How to Choose a Small Business Bank

By Amy Kwak | Promoting Curiosity & Conversations

Published August 25, 2023

Some newly minted business owners wonder if using their personal bank account for business transactions would be simpler. In a word, no! One of the most compelling reasons for keeping business finances and personal finances separate is that it makes tax filings easier. You don’t want to have to scrutinize a combined account in order to find business expenses you can claim as business deductions.

Your local personal bank may not be as small-business friendly as a national bank. It may not have consistently great rates, or payroll and other features and services customers need to run their own businesses.

Keeping business and personal accounts separate can also allow for added liability protection. And if you process credit card payments through your bank, a separate business account can help keep your customers’ information safe and secure.

Having a business checking account could also make it easier to qualify for loans or lines of credit at your bank if you need to borrow money. Your business bank may also offer a discount on interest rates or fees for loans if you’re an existing customer with a good banking history.

Everything from access to mobile apps and convenient locations to business banking account details such as minimum balance requirements can make a big difference in the bank you choose. Ultimately, choosing a business bank account comes down to finding one that offers the right combination of features, benefits and cost.

Size matters

So where do you start deciding which bank is best for your business? Though big banks may have more locations, coast-to-coast service, more types of business checking accounts, other perks and a wide variety of credit options, they also have a large pool of customers vying for their attention. Smaller community banks tend to have a closer connection to local businesses and can be more flexible when underwriting a loan application. They’ll also be more likely to waive an overdraft fee or monthly fee if there are extenuating circumstances.

Don’t overlook credit unions, which often have low or no monthly fees and higher limits on cash deposits for business checking accounts. It’s smart to set up meetings with bankers at both small and large financial institutions. Talk to both and see what they can offer you.

Common types of business bank accounts include a checking account, savings account, credit card account and a merchant services account.

A business checking account lets you write checks to pay vendors and any other fees, transfer or receive funds electronically, deposit checks from customers or clients, and withdraw or deposit money with a business debit card. Some are interest-bearing accounts earning annual percentage yields, but they often carry fees.

Free small business checking accounts designed for new and small businesses may be ideal if you’re just starting out, but they may restrict your number of transactions per month. Free accounts also may have minimum deposit requirements.

A business savings account lets you set aside a portion of your business’s earnings into an account that pays interest. It helps you separate business savings from working capital, to make day-to-day financial management easier, and gives you a financial cushion in case of an emergency.

A business credit card is a card specifically designed for business owners. Typically, this includes higher credit limits, greater rewards potential and tools to manage employee cards.

A merchant services account allows your business to accept credit and debit card payments from your customers.

Approach internet banks with caution
If you’re in a very early stage of business finance and only need very simple services (like opening a business checking account), an online bank may fill the bill. But what if you discover you need services that require a business relationship and building your business credit? Both of those needs may be be easier offline than on. And there’s no doubt that sometimes you’ll need to attend to your banking needs with a banker in-person, something an Internet-only bank can’t provide. As you evaluate banks, check to make sure their brick-and-mortar branch locations and network ATM locations are convenient.
Compare services and fees

Basic business account services should include:

    • Checking account
    • Savings account
    • Credit card/debit card
    • Employee checking accounts
    • Checks and a checkbook
    • Deposit-only account
    • Online business banking

You’ll want to ask about the details on each of these business banking products, as well as any fees or requirements. Checking account fees are still common, but some banks offer free business checking accounts with no minimum balance as an enticement.

Requirements, such as minimum balance and monthly required use of a debit card, vary widely, so make sure to comparison shop and look at exactly what each bank offers. Ask about any or all of the following that might pertain to you: initial deposit amount, mobile check deposits, fee-free cash deposits, cash deposit allowance and limits, items per month, even certificates of deposits. Other things to be aware of: rules around daily and monthly balance, as well as average balance and combined balance.

Note that banks often set limits on the amount of cash you can deposit for free each statement period, charging fees on deposits that go over. Those fees, which have averaged about 30 cents per $100 over the deposit limit in recent years, can add up quickly. They may also limit the number of transactions you can conduct within the account, charging a fee for each additional transaction. You might pay as much as 40 cents per transaction once you’ve passed the limit.

To offset fees, you may be able to earn some extra money if you choose a bank with competitive interest rates for accounts. This is especially important for those who keep or deposit large amounts of money.

Will your business count on money transfer capabilities? If so, you should also ask each bank you compare about incoming wire transfers, wire transfer fees, electronic wire transfers, and domestic and international wire transfers. If you may have other business banking needs, such as opening a line of credit, ask about them upfront, so you aren’t faced with switching banks if you need lending services down the road.

Consider your digital needs

Do you automate your accounts online? Do you want to be able to make deposits with only your mobile phone? If your company is tech-centric, you will want to have more robust digital options through the bank you choose.

If you are applying for an SBA loan, you may want to consider developing a relationship with an SBA lender. The SBA lists lending-friendly banks for small businesses and directs business owners toward preferred lenders in their respective states. Talk to your loan officer at the SBA about your options for banking and whether you should limit your bank search based on potentially needing an SBA loan.

Ask about perks

You’ll encounter all kinds of ways banks try to attract new customers, like gift cards and cash bonuses for opening new accounts. Some banks offer payroll services, hotel discounts, lower insurance rates and even tax prep help. Introductory offers should not be the main deciding factor, but you should still ask what’s available for new business accounts in case a banker can offer you an added bonus or great discounts.

Bottom line comparison

At the end of the day, the best business checking account is the one that checks off all the right boxes for you and your business. So, for example, that may mean a bank account that:

    • Charges few or no service fees
    • Offers a competitive interest rate on linked deposit accounts
    • Allows for unlimited transactions
    • Gives you access to your money at branches and ATMs
    • Offers user-friendly online and mobile banking platforms
When choosing a business checking account, think first about what you need the account to do and what features will make it easier to run your business. Then, factor in the interest rates you could earn and the fees you may pay. This can help you find the right balance between services, benefits and cost.
How to open your business banking account
With all that research behind you, it’s go-time! Once you’ve chosen a bank, you’re ready to open a business checking account. Here’s how to proceed:
Step 1:

Find out whether you can open your account online, over the phone or in person. Once you know how to open your account, you can complete the bank’s application. You’ll need to submit the right documents, based on your business type.

Depending on how your business is structured, you may need:

    • Your Social Security number and photo ID
    • Employer Identification Number (EIN)
    • Doing Business As certificate
    • Articles of incorporation and/or corporate charger
    • Business license

Step 2:

Once you’ve filled out the application and provided supporting documentation, you make your initial deposit. There may be a minimum amount you’ll need to deposit to open your account. Depending on the bank, you may be able to make the deposit via check, cash or electronic transfer.

Step 3:

After your account is officially open, you can work on opening other accounts you might need, linking existing accounts at other banks, setting up automatic deposits and scheduling bill payments. And if you’re switching banks, remember to double-check and update any recurring payments or deposits and confirm that your old account is closed with your previous bank.

Make connections and trust your gut

Sometimes it helps to make the right bank choice by talking with a fellow business owner. Try to find a business owner you trust in the same industry who has a business of roughly the same size as yours in the same location. If they can vouch for the way their bank does business, it’s worth learning more about.

As you talk to bankers, remember this: Ultimately, you’re building a relationship. Does the bank feel like a good fit for your business and its needs? Do you feel comfortable with the bank and trust the institution? It’s worth your time to find a bank that really connects with you and your business. If it doesn’t feel right, keep looking.

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