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What Are Business Checking Accounts?

If you own a business, you’ll need a business checking account. Similar to a personal checking account you may have at a bank, a business checking account serves numerous purposes.

Simply put, a business checking account is a bank account a business will set to allow the business to receive money from customers and pay their bills. 

How Does a Business Checking Account Work?

A business checking account functions very similar to a personal checking account. Money can be deposited directly into this account, and used to pay a variety of bills and expenses.

The account will be directly linked to a debit card and checkbook, allowing the business to spend the money within the account with ease. 

What Is a Business Checking Account Used For?

What is a business checking account used for? Where should we begin? These accounts are useful for numerous reasons. The two most common uses are:

  1. These accounts allow the business to receive money from their customers. 
  2. The business can use this checking account to fund various expenses, such as payroll, rent, and business expenses.

Does My Business Need a Checking Account?

Without question, a business needs a direct checking account. Even if you’re just a one person business, bifurcating your personal money, and the businesses money, is important for liability purposes! 

What Is Required to Open a Business Checking Account?

Opening a business checking account is easy. The business owner will need to provide the business’s identification number and proper identification.

You can visit your local banking branch to meet with a business banker, or set up the account 100% online. 

Do Business Checking Accounts Charge Fees?

Business checking accounts are subject to similar fees as personal checking accounts. There are often minimum account balance requirements, maintenance fees, and overdraft fees.

There is not a one size fits all approach to the fee structure. Some banks may have less fees than others. 

Can I Open a Business Checking Account at a Credit Union?

You absolutely can set up a business checking account at a credit union. Credit unions often offer very competitive rates on business checking accounts, and may have lower fees than a large nationwide bank. 

How To Get a Business Checking Account With Bad Credit

In most instances, banks and credit unions certainly check the business’s credit before approving their checking account application. In the event bad credit is present, the business still has options.

The account may still be approved, but the account may have higher fees. Additionally, there may be a limit as to how much money can be kept in the account for a specific period of time. 

Once the business demonstrates proper banking practices, and improves their credit over a period of time, they should have no restriction or trouble opening an account. There are also some banks/credit unions that will not check credit before opening an account.

This route can be an option, but it may come at a price. 

Best Features of Business Checking Accounts

Business checking accounts also have a wide range of features and functions. 

Online Banking 

Business owners will want to keep a watchful eye on their finances, and for good reason! You’ll be able to access your business checking account online, or via a mobile app, whenever you’d like.

You can monitor transaction history and get a better understanding of your businesses cash flow. 

Extended hours 

If you work normal business hours, when will you have a chance to deposit money? Many banks offer extended deposit hours for business owners.

If cash is a big part of your business, you can simply deposit money in the banks after hours deposit box, and it will be deposited in your account the very next day. 

Rewards 

Rewards are another great benefit of a business checking account. Your business can earn airline miles, extra cash back, or other perks/benefits.

Ultimately, this can save your company money! 

Advantages & Disadvantages of Business Checking Accounts

Let’s dive into some of the advantages of disadvantages of a business checking account. 

Advantages of Business Checking Accounts

There are a wide variety of advantages a business checking account provides.

  • Convenience: Between after hour deposits and linking this account to all your outflows, you’ll quickly and easily be able to monitor the cash flow of your business. 
  • Security: Business checking accounts are also insured by the FDIC or NCUA. Instead of keeping money in a safe, under your mattress, or in a shoebox, a business checking account will safely protect your cash.  
  • Liability: Bifurcating your personal money and the money from your business is important. Not only does this make managing your finances easier, it also can be a saving grace in an sticky legal situation. 

Disadvantages of Business Checking Accounts

Of course, there are also some disadvantages to business checking accounts. These include:

  • Risk of Losing Money: Although FDIC or NCUA insurance is a great benefit if your account has $250,000 or less, some businesses are cash rich and exceed that $250,000 threshold. Although the risk of losing money in a checking account is minimal, it’s still something a business owner will want to be mindful of. To completely protect your business, you’ll need numerous accounts which will add a layer of confusion and complexity to the equation. 
  • Fees: There are also fees associated with business checking accounts. The amount of these fees vary depending on the bank/credit union, but no one likes paying them! 

How To Open a Business Checking Account 

Opening a business checking account is easy. All you have to do is:

Step 1: Register Your Business

Properly register your business so you can obtain a business identification number. Using online sites is a fast and easy way to register your business. 

Step 2: Shop Around for Great Offers

Once your business is registered and you’ve determined you want a business checking account, shop around. See what the various banks/credit unions offer, and go with the most competitive package. 

Step 3: Provide Identification & Business Forms

Found the right bank to partner with? Great!

Stop by the branch during business hours to get your business checking account set up. Make sure you ask them what forms you’ll need to bring.

It’s very likely they will ask you to provide identification and business forms. You may also be able to set this account up through their chat service or on their website. 

Step 4: Make a Deposit & Activate Your Account!

Once you’ve set up your business checking account, you’ll need to deposit the minimum account balance to make the account active. As soon as the account is activated you can start using the mobile and online services to manage your cash flow. 

Regular vs Business Checking Accounts

Regular checking accounts are for individuals and families. These accounts are used for paying the bills, buying groceries, and everyday expenses.

Money is typically directly deposited into this account and a debit card is issued. A business checking account functions the same way, but is for a business.

A business will also use this account to pay the bills, including: payroll, business expenses, and investments. 

Do You Own a Business? 

If you own a business, you’ll want to set up a business checking account. This account will strictly be used for business and will be completely separate from your personal checking account.

If you are struggling to find the right account for you, consider working with a financial advisor. Consulting with a financial advisor has many benefits.

Financial advisors will not only help you invest your money and generate higher rates of return, they’ll also help you keep your money safe and organized!