The offers fly at you from all directions: internet pop-ups, TV ads, radio spots, and even old-fashioned USPS mailers. Banks want your business and are offering to pay you for the privilege.
But if you are running a startup or own a small business—even if you just need another bank account to manage your side hustle—you already know the devils that can reside in the details. You know you’ve got some homework to do and some questions to ask before opening a business bank account.
The first question you should ask yourself is whether you need a business bank account. For some entrepreneurs just starting, a separate business account may not seem necessary. But having one provides lots of advantages, including:
- A cleaner way to manage cash flow and keep track of your day-to-day revenues and expenses.
- A tool to stay organized and comply with tax laws and regulations.
- Protection of your personal assets from liability in the event of a lawsuit.
- A more professional appearance to customers and vendors.
- Potential access to lines of credit, which can be helpful in times of financial need.
- Structure for when (not if) your business grows.
So, assuming those advantages make the process of opening a business bank account worth it, what are the key questions you need to ask to make the right choice?
Well, first, look at your own needs and characteristics. What are your banking needs?
It’s doubtful that any one bank will have the suite of products — debit cards, checking accounts, savings accounts, etc. — and the fee structure that fits every business. So, assess your business profile and banking needs first.
That means the size of your business and the industry you are in. And it means your future outlook, whether you anticipate staying about the same size you are now for a few years, or whether you forecast rapid growth and will need a bank that can accommodate your expansion.
Put together a thumbnail profile of your company. Take a swing at the banking needs you have now and will have in the near future. And then go bank shopping. Here are 15 questions you should ask:
What Competitive Products and Services Does the Bank Offer?
The size of your business and the industry you are in will help determine what type of products or services you need. Whether you are looking at a traditional bank, credit union, or online bank, you likely will need more than the basics: checking account, savings account, debit and credit cards.
A small retailer may need only a merchant account or a small business checking account, for example. A large manufacturer, however, might be looking for help with everything from treasury management to retirement plans.
Remember to keep an open mind toward future needs. You may not need budgeting tools or direct deposits now, but one day you will. You may not take debit cards now, but one day you will. Don’t shoot for the moon; most small businesses won’t need trade finance services. But consider an account that has the products and services you need now as well as one that can grow in complexity as you grow.
Here are some of the products and services banks offer:
- Business Checking Accounts: These are specifically tailored for businesses. Features may include no minimum balance requirements, online banking, and mobile banking. All should offer the ability to make multiple transactions.
- Business Savings Accounts: Allow you to earn interest on the cash you don’t need at the moment for operations but provide quick access to those funds.
- Business Loans: These loans could be for working capital, to finance equipment or other investments, commercial real estate needs, etc.
- Business Credit Cards: For use with your business expenses, these credit cards may offer rewards, expense tracking, and other benefits.
- Merchant Services: Payment processing solutions that you will need depending on how you get paid by your customers. This would include credit card processing, online payments, and point-of-sale systems.
- Online and Mobile Banking: Allows for convenient and immediate account management, such as accessing information and executing transactions.
- Cash Management Solutions: Helps you manage cash flow, collections, disbursements, and investments.
- Treasury Management Services: The larger you are the more likely you will need these kinds of services, which help businesses optimize financial operations. Think forecasting, risk management, and liquidity management.
- Business Insurance: Some banks will partner with insurance companies to offer coverage against property damage, liability, and business interruption.
- Trade Finance Services: Letters of credit, export financing, and foreign exchange services, for those businesses more heavily involved in international trade.
- Business Advisory Services: A banker or team of bankers that can offer strategic guidance and assist in decision-making.
- Corporate Banking Services: For large businesses with complex needs. Think cash management for multinational companies and large-scale financing solutions.
What Enticements or Introductory Offers Are Available?
While not as common as rewards for consumer bank accounts, online banks and brick-and-mortar banks do offer incentives from time to time to businesses that open a new account. They pay you to give them your business, as we said at the start of this article. So, don’t forget that your business is valuable.
