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Understand which type of business bank account you need

Business bank account options have expanded in recent years, particularly with the advent of online banking. You can get a business bank account that is nearly a custom fit for your particular business. In this guide, we've broken down the best business checking accounts. There are several business banking options to consider:

Traditional business bank accounts

These accounts are available from commercial banks, both large and small. They tend to work best for businesses that are established and have a predictable cash flow.

Smaller, local banks are usually more accommodating of new and small businesses. You’ll be able to get one-on-one attention, as well as access to a physical bank branch. However, local banks tend to be more limited if you transact business nationally, and especially internationally.

Large commercial banks can provide more services, particularly if much of your revenue is derived from overseas. These banks also tend to have more options related to the processing of credit and debit card transactions. However, they often favor larger and more established clients.

Whether you work with a small local commercial bank or a large national bank, traditional banks tend to have more fees than other types of business bank accounts.

Free business bank accounts

Very few business bank accounts are truly free. Most are, at best, generally free in that they have no monthly service fee. These accounts often have other fees, especially for special services.

The closest thing to a truly free business bank account is Novo. The only fees on this account are fees for having insufficient funds and return fees. Apart from that, there are no monthly service fees and fees for incoming wires, non-sufficient funds (NSFs), or overdrafts. There are also no fees imposed if you exceed a certain number of transactions — a common issue with many traditional bank accounts. You do need a minimum amount of $50 to open an account but after that there are no minimum balance requirements.

With Novo you can also connect your account to other business apps like Slack, Xero, Quickbooks, and many more.

While not free, there are also other online business banks that will waive their fees if you have a specific balance. LendingClub Tailored Checking, for example, waives its $10 monthly fee if you have a balance of at least $5,000.

Online business bank accounts

These days, most business is conducted online. That opens the door wide for online business bank accounts. They work especially well for Internet entrepreneurs, freelancers, and those working in the gig economy who typically don’t need physical bank branches.

Though most banks offer online banking, there are dedicated business bank accounts that operate exclusively online. Since you can now do just about anything online that can be done in a bank branch, there’s no disadvantage to online-only banking. The absence of branch networks, and the many employees needed to staff them, means that online banks can charge lower fees than traditional banks.

Business savings accounts

Though savings accounts are more commonly associated with personal bank accounts, they may be necessary or desirable for businesses as well. Savings accounts give a business an opportunity to accumulate funds to pay for major expenses, finance future expansion or provide a cushion to weather downturns.

Many business bank accounts offer savings accounts with checking. You benefit from a higher rate of interest when working with an online business bank account than a traditional bank. Once again, the lack of a branch network and a large number of employees means an online bank is in a position to pay higher interest due to lower operating overhead.

What do you need to open a business bank account?

Much of the documentation required to open a business bank account is similar to what’s required for personal accounts. That will include:

  • Your Social Security number
  • A government-issued photo ID
  • General information such as your full legal name, your home address, email address, and phone number.

Additional documentation will be required for a business bank account, though that may vary based on the type of business entity you operate as. For example:

  • A sole proprietorship: the documentation requirements will be similar to those for a personal bank account. But if you’re required to pay sales tax or you have employees requiring withholding taxes, you’ll also need an employer ID number (EIN) which you can obtain from the IRS. If your business operates under a different name, you may need a fictitious business name certificate or DBA (doing business as) issued by your state or county of residence.
  • If your business operates as a partnership, you’ll need to provide a copy of your partnership agreement, as well as a valid business license issued by your state or county of residence. You’ll be required to provide an employer identification number since the business will operate as a standalone entity.
  • Corporations, S-corporations, and LLCs must also provide an IRS-issued EIN number, as well as any documents relating to your organization. For example, a corporation or S-corporation requires articles of incorporation, a corporate resolution, and evidence your company has been registered with your state’s Secretary of State.

With any business type, you may be required to provide a business license indicating you’re legally allowed to operate your business in your jurisdiction.

How to deposit funds into a business bank account

When you first open a business bank account, you may need to fund the account with a check, a wire transfer, or by connecting the business account to a personal account for a direct transfer.

Once your account is up and running, you should be able to accept customer and client payments by check, ACH, wire transfers or through a third-party service like PayPal.

If your business accepts paper checks, you should be able to deposit those checks through online or mobile banking. With online banking, deposits are usually accomplished by scanning both sides of the check. Mobile banking enables you to accept deposits by taking a photo of both sides of the check from your smartphone.

The bottom line: open a business banking account today

If your business has moved beyond the casual or hobby stage, it’s time to get a business bank account. Not only will it make your business look more professional, but it will also be easier to keep track of your business income and expenses. You can also take advantage of the myriad services only available through a dedicated business bank account.

Kevin Mercadante Freelance Contributor

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com.

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