combination of permits, including federal, state, and local/municipal business permits. For more information on obtaining a small business license, go to the SBA.gov resource page.
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Another step required to open a business bank account for most corporate entities is to find or obtain your EIN. This federal number is similar to a social security number, but is used for business credit purposes. However, if you have a sole proprietorship, obtaining an EIN for your business is not required. In such cases, your National Insurance number can be used to apply for a business bank account.
This typically includes documents such as your business plan, articles of incorporation, ownership agreements, permits and similar forms, although the exact documentation depends on your specific business and/or the locations where you operate. You may also need personal information from any other business owner, depending on the structure of your business. This may include social security numbers, driver’s license and/or passport.
Once you’re ready to apply, it’s a good idea to do some online research to find the best business bank account for your needs. You should also determine whether you want a business bank account, a business savings account, or both. Small business bank account features vary by financial institution and/or location, so you can find different options that best suit your needs.
Bonnie is a transplant from Chicago committed to seeing the world for free. As an avid news junkie with a fascination for finance, she loves helping others do more with less. Small business owners need to know what purpose each of them serves, their main features, and how opening them will affect their business.
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In short, if you want to collect online credit card, debit card, and other payments from customers, you’ll need to open both types of accounts.
By reading this article, you will get a basic understanding of the basics of both accounts. You’ll also know how they differ, and how they can benefit your small business.
A merchant account is a type of business bank account that allows businesses to accept credit and debit card payments, as well as online payments.
Online businesses collect information for these forms of non-cash payment through payment gateways, such as the one below:
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When customers insert their card or type their card details into a payment gateway on a company’s website or app, the information is sent to the merchant bank – the bank that provides your merchant account.
This bank then facilitates the communication between various parties involved in the processing of the cashless payment and ensures the correct transfer of the funds from the customer’s account to your account.
First, the receiving bank sends the transaction details to the customer’s card issuer, also known as the card provider, who checks if they have enough money to make the payment.
The card issuer approves or rejects the transaction, and then sends its response, in data format, back to the electronic terminal where the customer paid.
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If the issuer approves the transaction, the payment is processed and transferred to your merchant account, where it is held for an average of 24-48 hours before it enters your business bank account and is available for use.
All this happens in a few seconds and involves various fees for the merchant account holder, which vary according to their provider.
These fees typically range from 1.75% to 3% of the dollar amount of each transaction, plus 20 to 30 cents per transaction.
For example, popular merchant account provider Square has a rate fee of 2.6% + 10 cents for contactless payments, chip cards (inserted or inserted) and magstripe cards redeemed.
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Another reason is that the bank doesn’t even manage to make money from you by renting a card terminal.
A business bank account enables business operations and is a legal requirement for all businesses except sole proprietors.
This is where the funds from a merchant account come from, as well as cash and checks from your customers.
The funds in the business bank account are typically used for normal business expenses, such as monthly utility bills, software subscriptions, or payroll processing costs.
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However, there are some unique features of a business bank account that you should be aware of before opening an account.
First of all, most banks charge a monthly or annual maintenance fee to keep your account open. The amount of this payment depends on the bank.
Bank of America rewards its customers for keeping a high balance, but many banks may take a different approach, hitting you with fees for falling below their minimum balance.
Some banks will put a limit on the number of free transactions you can process in a set period of time – usually around 200 per month.
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Generally, the more funds you have in your account, the more transactions you can make. Banks tend to reward customers for trusting them with a lot of money.
Finally, business bank accounts usually come with handy reporting tools to help you with taxes, cash flow management and expense tracking.
Businesses use a merchant account and a business account together to process and accept credit cards, debit cards, and online payments from customers.
In terms of accepting card payments, the main difference between a merchant account and a business account is that credit card payments made to a merchant account will take much longer to process. faster than those made in a business bank account.
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When a business bank account receives a card payment, the receiving and issuing bank will delay the payment until both approve the transaction.
The merchant account, however, avoids this delay, advancing the merchant the money even though online transactions are still pending.
They verify the merchant through an application process, while the business bank account simply requires them to fill out a few forms.
Another key difference is that business bank accounts allow you to withdraw funds directly from the account and deposit them. This is not possible in a merchant account.
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Therefore, business bank accounts are primarily used to track and pay day-to-day business expenses, such as office rent, payroll or advertising:
After a customer’s credit card purchase is approved, the money is deposited into your merchant account.
From there, you can transfer the funds to your business bank account, where you can use it to make purchases, pay bills, and run your business.
Merchant accounts are necessary for businesses that want to accept online credit, debit and other payments from their customers, without waiting days for the receiving and issuing bank to approve each individual transaction.
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Allowing customers to pay cashless and online is becoming more important in this economy, which is why more and more businesses are opening merchant accounts.
If you are an online business, a merchant account is especially important, as collecting money is not really a realistic option.
Instead, with a merchant account, businesses can set up online payment gateways where customers can make cashless online purchases without even contacting a staff member, right from their laptop or phone.
Physical businesses also need merchant accounts. It is rare that a business only accepts cash. Customers are often confused when they encounter someone who says no to a credit or debit.
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Even mobile businesses like taco trucks accept credit and debit cards these days. They simply use mobile card terminals provided by their merchant account provider.
However, note that you also need to set up a business bank account before applying for a merchant account.
Acquiring banks (merchant account providers) require businesses to deposit their funds from the merchant account at a business bank
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