Check out what different banks or credit unions may offer as incentives to attract new customers. Some common enticements include cash bonuses, fee waivers, savings rates that exceed the market rate, and free checks or overdraft protection. See if the banks or credit unions that interest you offer rewards programs.
You are largely in the driver’s seat as a potential new customer, which won’t always be the case with most banks. But you will have to measure the value of any incentive against other factors, like initial deposits, minimum balances, or transaction fees, as well as the products and services the account provides. The availability of incentives and promotions can vary over time as well. And, always, always, always read the fine print: Incentives are generally subject to certain terms and conditions.
Here are a few examples of banks offering rewards, bonuses, or other incentives to open an account:
- Chase for Business: “When you open a Chase Business Complete Checking® account. For new business checking customers with qualifying activities.”
- Bank of America Small Business: “Open a new Bank of America business checking account and qualify for a $200 cash bonus … when you make and maintain Qualifying Deposits.”
- U.S. Bank Business Checking: “Boost your budget with up to a $750 bonus. Open a new U.S. Bank Business Checking account and complete qualifying activities.”
Again, review the specific details of each offer and compare the features and benefits of different business accounts. Keep in mind that some enticements may come in other forms, such as fee waivers, savings rates that exceed the market rate, or free checks or overdraft protection.
Almost assuredly there will be some minimum balance requirement to earn and keep the reward, and most accounts will have some fee schedule, which brings us to our next set of questions:
Is There a Minimum Balance Requirement?
Banks want your business because they want your money to work with. They offer both the carrot and the stick to persuade you to hold as much of your money as possible in one of their checking or savings accounts.
The carrot can be cash bonuses as we discussed above, or other incentives such as higher interest rates of return. The stick can be minimum balance requirements that penalize you if you go below the specified amount.
For example, one of the conditions (there are others) of the Chase for Business cash offer above is that you need to maintain at least a $2,000 balance for 60 days from the offer enrollment.
Before you act, find out what balance requirements come with your account and what penalties you may incur should you dip below that figure.
What Are the Fees and Requirements?
This is a companion to the previous question. You will need to find out what the fee schedule is for the account you are considering and prepare to manage your account to that requirement. Just as you manage expenses in your overall business, you will need to control expenses within your banking environment.
Those expenses can be any type of service fee, from a monthly service fee to monthly maintenance fees, transaction fees, or ATM fees. An overdraft fee or two can wipe out any interest you have earned on the account.
The U.S. Bank Gold Business Checking Account Package, for example, comes with a $20 monthly maintenance fee and the first 300 transactions are free each month. That may seem like a small amount, but until you do the math and really look at your needs (the number of monthly transactions your business makes, for example), you won’t have a strong sense of the potential cost.
(Note: U.S. Bank, like many banks, gives customers a chance to have their monthly maintenance fee waived if they hit certain targets for total funds on deposit. Always ask whether and how you can mitigate or eliminate such fees.)
Most banks find ways to levy charges. Balancing lower fees versus certain benefits is just part of the banking experience. So, be sure to ask about the fees of different banks and find out how you can lower or avoid them.
How Simple Is It to Withdraw Money From Your Account?
Here we mean the mechanics of the bank account. We are not talking about harvesting cash from your business or paying yourself or any other questions that may or may not involve the accounting of the business or tax laws or tax management.
We just mean, how easy is it to manage your account, including withdrawals, when necessary. And it’s an important question to ask because some bank accounts will limit those transactions.
When assessing this question, ask yourself what the cash needs of your business might be. Banks limit debit card use far more strictly than banking transfers, for example. So if you need to withdraw money from the account and can do that by setting up transfers among accounts, that likely will be a smoother process. But if you need to be taking out cash using your debit card, you will run into limits on both the number of transactions and the amount of money you can take out per day, week, or month.
M&T Bank, for example, limits ATM/cash withdrawals to 9-15 withdrawals a day, or $500-$1,000 maximum per day, depending on the type of card. Chase limits the amount of spending on a business debit card.
