Over 4.4 million businesses get started every year in the United States. This insight from the U.S. Census Bureau highlights the entrepreneurial spirit of the country, and the trend has continued upward since the pandemic. However, not every company sticks around. Business owners need the right tools and resources to stay afloat and gain market share. Banking is a critical component of any business, and a personal checking account isn’t enough for most companies.
While you can use a personal checking account when getting started, a business checking account has far more benefits. Many business banking solutions compete for your attention with an array of features and fewer fees. Knowing what to look for in your business banking experience can help you find a solution that aids in your company’s growth and sustainability.
Personal vs. Business Banking
When you are getting started, any bank account is better than none. You can have funds go to your personal bank account and use those funds to manage your business expenses. However, business banking experience has several advantages.
A big advantage you get right away from any business banking account is a simpler tax experience. You won’t have to sort through business and personal expenses to decipher which ones are tax deductible and which costs won’t help you. With so many personal transactions, it’s easy to lose track of some of your business expenses that could have been write-offs. A business checking account removes this complication, and since you’re making the tax season less complicated for your accountant, they may not charge as much for their services.
Business banking also protects your personal assets during lawsuits. If you only use your personal bank account, you can lose your personal assets if you lose an expensive lawsuit. The same risk does not apply to business owners with business checking accounts. Their business finances and personal finances are separate entities.
A business bank account also makes your company look more professional. As a result, clients may take you more seriously, and you may feel a higher sense of legitimacy about your business.
Are There Banks Specifically Tailored for Small Businesses?
Some business banks offer specialized services for small business owners. These banks provide integrations with popular business tools, as well as detailed reports for your business and other offer advanced features you won’t find at other banks. In addition, several business banks can address your needs and provide optimal experiences.
The Benefits of a Bank for Small Business
Creating a separate business account for your company presents several advantages. Here are the highlights:
- All-in-one dashboard: Connect your favorite business tools with your business banking platform. You can view all of the essentials from one platform instead of having multiple tabs open at the same time.
- Easier to stay organized: You get all of your tools in one place, but that’s not where the perks end. Some business banks create reports that list your tax deductibles and other key insights surrounding your company. It’s easier to stay on top of everything, knowing it’s all in one place.
- Useful features: Want to create an invoice with your company’s branding? Would you like to store receipts and discover how you spend your money across multiple categories? A business banking experience has several features you won’t find with a traditional setup.
- Build your business credit: A business banking experience makes it easier to build your business credit. Some business lenders look at your business credit score before giving loans. You might get business loans if you have a good personal credit score, but a good business credit score improves your chances of getting the financing you need.
- Less stress with taxes: Business expenses get separated from personal expenses, and some business banks have features that make the tax season even easier. Some business banks give you a separate Tax Savings account and let you contribute a percentage of each payment to that account. This strategy allows you to build your reserves so you aren’t scrambling to find funds before the deadline.
What to Look for in a Bank for Small Business
Banks have many features, making it easy to get bare essentials mixed up with game-changing additions. Here’s what small business owners should look for in their business banking experience.
Requirements and Waiting Times to Open Accounts
Most banks have general requirements, such as requiring your ID and personal information to open an account. Some banks may require minimum deposits and balance requirements, which can make them less enticing. Many business banking solutions for small businesses do not have a minimum deposit requirement or minimum balance requirement. You can fill out an application within a few minutes and have access to a bank account shortly after.
Fees and Costs
Banks have various fees and costs to consider. For example, online business banks typically have fewer fees than traditional banks, which have more overhead to cover. Reading online reviews can help you gauge if a bank charges hidden fees, but some banks have pages on their websites that list their fees.
Some business banks do not set transaction limits, a perk that can save your business money. Unfortunately, many business banks with transaction limits tend to add a transaction fee for each transaction that goes above the limit. Most banks refresh their transaction limit at the end of each month, but you can avoid this headache with the right bank. No transaction limits give your company more flexibility.
Business Tools Integrations
Business bank accounts are more than just a place to store money, pay others, and receive funds. Many business banks allow you to integrate popular business tools like Square, Shopify, and PayPal so that you can see everything in one place. Some business banks also offer additional tools like free invoicing software, which cuts down on the number of additional tools you will need to use or purchase. This simplified approach means keeping fewer tabs open and staying organized within your business.
