Small Business Banking
If you run a small business, you need a business bank account. Having a business checking account not only helps you save and manage finances but also helps you separate your personal and business assets, collect money through merchant services, and, if you build the right relationship, can be instrumental in helping you get a business loan or line of credit.
In this article, we’ll go over everything you need to know about small business banking, from the best banks for small businesses to how to get a business checking account.
Recommended: Find the right bank for your business in our Best Banks for Small Business review.
Do I Need a Business Bank Account?
Every business needs a dedicated business bank account. Even if you operate as a sole proprietorship, you’ll want to have a business bank account that is separate from your personal accounts.
A business bank account helps avoid piercing the corporate veil, basically helping to keep personal assets protected against business loss and liability. If you don't have a business bank account, you could end up being held personally liable should someone file a claim or lawsuit against your business.
Small business banks also come with valuable features that you’ll need as your business grows to help manage finances, pay employees and vendors, and even save for unexpected business expenses. It’s important to partner with the best business bank for your unique situation to get the most value out of your banking relationship.
Before choosing a bank, it may be helpful to make a list of all of the features and benefits you would need from your financial institution. This will help you narrow your search and choose the right bank for your small business.
Best Banks for Small Business
The best bank for small business is the one that offers all of the financial services you need at the lowest possible cost while still being flexible enough to grow your business. Whether it's an online business bank, a national bank, or a bank that does SBA 7(a) loans, you’ll want to thoroughly vet potential banks to ensure they meet all of your business needs before opening an account.
For business owners looking to get all of the perks associated with a brick-and-mortar bank with the convenience of seamless online access, we recommend partnering with Lili. Offering a wide range of small business financial services through its partner, The Bancorp Bank, Lili is consistently ranked at the top of our list of Best Banks for Small Business. Lili business banking comes with features like:
- No minimum balance requirement
- No monthly fees
- Free ATM withdrawals
- Built-in expense tracking
- Cash back with select business services
BEST FOR NEW BUSINESSES AND SOLOPRENEURS
BEST FOR MORE ESTABLISHED BUSINESSES
GREAT FOR ECOMMERCE BUSINESSES
GOOD FOR IN-PERSON BANKING
ONLY FOR VENTURE-BACKED STARTUPS
EXCELLENT PAYMENT PROCESSING INTEGRATION
Benefits of Small Business Banking
Having a business bank account opens up a world of perks for you and your business. Unlike a personal account, business bank accounts come with tools you can use to make running your business a bit easier, including payroll services, accounting tools, employee cards, delegated access, and more. Typical features included with business bank accounts include:
- Seamless payroll services — Pay employees with direct deposit, manage W-2s, and more with payment solutions designed for companies.
- Easy access to business credit cards — Having a positive relationship with a small business bank will help you when applying for a business credit card or line of credit.
- Apply for SBA loans — While the SBA can guarantee your business loan, you will still need a bank to underwrite and originate the loan for you. Having an active business account with an SBA lender takes the guesswork out of securing these funds for your company.
- Accounting software integrations — Some banks include integrations to popular accounting apps like Quickbooks to help you manage cash flow and bookkeeping.
- Online banking tools — Pay bills and vendors, deposit checks, and receive payments made out directly to your business.
- Accept credit card payments — Most banks offer merchant services so that you can accept credit card payments directly to your business account with a small transaction fee.
- Earn interest on balances — Many small business banks offer checking accounts that earn interest on balances up to a certain amount, allowing you to put your dollars to work until you need them.
- Collection services — Collect accounts payable without cold calling, bothersome emails, or collection letters with automated collection services.
While these are some of the most popular advantages of partnering with a business bank, every bank and business situation is different. When choosing a bank for your company, you’ll want to consider the features that most benefit your business now and in the future as you grow your business.
Need a bank account for your LLC? Read our Best Banks Accounts for LLCs review to find the perfect fit.
Brick & Mortar vs. Online Banks for Small Business
Running a business can be stressful at worst and time-consuming at best. Business owners often have a long to-do list that doesn’t include standing in long lines at the bank or waiting for the “next available agent” to address their banking issues. For these and many other reasons, small business owners are turning to online banks for their financial needs.
In fact, brick-and-mortar bank branches have become increasingly obsolete since Millennials became the largest workforce generation in the US in 2016. Mobile banking, remote check deposits, and instant online transfers are quickly becoming a part of everyday life as more business owners look to cut costs, reduce fees, and complete simple transactions in less time.
Despite what you may think, online banks today are able to provide the same great service as brick-and-mortar banks with less overhead, often passing those savings onto you in the form of fewer fees and better customer service. According to the ABA, roughly 5%–7% of brick-and-mortar bank branch locations have closed every year for the past several years. As a result, banks can now divert these resources to hiring more tellers and agents, improving mobile apps, and rolling out more services to customers.
