When you're just starting your business, you have a lot to think about - one aspect to consider is the business account. If you want to be taken seriously as a business owner, then you also need a good credit history.
With this in mind, does opening a business bank account affect credit score? Will poor credit prevent you from getting a business account? The answer to that is: it depends. Read on to find out more on the matter.
Note: If you want to open a hassle-free business bank account with no hidden fee or minimums, try Bonsai Cash. Our bank account takes 5 minutes to set up, is virtually guaranteed, and allows you to create sub accounts to better organize your finances for taxes. Open an account today.
When you get a business credit card, you begin building a credit score and a credit history. Similar to your personal credit, the business score fluctuates based on your credit length, payment history, business credit card activity, and other credit-based factors.
Unlike personal credit scores that are graded between 300 and 850, a credit score for a business can fall between 1 and 100. Also, while private credit reports are confidential (unless you need a credit check for a credit account), business credit is public.
Some of the activities from business credit cards can affect both your personal and your business credit rating. On the other hand, some activities will only influence your small business credit. It mainly depends on the credit card issuers that you choose to report to, which is why you may want to shop around carefully.
For the most part, opening a bank account will not affect your credit score in any way, be it your business or personal credit score. Since you are not repaying any credit, the bureaus won't be getting a credit report from you.
If your purpose is to improve your credit score, there are other ways to do that. This can include getting a business credit card, a business loan, or other financing types that deal with credit.
Remember that if you want to improve your credit score, you need to make the repayments on time. Otherwise, your efforts to improve your banking history may just backfire on you.
While a business bank account may not affect your credit utilization, banks may still check with credit reporting agencies when you are opening a business checking account.
If you have frequent late payments or tend to miss them very often, then it might suggest to the bank that you are not able to secure a business bank account. You may not be getting loans from them, but you still receive certain benefits, which is why they may see you as a risk.
When the bank checks whether they should give you the option of a business account or not, they will go through the following steps.
If you are the sole proprietor of your business with a DBA, you can indeed open a sole trader business checking account. However, if you have a poor credit history, this may not be to your advantage.
If you do, they may link your bank account to your own financial status - which means they will also have to do a personal credit check on you. If you have personal liens against you and overall bad credit, then your business checking or savings account may end up getting seized.
Most banks are simply trying to maintain due diligence, which is why they may do a check on your banking history. They'll look to see whether you had problems with another bank or any problems with late payments.
If you've had problems with other financial institutions, then you may want to resolve them before trying to open a new account. Most banks are likely subscribed to a reporting agency, and since business credit is public, they may just check it.
If your personal accounts show that you have poor credit, then you may not be able to reap all the major benefits. If you do manage to get an account, there may be some restrictions, such as a lack of overdraft protection or limits on a credit line.
Some banks such as Bonsai Cash still offer many extra services even if you have weak credit. However, if you want to reap the most out of the account, then you may want to build your credit beforehand.
You may still open a business bank account, even if you have a bad credit score. However, this will depend on the bank or credit union where you are opening your account.
Some financial institutions or online banks such as Bonsai Cash may have no issue providing you with a business bank account. However, if you go for a bigger bank, there is a good chance for your application to be refused.
When opening business bank accounts, several things may be required in order to streamline the process. These can include:
Whether you have credit issues or not, check with the requirements of the bank or the credit union. Some may require a ChexSystems Report in order to open a business bank account. Others might not check it, as long as you don't have any business loans or credit cards activated. Discover the best no ChexSystems bank account.
Sometimes, you may find a financial institution that can offer you something referred to as a "second chance business banking account." If you've been denied a business account due to bad credit history, then you may be given the option to open such an account for yourself.
Bear in mind that if you have bad business credit, then such an account may entail extra fees. However, the advantage is that you still get access to a business checking account.
Read the full list of business bank account requirements you need to meet in order to open an account.
Regardless of the status of your credit, there are certain things that you can do in order to improve or protect your credit score. This will also increase your chances of obtaining a small business account, without being hindered by the consumer credit bureaus.
Checking your credit report is very important when you are dealing with multiple credit card payments and loans. Most banks will provide free yearly credit reports, so you may want to take advantage of them.
The more you know about your credit score, the easier it will be for you to fix it. Sometimes, bad credit may simply be caused by a mistake from the credit bureaus, so this will be your chance to take the issue out of your credit history.
Perhaps the best way to protect your credit score is to use whatever credit cards you have responsibly. For example, you may have a high-balance credit card, or you may have multiple credit cards. Fixing those issues can help protect your credit score.
Your payment history on your business credit card will affect your business and personal credit score alike. Skipping into your payments even by a day can also negatively impact credit scores, so make sure that you use them responsibly.
Business credit cards are typically tax-deductible, which is why many business owners are tempted to make large purchases. Plus, with bigger purchases come bigger rewards, which is why many people don't even think twice about making a big purchase.
That being said, big purchases on credit cards can backfire and significantly affect business credit scores. If you need a bigger amount of money, business loans are more advantageous than credit cards.
Many business owners are concerned that their business credit can impact their personal credit, but the concern should be the other way around as well.
If you have poor personal credit history and your personal finances are not in the right place either, then you might find it difficult to improve your business credit. This might also make it difficult for you to open a business bank account Ding, for instance.
This is why you should start fixing your personal credit habits and look for a good financial institution. Bonsai, for instance, allows you to open an account or use a business credit card even if your personal credit report is lacking.
Opening a business checking or savings account will not affect your credit score in any way - because after all, you are not dealing with credit. However, some banks may see your poor credit as proof that you are unreliable - in which case, they may not give you an account.
Before opening a bank account, you may want to check with your credit card issuer and see if you can do anything to fix your credit. This will help you reap more financial products once you manage to open an account.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?