Business Banking

Business vs. personal checking accounts

What is the difference between a business vs. personal checking account? Learn everything you need to know before opening a bank account as a new business owner.

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While starting a new business is an exciting venture, your to-do list can get longer by the minute as a business owner. From researching the critical differences between small business loans, choosing a business name, to registering your small business with the IRS, your list of responsibilities can get overwhelming.

Nonetheless, one of the main tasks you’ll have to tackle is opening a business bank. This way, you can keep track of your business expenses with ease. With that said, you may be wondering what the difference is between a business vs. personal checking account. You may also have questions about whether it’s possible to use your personal bank account for business expenses.

Therefore, keep reading if you want to learn more about these types of accounts.

What is the difference between a business account and a personal account?

Contrary to what you may have heard, a business account and a personal account are, in fact, different. Therefore, if you are a new small business owner, it is essential that you choose the correct type of account that fits your needs and expectations. Let's take a closer look at what each bank account entails below before taking a look at the key differences.

Business checking account

A business checking account is generally used by small business owners who want to separate their personal and business expenses. To open a business checking account, you must have a legally registered company, amongst other necessary documentation, before heading to a financial institution or online banking website to speak with a financial advisor.

Further, a checking account for your business allows you to file separate taxes from your personal finances. It will enable you to have a debit card to pay for your business needs and deposit or withdraw money under your business name at an ATM or bank teller. Additionally, each business account will offer different monthly fees and benefits depending on where you bank.

An example of a business checking account is our very own Nearside Business Checking Account. Here are some features that this type of account provides you with:

·      No monthly merchant fees

·      No monthly minimum balance requirements

·      2.2% unlimited cash back

·      No credit check is required to open

·      Mobile payments powered by Google and Apple Pay

·      Discounts on business tools

·      Stellar customer service if you have any questions or concerns about your account

·      No overdraft fees for account holders

·      No card replacement fees if you lose your debit card

·      Unlimited access to a global ATM network with 55,000 locations

However, depending on which financial institution you bank with, your company checking account may have overdraft penalties, minimum balance requirements, and other fees. Therefore, before opening a new account, make sure to know the pros and cons to determine whether it is right for you and your business needs.  

Personal checking account

On the other hand, a personal checking account you open under your legal name is a bank account. It allows you to make deposits and withdrawals on your personal finances from an ATM or financial institution. You are also provided with a debit card that will enable you to spend your money at retailers. 

Furthermore, make sure to ask your financial advisor if any overdraft fees and or requirements are included in the fine print of your account contract before signing. This way, you avoid any unexpected penalties.

Differences between business vs. personal checking accounts

Now that you understand what each account entails, let's take a closer look at some of the critical differences between business vs. personal checking accounts.

1.    Account setup process: The first difference is the step-up process. To set up a business account, you will need to provide more documentation to a financial institution to qualify. This can include your social insurance number if you are planning a sole proprietorship, business license, name and address of your business, and more.

2.    Debit cards for employees: Some company accounts enable employees to be secondary account holders. This means that with permission from the business owner, employees will have access to funds with a debit card they can use for business transactions.

3.    Monthly fees and balance requirements: As mentioned, business accounts tend to have more requirements and fees than personal accounts.

4.    Financial Advising Services: Business checking and savings accounts offer financial advisory services to help your company stay on track financially, including quarterly or annual goals.

5.    Bookkeeping Services: Most financial instructions offer bookkeeping services to ensure daily financial tasks are looked after.

As you can see, while the differences between the two accounts aren’t that drastic, there is still value in choosing a business account as a small business owner.

Can I use a personal account as a business account?

Furthermore, you may be wondering whether having a separate business account as a business owner is absolutely necessary. And while you aren’t required to open a bank account for your business if you are operating as a sole proprietorship, meaning you are doing business under your legal name, you will require to open one if your company is a separate legal entity than you such as an LLC, general partnerships, limited partnerships, or corporation.

Therefore, before registering your business, you may wish to determine what type of business model will work best with your financial and business requirements. If you are still on the fence about whether a business bank account will be suitable for your future business transactions, don't worry. We’ve put together a list of benefits that come with keeping a separate account.

1.    Simplified tax reporting to the IRS      

The first benefit to opening a separate business account is simplified tax reporting. By keeping your transactions for your business separate from personal ones, you can remain organized throughout the year. Additionally, it will also save you time when filing.