And, if you want to withdraw all your money, some banks will charge a termination fee depending on how long you have had the account with them.
These rules may serve the interests of the bank, to be sure. But they also protect against theft, fraud, and loss. Your job is to research the spending and withdrawal limits to find what’s best for your business.
What Are Minimum and Maximum Transaction Limit Amounts?
Like the withdrawal question above, the matter of transaction limits will vary by account.
In some cases, the limits will be strict. You cannot make a transaction for less or more than a certain dollar amount. Or, you have a certain number of transactions per day, week, or month, and that’s it. The bank will not allow you to conduct more of that type of transaction until the calendar flips.
In other cases, the limits apply only to the number of free transactions. You can keep making the transactions you need, but you will pay a fee if you go over the certain number set aside as free.
So, assess whether you will need to make large or very small transactions, and check what the account will allow. And assess whether you will make just a few transactions a month, or many. You may need a bank that is generous with transactions, such as First Internet Bank, which promises unlimited transactions.
Can You Have Multiple Signatories?
Bank practices regarding multiple signatories have changed over time. Today, most bank practices are less strict than they used to be, which can be a good thing or a bad thing.
Having multiple signatories on the business checking account and being able to make payments or write checks, for example, can make you more efficient and provide some convenience. But the more hands with access to the till, the more risk your business runs. You should discuss with banking candidates what safeguards they offer and understand what internal controls you will want to set up to protect your business.
When opening an account, the bank will likely ask you to declare who are the people–the signatories, that is–who are authorized to access and manage the company bank account. Depending on the size of the company, this could be a single person, a pair of partners, or multiple people in a larger firm.
Those people will be permitted to act on behalf of the company. They can add or remove other people from the account. Make payments, withdrawals, and deposits, etc. People not on the list, even if they work for the company, will not have access to the account. This list, often called a bank mandate, makes clear to the bank and the people within the business who can do what.
One important thing to note: How the bank sets requirements can differ. The bank can set up the framework that a business can use to protect itself. But, ultimately, the enforcement of some security measures will reside with the business, not the bank.
If you want your bank’s checks to always require two signatures, for example, the bank can set up multiple signatories but may not necessarily enforce the need for two signatures on the checks themselves. Your internal policies and procedures will need to provide that protection.
Is the Business Bank Account Interest-Bearing?
Do you expect to have a stash of cash available? Find out what accounts the bank offers that pay interest. Most of the time, if you are looking to earn interest on your excess funds, you will need to check out business savings accounts. As with most saving accounts, a strong interest rate would make this option attractive.
Your business is valuable. Competition can be keen for customers like you looking to open other accounts or switch banks or credit unions. Check out whether the banks you are looking at offer savings rates that exceed the market rate.
What Types of Loans Does the Bank Offer?
Banks offer a variety of loan options, depending on the customer.
A Business Line of Credit, for example, is not a small business loan, though there are similarities. This provides a revolving line of credit for business accounts at financial institutions. It can help manage cash flow gaps or fund short-term needs as you try to reach your financial goals.
Term loans are repaid over a fixed period, usually short-term, up to five years.
SBA loans are loans guaranteed by the Small Business Administration. This makes them more attractive to lenders because of the lower risk.
Microloans are small, short-term loans. Often, businesses that fail to qualify for traditional bank loans will take advantage of microloans.
Will You Be Assigned a Dedicated Banker?
Depending on the size of your business, your needs, and the amount you bring to the account, some banks may offer your business a dedicated banker. A banker who specializes in working with businesses can be a valuable asset, helping you with everything from opening an account to applying for loans, to managing cash flow.
The key here is for you to first assess your needs. If they are complex enough to require the assistance of a dedicated banker, find out which banks offer that option.
Does the Bank Have a History of Working with Clients in Your Specific Industry?
