What Is A Business Bank Account?

Small business owner setting up account at a bank
Business owners have lots of questions when it comes to business banking and the difference between business bank accounts and regular bank accounts. In addition, how many business accounts should I have? We’ll address these and more questions here.

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Business Banking Accounts and Questions You May Have

A business banking account is used for business transactions, to pay business bills, and to receive or deposit money from your business. It is separate, and different, than a personal banking account in it connects to your EIN instead of your social security number. An EIN is a number issued by the IRS specifically to business entities operating in the United States. The IRS and banks have rules regarding business banking accounts and EIN’s.

There are a lot of benefits to having business accounts for your business. One of the prime benefits is keeping your business accounts 100% separate from your personal account, which helps ensure you are keeping 100% accurate books. A business would not want to co-mingle accounts or transactions with anything else other than their designated account. Not only could it be a problem with balancing and keeping records organized, it could also be problematic if you were ever audited in the future. There are legal reasons to keep them separate as well, but we’ll leave those questions to the attorneys.

Another benefit to having a business bank account is that you can allow other people to have the ability to write checks on your behalf or approve specific transactions. Banks will work with businesses to give different levels of authorization needed to perform specific functions for the business. On a personal account, someone cannot deposit money for someone else, but any employee could deposit money at a bank on behalf of the business. You may also want to have people authorized to sign checks, and these people will need to be added to the account as signers. You can even have people authorized for specific online banking functions, like being able to pull statements to do reconciliations specifically. Your bank might also help you sign up for a merchant account for accepting credit card payment, but you can shop around for this service as it isn’t solely something your bank has to do. There are other benefits for the different types of business accounts your bank might offer, including earning interest, free checks, or free money orders. Like personal bank accounts, each bank has different types of business accounts with different benefits and specifics. This is something you should ask your local bank when setting up a business account.

How Many Business Bank Accounts Can I Have?

Different banks have different rules when it comes to business bank accounts, so you should check in with yours to understand their limitations. There are many different methodologies on best practices for setting up multiple banking accounts, and some of these may vary by business. For example, a business may have one account set up for day-to-day operations while another is set up for holding tax money, since these may be paid quarterly and you want to have the money available when taxes are due. A business owner might also consider a savings account for future expenditures or in case of an emergency. There are endless resources on the different ways to do this, so take a bit of time and learn about best practices for business finances.

Do Business Have Credit Scores?

Absolutely. Just like consumers, businesses are rated and scored based on the credit worthiness, which is scored and rated differently than consumer credit. The three main companies for credit scoring for business may already be familiar to you, Dun & Bradstreet, Equifax Business, and Experian Business. By keeping separate banking accounts, which would include separate credit cards under the business name, you will help ensure you are getting the proper credit deserved for your company. You may not need credit for your business today, but if you do, it’s wise to keep your business accounts in balance. If you think your business will need or want credits in the future, learn more about this topic and building and checking your business credit score.

How Do I Choose a Bank For My Business?

This is a good question that is asked many times even though there is no right answer. You should talk to your current bank and find out what they have to offer that lines up with your business needs and goals – especially since you already have a relationship with your bank. It would be good to talk with other businesses in the area you know and ask them for their opinion on their bank. A community bank, typically smaller and only in the area, is different from a national bank, and there are pros and cons with each. If you have a problem, you may be able to go to one person in a local bank, instead of being transferred to people around the country. If you are looking to be part of the Payroll Protection Program, or PPP, you should know that some small, local banks were able to get money in the hands of business owners quicker than the larger banks. This could potentially be because local banks are more flexible and don’t need as much time to get processes in place as the national brands, but that is purely speculative. The fact remains that local banks were able to process things quicker. This could be the case with business loan considerations as well. You may not need a loan today for some major capital expense, but in the future if you do, a smaller bank is something to consider. Fees from the bank are another consideration. Check online reviews as well, especially for a local branch, to help in making the decision.

What About Business Credit Cards?

Good credit cards are a dime a dozen, and there are plenty of companies offering credit cards for businesses. Credit cards have different fees and benefits, so that is something to check out when you are shopping around to the perfect card for your business. If your bank offers credit cards it might be simpler to get one with them. Things will be easier if you only have one place to go to check all your balances, do your reconciliations, transfer money, etc. Some credit cards come with annual fees and some come with bonuses, like cash back rewards or points to be used for rewards. If you are going to be making a lot of charges on your company credit card, you will want to take advantage of those perks. With business credit cards, you can get them for any employee who needs them if they are out in the field or a different office/location. If your team is in one office, it is possible to use one card in the office, but that comes with the caveat of knowing who has access to the card(s) and if there is any compromising of the credit cards. It is recommended to have at least two credit cards or another form of payment in case one of the credit cards gets compromised, which does happen. It could take a few days to a few weeks to receive a replacement, so you have to have a back-up plan here. Your credit card limit is typically for the company, and you can divide it up amongst the cards you have. You also have the flexibility with banks to move the credit limit from one card to another card, as long as it stays within your total limit.

From time to time you will want to request an increase on your credit card to build credit and flexibility. There isn’t a rule of thumb here, and you can always pay down your credit card mid-month, but this is a part of building credit for your business as well.

As far as perks from the credit cards go, some may be introductory offers and some may be forever. If you use your credit card a lot you might want to consider shopping around every couple of years for a better offer. An added benefit today is that the rewards from business credit cards are not considered income, and therefore are not taxable. This may change in the future and someone’s specific situation may show this as different, but it’s a nice thing to know. It’s something you could review with your bookkeeper, accountant, or CPA in the future.

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