2.    Protection of your personal assets

Moreover, by keeping your assets separately, you can protect yourself through limited liability should your business go into debt or be sued. Additionally, some business accounts offer purchase protection for clients, which means their personal information is protected when they shop with you. As a result, you can increase brand loyalty and remain a legitimized and trusted company amongst your competition.

3.    Enhanced accounting services

If your banking institution offers bookkeeping services as a feature for opening a business bank account, you're in luck. This addition saves you the trouble of overseeing tasks such as payroll and other accounting responsibilities that can take time away from growing your business.

4.    Multiple account signers

Moreover, unlike personal checking accounts, a business account allows you to have multiple signers. This means that should you need to pay vendors, run errands to the bank, or make purchases on behalf of your business, you can allow employees access to do so. Again, this will save you time with administrative tasks that can take valuable time away from other tasks. Just remember to be cautious about who you provide access to.

5.    Legitimizes your business

Another reason why a company account is worth opening is that it can legitimize your business with the IRS. This means that they will recognize your revenue as coming from a business rather than a hobby which is a legal requirement.

6.    It can help grow your business.  

Lastly, a business checking or savings account can actually help you grow your business. For example, if you ever find yourself in the position to expand your operations in the future, you may need to take a business loan, business credit card, or line of credit.

However, these often require proof of business revenue, credit score, and other legal documentation to be eligible. Luckily, with a business bank account, you'll already have a working relationship with a financial institution which you can use to your advantage should you need to apply for a loan down the road.

How to choose a business checking account

Furthermore, once you've decided to open a business checking account, you then have the task of choosing the right institution to bank with. As we said, banks and online institutions offer different features, rates, and fees. Therefore, to ensure you get the best deal that fits your business needs, we suggest shopping around before committing. Here are some of the things that can help you choose an account that works best for you:

1.    Take a look at the fees and requirements that come with the account.

Remember, not all business checking accounts have fees or requirements. Therefore, to avoid additional costs such as maintenance fees, look for a bank that will either waive the fees for you or have none at all. This way, you can stay clear of unnecessary problems later down the road.

2.    Sign-up offers

Moreover, some financial institutions and online banking websites offer incentives when new small business owners open up a business account with them. Therefore, while not a make-or-break point, it still doesn’t hurt to go with one that provides you with an introductory offer.

3.    Does the account offer any bonus services?

Again, not all business checking accounts provide you with extra features such as bookkeeping and advising. Therefore, if you want to save time organizing transactions, payroll, and other accounting tasks, then these types of components are necessary. In addition, by having a financial advisor you can build a relationship with, it will be easier for you to take out an SBA loan in the future.

4.    Are you opening an account at an FDIC-insured bank?

The Federal Deposit Insurance Corporation (FDIC) offers registered banks insurance for all deposits made to checking and savings accounts. Therefore, you want to ensure this insurance is included with the financial institution you choose.

5.    Transaction limits

Furthermore, a lot of business accounts have transaction limits on cash flow. Therefore, if your business requires you to make frequent deposits, withdrawals, transfers, and e-payments, you may want to avoid accounts with limits attached. This way, you won’t have to pay extra.

6.    ATM access and branch locations

Having a business account with branch and ATM access near your business is vital. No one wants to run around town looking for a branch location. Therefore, make sure you'll have convenient access to your money at all times, regardless of your business purposes.

Moreover, once you have chosen an account you like, make sure to bring the following documents with you to ensure you are able to open your account with ease. However, keep in mind that specific business accounts may have further special requirements. Therefore, make sure to take a look at the application before heading into your financial institution or submitting your request online. That way, you can streamline the process and begin banking with your business as soon as possible.

  • Social security number
  • Employer identification number
  • Photo ID (either a driver's license or your federal passport)
  • Doing business as (DBA) certificate
  • Business license
  • Legal documents
  • Any previous business credit information, if applicable
  • Articles of incorporation, if necessary

Further, while not all banks do this, you may choose one that requires you to make a minimum deposit into your account to open it. Therefore, be ready to make a minimum payment via wire transfer, cash deposit, or check.

Final thoughts

As noted, a ton of thought goes into choosing the correct account for your small business. With that said, a business account provides your business and personal finances with assurance by keeping transactions separate, organized, and legitimate.

Before signing a contract for a new account, make sure you have chosen one based on your business needs and the factors listed above. That way, you know you're banking with a financial institution that has your best interests in mind.  

Sign up for a Nearside business checking account and get 2.2% unlimited cash back on business transactions with no monthly fees, minimum requirements, or credit history checks.

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