Even still, you may benefit even more from a bank that operates 100% online if you don’t plan on completing any face-to-face transactions. A few reasons you may want to consider an online bank for small business include:
- 24/7 access to financial services
- Low or zero-fee bank accounts
- Flexible customer service options
- User-friendly smartphone apps
- Secure mobile check deposits
- Cash deposits are available at most online banks
- Online wire transfers
- Tools to help manage cash flow and grow your business
How to Get a Business Bank Account
Getting a business bank account requires finding the right bank for your needs, showing the right business documentation, and finally, applying for and funding the account.
Please follow these instructions to ensure you don't run into any problems while setting up your new account.
Steps to Opening a Business Bank Account:
- Provide documentation. When you go to open a new checking account, you'll need to provide certain documentation like documentation that verifies the name and general nature of your business, your incorporation documents, your DBA certificate if applicable, along with your Employer Identification Number (EIN)/Social Security Number.
- Prove your identity. You'll also need a couple of forms of identification to verify you are who you say you are. You may want a state-issued driver's license and your US Passport.
- Do your due diligence. You'll want to research which bank and bank account is right for your particular business. In most instances, you'll want to find out about the best banks for small businesses, as this is typically what the newbie entrepreneur is: a small business owner.
- Formally apply for a business bank account. Once you find the right bank, it's time to go in person or online and formally apply for an account. There are other accounts you may want to get, some may be beneficial, like a small business savings account, just for the reason it may reduce bank fees. Ask your banker about this to ensure you save as much money as possible.
- Fund your business bank account. Once you've filled out the paperwork and signed the opening agreement and signature card, you'll need to, in most cases, fund the account with an initial deposit. Different banks have different requirements. Keep in mind that some banks will require you to keep a certain amount of cash in your account to keep you from paying a monthly fee, again, check with your bank.
- Connect a merchant account. After you've funded the account, you'll want to make sure that you connect your merchant account with the bank account to ensure that as you process credit card transactions, these monies drop automatically into your business bank account.
- Use your business accounts for business purposes only. Now that you've completed the setup process for opening a business bank account, it's important that, moving forward, you never use this account to pay for personal expenditures. Keep this account separate to avoid IRS penalties and other liability issues.
Small Business Banking FAQs
What is the best small business bank?
Our best business bank for 2023 is Lili, according to our Best Banks for Small Business review.
This is because the Lili Standard business checking account offers a thorough selection of valuable features most business owners will need now and a few others they’ll need in the future, with no monthly fees and no minimum account balances.
Its online banking platform offers two business checking accounts, making it an ideal option for LLC business owners that may want to start with a "free" service while maintaining a certain degree of scalability in the long term. Lili’s website and mobile apps are easy to use and allow for 24/7 access to business funds.
How do I choose a bank for my small business?
When you are choosing a bank for your small business, you should consider the following factors:
- Customer service
- Cost (e.g., monthly fees, transaction costs, etc.)
- Bank requirements
- Number of features
- Perks and bonuses
Finding the best LLC checking account can be difficult. Ultimately, you will need to consider which of the above factors is most important to you and your business before making a final, informed decision.
To learn more, see our Best Banks for Small Business review.
What banking services do small businesses need?
Many deposit products come with tools to help manage cash flow, pay employees, accept payments with merchant services, and online banking, and even help businesses earn interest or cash-back rewards. You'll want to research potential banks to ensure the services provided matches the unique needs of your business.
What do I need to open a business bank account?
To open a bank account for your company, you'll at least need documentation proving ownership, incorporation documents, an EIN, proof of business address, and a valid form of identification. You'll also need proof of identity and signatures for anyone that owns at least 25% of the company.
Do you need an EIN to open a business checking account?
LLCs are required to have an EIN in order to open a business checking account. You can think of your EIN as your business's Social Security Number (SSN). It is used by the Internal Revenue Service (IRS) in order to track your business's activity.
Check out our How to Get an EIN article for more information on the role of EINs on business checking accounts.
What is an online bill pay?
Online bill pay is an electronic service that allows users to pay bills online without having to write and/or mail checks.
Online bill payments usually work through business checking accounts.
Which is the easiest bank to open a business account?
The “easiest bank” to open a business account can depend on your business's structure and specificities.
Generally speaking, most business checking accounts will have different identification requirements when it comes to how they interpret and apply Section 326 of the Patriot Act.
Some may require in-person visits to a branch, a US phone number, and proof of a physical address (e.g., utility bill, etc.). On the other hand, other online banks and money management platforms can be a lot more flexible (e.g., Lili, Relay, Novo, etc.).
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