Location and Access
Some business banks have a physical presence, but most banks are shifting to an online experience. While brick-and-mortar institutions offer apps that make their services more accessible, the online banking ecosystem takes place entirely online. Many business banks let you receive cash and make payments from your smartphone or any other device.
Mobile App and Online Banking
Banking has increasingly shifted online, with more people preferring to skip a trip to the nearest branch. Mobile apps let users see their bank accounts, business tools, and other resources. Some business banks have better interfaces than others, and it’s important to find an app and online banking experience that makes you feel comfortable. If the bank has glitches in its app or a confusing online portal, you may want to look for a better option. You may also want to consider whether or not a bank offers the ability to generate one or more virtual debit cards that you can use online or give to partners or employees to use for your business as well.
Fund Protection and Insurance
FDIC insurance should be a requirement in your criteria. This basic, fundamental protection ensures the first $250,000 of each bank account. This insurance policy keeps your net worth safe if the bank you work with falls under. You should steer away from any bank that does not offer this basic protection.
Customer Service and Reliability
Every bank likes to say they have the best customer service. While banks make investments in hiring and training representatives, online reviews provide a more accurate depiction of a bank’s customer support. A reliable, live support team can make you feel more at ease if you have an urgent emergency. You will have to contact your bank’s customer service for basic and complex needs for your company. You don’t want to go blind into a new bank account only to realize the customer support is not up to par when you need them the most.
Business owners should also consider the availability of the customer support team and the available communication methods. Some business owners won’t mind if they can only communicate via email or live chat, or with an automated service. However, other business owners may want the ability to utilize email & phone support with a live representative and consider it a key parameter when deciding on a bank.
Access to Business Insights
As a small business owner, it can be difficult to find the time to build complex spreadsheets to track expenses or generate profit & loss charts, and it’s often prohibitively expensive to hire a person or software to do this for you. When selecting a business bank account, it’s important to take into account how much of this you will be able to access within your bank account alone vs. needing to export transactions to a third party in order to understand how your business is doing. Some business bank accounts offer reporting capabilities from within their platform, so if you lack the time or funds to do this yourself, this can be an important feature to consider.
Expense Tracking & Tax Tools
One of the most challenging aspects of small business ownership is managing self-employed taxes. You need to know exactly how much to set aside throughout the year to pay quarterly tax estimates, and you need to always be on the lookout for the correct deductions to claim—and if you make a mistake, you could be on the hook for hefty fines. You’re also responsible for filling out a ton of detailed forms come annual tax time that require a lot of time and effort. Some business bank accounts offer tools that help alleviate these challenges by automatically categorizing your expenses and keeping track of deductions for you. There are also some banks that offer separate tax saving accounts that will automatically save a portion of your income in a separate account so you don’t have to think about it and can save as you go. And finally, some accounts will even generate the complex tax forms for you at the end of the tax year, saving you a ton of time and money in tax filing prep.
In addition to the ability to separate business and personal expenses, another reason to open a separate business bank account is the ability to present a professional appearance to clients & customers. While most business banks will give you a debit card, some will not allow you to put your business’s name on the card, which can look less professional. Similarly, while some banks offer additional tools like invoicing software, not all banks will allow you to customize these invoices to your business with a custom logo or color palette.
Partner or Employee Access
As a small business owner, you may have a partner or employee that also does purchasing on behalf of your business, which you likely want to track separately. Some business bank accounts allow only one debit card, which can make it difficult to keep track of anyone else that is purchasing on your behalf without sharing your own account details. Other business bank accounts allow you to generate multiple cards for the same account and even set spending limits on these additional cards, which can help you to extend the purchasing power to someone else without losing control.
Open a Bank Account Tailored for Small Business
A business bank account provides many advantages. It helps during tax season, immediately makes your company look more professional, and separates your personal assets from your business assets. Business banks also provide various resources that consumers don’t get in personal bank accounts. If you’re looking for a business banking solution, make sure to choose one that is specifically designed for small business owners and self-employed workers.
This material has been prepared for informational purposes only.