What is a Business Checking Account?

If you’re an entrepreneur – or even if you’re making money from a side hustle, gig employment, or multiple income streams – it’s a good idea to look into opening a business bank account. Not only do business accounts streamline tasks like tracking expenses and paying taxes, but they also come with benefits most personal accounts don’t offer. Financial institutions like banks and credit unions offer a variety of accounts for small business owners, including business checking accounts, business savings accounts, business credit cards, and merchant services.
 
Here’s everything you need to know about business checking accounts to help you decide if that’s the right choice for your small business.

How does a business checking account work?

A business checking account lets you accept business revenue and pay for business expenses. Personal accounts are meant for your personal income and bills – and, according to the US Small Business Administration, business owners should open a business account as soon as they’re ready to start accepting payments or spending money.¹
 
To open a business checking account, you’ll need to make an initial deposit and provide the following documentation. (Your financial institution may ask for additional details based on the type of business you own.)

• Taxpayer Identification Number (TIN), which may be an Employer Identification Number (EIN) or a Social Security number, if you’re a sole proprietorship
• Your business’s formation documents
• Ownership agreements
• Information for every individual that has a 25% or greater beneficial ownership of the legal entity

Patelco has made it easy by putting together a complete checklist of what you need for opening an account for any type of business.

What’s the difference between business and personal checking accounts?

Business checking accounts should be used for your business transactions, such as paying vendors and collecting income. Meanwhile, your personal checking account is intended for personal income and expenses: housing, food, and entertainment.
 
Business Checking accounts provide all the convenience of a personal checking account: You can write and deposit checks, use a debit card at an ATM or to make payments, transfer money, and access your account via online banking tools. Meanwhile, Business Interest Checking accounts pay interest on your funds and allow for more monthly transactions. Some financial institutions may also provide additional protection for your account.

Good to Know

Business checking accounts should be used for your business transactions. Meanwhile, your personal checking account is intended for personal income and expenses: housing, food, and entertainment.

Why you should open a business checking account

Keeping your business income and expenses separate from a personal account comes in especially handy during tax season.² A few reasons why a business banking account makes sense:

1. Simplified taxes. Small businesses are on the hook to pay estimated taxes quarterly. With separate accounts, you can easily calculate your income and expenses.
2. More protection if you’re an LLC or corporation. If someone tries to sue your business, keeping your business assets separate could protect you from personal liability.
3. More opportunities for your business. Banks are more likely to issue a business loan or a business credit card if you have an established business checking account.
4. Easier accounting. Not only does a separate banking account make it easier to pay taxes, but general account tasks (like payroll) are easier if you use a business checking account.
5. Professionalism. A business checking account implies professionalism to your customers. This is also useful at tax time: it signals to the IRS that your operation is a business and not a hobby, so you may be able to claim a loss or deduct expenses on your tax forms.

Things to consider when opening a business checking account

Sometimes it’s most convenient to open a business checking account at the same financial institution you use for your personal account, but it’s important to shop around: Rates, fees, and benefits vary — and your business checking account may be subject to different fees.
 
Here are things to consider when you’re opening a business checking account:

• Introductory offers
• Interest rates
• Transaction fees
• Transaction limits
• Minimum account balance fees
• Early termination fees

If you’re interested in accepting additional forms of payment, such as credit cards, Apple Pay, Google Pay, and Samsung Pay, you may want to consider a Merchant Services account.
 
If you’re interested in opening a Business Checking account with Patelco Credit Union, a Virtual Branch™ team member can provide more information about the options available and walk you through account setup. Schedule an appointment with Patelco Virtual Branch™ today!
 

 

¹ US Small Business Administration, “Open a business bank account,” accessed May 9, 2024
 
² Please consult your tax advisor.