Looking to open a business bank account? 7 things you may need first

If you’re starting a business, you’re going to need more than business cards for prospective customers to take you seriously. That’s where a business bank account comes in. Opening a business bank account is an essential step on your path to success. It will help you manage your cash flow and build a valuable relationship with a bank that may eventually help your business access credit for growth.

“Setting up a business checking account ultimately helps clearly separate your business and personal funds, provides more protection to your personal assets and makes it easier to keep track of your business expenses throughout the year for tax purposes,” says Tony Pica, senior vice president at Capital One.

What do I need to open a business bank account?

Opening a business bank account isn’t as simple as opening a personal bank account. You’ll need to have proper documentation, which will vary based on the type of your business.

“The documentation required to open a business account may depend on the structure of your business,” Pica says. “For example, a sole proprietor needs their federal tax ID number (TIN) letter and business license or fictitious name certificate, while an LLC or corporation also needs beneficial owner information and certificate of good standing.”

Your documentation requirements may vary based on where your business is located, too.

“Every state has its own set of rules for each structure [of a business], so talk with your trusted advisors, such as a business lawyer or accountant, to ensure you’ve compiled all of the necessary personal and company information,” Pica says. “This is a key step to make the process go as smoothly as possible.”

Here’s a rundown of the most common materials needed to open a business bank account:

1. Two forms of identification
2. Your tax ID number (TIN)
3. Business documentation (Certificate of Good Standing)
4. Assumed name certificate
5. Beneficial owner information
6. Cash
7. A solid understanding of your business plan

1. Two forms of identification

You’ll want to bring a government-issued ID – your state driver’s license or your passport will do – plus another piece of ID such as a credit card bill or a utility bill with your name listed on it.

2. Your tax ID number

Your business isn’t official until it’s registered to pay its fair share to the government. Make sure you have applied for your federal tax ID number, which is also known as your employee ID number (EIN), with the IRS.

3. Business identification documents

In addition to dealing with the federal government, you’ll need to get in touch with officials in the state where your business is headquartered to verify the legal existence of your business. That will likely entail registering your business with state and local governments to acquire a business registration certificate and applicable licenses.

If your business is a corporation or an LLC, you’ll likely need a Certificate of Good Standing. This shows that you’ve paid all the necessary fees and checked all the boxes, and it is typically secured through a Secretary of State’s office or a state’s Division of Corporations. The bank may also ask for meeting minutes, by-laws or other articles of incorporation.

4. Assumed name certificate

This item typically applies to sole proprietors and limited partnerships. Let’s say your name is Tim Ryan, but you are planning to operate as “Tim Ryan Painting.” That’s your assumed name, which might also be referred to as DBA (doing business as), a fictitious name or a trade name certificate. This typically applies to sole proprietors. You will likely be able to obtain this through your county clerk’s office.

5. Beneficial owner information

Banks are required to know who has an ownership stake of 25 percent or more in your company, which is the magic number that makes you a “beneficial owner.” If you own the business with someone else, you’ll need to determine how much equity each of you has in the company. Your bank will likely have you complete a simple form.

6. Cash

Like personal checking accounts, many business checking accounts require a minimum deposit to open. That amount will vary by bank. At Wells Fargo, for example, you only need $25 to open a business account, while U.S. Bank requires a minimum deposit of $100.

7. A solid understanding of your business plan

Be prepared to share a detailed overview of the nature of your business, expectations of your annual sales, where your suppliers and vendors are located and other information to establish your business’s credibility.

Choosing the best business bank account for your needs

Business bank accounts share one key thing in common with personal bank accounts: There are a lot of options. You’ll first need to decide which type of business bank account you need or whether you need multiple accounts to keep your finances organized. Types of accounts to choose from include:

• Business checking account. Use a business checking account to access capital needed for day-to-day operations. Keep in mind that many business checking accounts limit the number of transactions you can make, particularly those from brick-and-mortar banks.

• Business savings account. Use a business savings account to build a contingency fund for emergencies or so that you can buy new equipment or expand your business later. Business savings accounts may have a higher minimum balance required than a personal savings account would.

• Merchant services account. A merchant services account allows you to take debit and credit card payments from customers. You’ll want to compare the transaction fees (usually charged per transaction) for different merchant service accounts to ensure you’re getting the best deal.

Once you’ve chosen the type of business bank account you need, you can compare different banks to find the right fit. First, think about what kinds of services you need. Will you want to send branded invoices? Do you plan to give other leaders of the company the ability to sign checks? Are you hoping to connect your account with software like Quickbooks or NetSuite? Will you need to visit a physical branch to make deposits, or could your business function easily without in-person interaction with a teller?

There are a number of business bank accounts for new businesses that offer low or no fees for owners in the early stages. Those accounts just include the basics: a place to park your money, a debit card and not much else. To take advantage of an account with expanded features while avoiding fees, though, you may need an accurate forecast of how much money you’ll be earning and spending on a regular basis.

For example, consider Bank of America’s two business checking options: Fundamentals vs. Relationship. To avoid the $16 monthly fee on the Fundamentals account, you need to spend $250 each month on a business debit or credit card and maintain a monthly balance of $5,000. The Relationship account offers bigger benefits such as no-fee stop payments, no-fee incoming wire transfers and the ability to customize access for employees, but it comes with a higher $29.95 monthly fee. Avoiding that extra cost carries a much taller order than the Fundamentals threshold: a monthly balance of $15,000.

Some other big banks such as Capital One have a similar model: lower-priced business bank accounts in exchange for fewer features.

“Before you open a business checking account, do your research,” Pica says. “Shop around and see what kind of offerings are available in the market for small businesses. Consider fees, interest, transaction limits, cash deposit limits, account maintenance requirements and access to digital business banking tools.”

Bottom line

Opening a business bank account can be simple when you have the proper documentation on hand. The bank will likely need your ID, proof of business formation and a form for each beneficial owner of the business. It may also require you to open the account with a certain minimum cash deposit. Before opening an account, you may want to compare several business bank accounts side by side to understand which ones offer the best features like free transactions and the lowest fees, such as no monthly service fee if you keep a minimum balance.

—Freelance writer Sarah George contributed to updating this article. Former Bankrate writer René Bennett contributed to an earlier version.