Does My Company Need a Business Bank Account?

If you have a very small or newly established business, you might think that you don’t need a separate business bank account to manage its finances. After all, some business structures, such as a sole proprietorship, don’t legally require business owners to have separate accounts for personal and company-related expenses. However, the U.S. Small Business Administration recommends opening a business bank account specifically for your company as soon as you start accepting money as payment for goods or services.¹

A business bank account offers a variety of advantages that small business owners may not realize. Read our guide to learn about seven reasons why small business owners should have a separate business bank account.

1. They Can Help You Form a Financial Relationship with a Bank

Small businesses often require additional financing to help run their business, expand and/or manage periods of low cash flow. With a business bank account, you can begin to form a relationship with a financial agency that you may one day want to borrow money from later down the line.

2. They Help You Build Business Credit

Opening a business bank account is a crucial step in building or establishing business credit, which is separate from your personal credit history. Though you generally still need to complete additional steps in order to build your business credit profile (such as opening an account with credit reporting agencies and working with other companies that report payment information to such credit organizations), a business bank account can provide the necessary payment data for credit score calculations.

3. They Can Help You Qualify for a Loan

If you’re looking to secure small business financing, a business bank account is typically listed as an application requirement. In addition to verifying your business’s income and/or cash reserve via the business bank account, most lenders will require information from your business bank account in order to issue funds directly to your company.

4. They Can Make Your Company Look More Professional

Without a business account, you’d typically need to issue payments through personal checks and/or ask clients to write payments directly to you. A business bank account can provide a more professional look with company-issued checks and payments. You’d also typically get access to a business-issued debit or payment card. Additionally, as your business grows, you can add employees as authorized bank account users to help manage finances without signing off or handling everything yourself.

5. They Help You Manage Your Company’s Finances

As your small business grows, managing its finances generally becomes more complicated. Delaying the opening of a separate business bank account may become much more difficult later down the line. Additionally, separating your business finances from your personal expenses can help you get a better picture of your business’s actual income, cash flow and expenses. Some business bank accounts are also compatible with business accounting software, which may allow you to generate reports, enter payments, record transactions and more with ease.

6. They Can Make Filing Your Business’s Taxes Easier

Mixing personal and business expenses can raise alarms and make your company a bigger target for audits by the Internal Revenue Service. On the other hand, managing your business income separate from your personal finances helps to formally distinguish such expenses and file taxes.

7. They Offer Additional Perks

While business bank accounts vary by financial institution and/or location, they typically offer a number of benefits that are specifically suited to help small businesses manage their day-to-day finances, which may include:

Increased transaction limits, including deposits, transfers and withdrawals
Cash back on debit card purchases
Online bill pay
Fee-free ATMs

References

¹U.S. Small Business Administration. (n.d.). Open a business bank account.

About Bonnie P

Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with a fascination with finance, she loves to help others do more with less.

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