The size and industry of your business can affect the type of traditional bank, credit union, or online bank you need. A small business in the retail industry may need only a merchant account or a small business checking account, while a large business in the manufacturing industry might need help with everything from treasury management to retirement plans.
You should find out whether the bank you have in mind has experience of working with businesses like yours. That will be an advantage as you build.
Does the Bank Have Online Banking and a Mobile App?
In comparing various banks and credit unions to find those that meet the needs you outlined, consider the importance of online banking. Banks that offer a variety of mobile banking services, such as bill payment, funds transfer, mobile apps, and other digital tools, provide convenience and immediacy that is not tied to the hours of a brick-and-mortar bank. In the same way, check out whether the bank offers online customer support. Also, ask about charges like ATM fees.
What Amount of Your Deposit Is Covered by Insurance?
The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks up to $250,000 per depositor. Check the Terms and Conditions of the bank you are considering. There the bank will likely refer to the FDIC in outlining how your deposits are insured if the bank fails, for example.
Credit unions may refer to the National Credit Union Administration. Check with the credit union you are considering, if you are considering a business account at a credit union, to learn how much of your deposits are insured.
The Terms and Conditions also will outline what and how the bank will protect you and your business’s assets, data, and privacy. And here you should be able to find all the details on account types, minimums, fees, transaction limits, etc.
Does the Account Integrate with Your Accounting Software?
If you use accounting software in your business, look for a financial institution that goes beyond the basics and offers integration with the software of your choice. This could make your cash management a lot easier.
Is the Bank Capable of Growing Along with Your Business?
If you plan to grow your business in the future, you’ll need to choose an account that can accommodate the growth. For example, you may not need budgeting tools or direct deposits now, but one day you will. And if you don’t take debit cards now but plan to accept debit cards in the future, you’ll be served by choosing an account that covers that now.
Choosing the Right Bank for Your Business Account
Opening a business bank account is not only an important step in your entrepreneurial journey, but it’s also an exciting one. It means you are ready for those revenues to start flowing in. But regardless of whether you’re starting a side hustle, launching a full-fledged business, or building an existing business, you need to make sure you have the services you need to be smart and careful in handling your finances.
We hope these questions help you assess your banking needs, understand how to choose the right bank for a small business, and know what questions to ask before opening an account.
Can I open a business bank account if my business is not yet registered?
A: Depends on the bank. Some will allow a bank account to be opened before a business is registered, or while the registration is in process. Others do not.
Can you have multiple business bank accounts under one business name?
Yes! Some banks allow multiple business bank accounts under one business name. Some businesses take advantage of this to keep different types of funds separate, such as operating expenses, payroll, and marketing expenses.
Be sure to ask whether this is permitted and, if so, whether the bank charges extra fees for the privilege.
How long does it take to open a business bank account?
Expect it to take a few days. But it depends on the financial institution. And it greatly depends on how prepared you are going into the application process.
The more documentation you can collect ahead of time, the faster the process will go. There are benefits to applying online (convenience) and applying in person at a brick-and-mortar branch (personal touch). In either case, the process should go smoothly.
The real-time it takes will be collecting the proper documents, such as your business name registration certificate; your business license; your Employer Identification Number (EIN); your Social Security number (if you are a sole proprietor); your business’s formation documents (articles of incorporation, partnership agreement, etc.); and all the personal identification you might need.
Can you transfer funds between your personal and business bank accounts?
Check with the bank to understand how they handle transfers. Also, as we said above, some issues like this will be determined by company policy rather than bank policy. Keep in mind that business accounts provide a separate financial entity for your business and a cleaner way to manage cash flow than your personal checking account.
By keeping business funds separate from your personal funds, a business account helps to protect your personal assets from liability in the event of a lawsuit. It also keeps your personal finance setup cleaner.
Can you close your business bank account if your business closes down?
Yes, but you will need to prepare the proper documentation and complete the proper steps, such as paying off any outstanding debts on the account and transferring any remaining funds to another bank account.