How Do I Choose a Bank for My Small Business? - Entrepreneur's Guide to Business Banking

13

Min Read

Tom Smery

As a business owner, using a personal bank account may no longer be to your advantage, so you might wonder: "how do I choose a bank for my small business?" There are many advantages to a business account. However, with so many options to choose from, that choice might be difficult.

Thankfully, each business banking establishment is different, catering to different business needs. Therefore, all you need to do is to look at your business finances and see exactly what your own needs are. Our guide will help you find the right institution for you to handle your banking.

Note: If you want to try the top bank account for small businesses, open a Bonsai Cash account. Our business account has no hidden fees or monthly minimums. You'll be able to open "envelopes" or sub-accounts to help you organize your business funds. Our account is easy to set up. See for yourself. Open an account today.

What Should I Look For When Choosing a Bank for My Business

Each bank has its own features and requirements for a business account that separate it from other banks. As the owner of a small business, you need to compare these features and choose the option that suits your needs the best. Here is what you will have to look into:

Service Fees Required

Business checking accounts come with their own fees. While you can open a free business checking account, you might also have to pay some fees every now and again. Some of the most common fees include:

  • Minimum balance fees (read our list of no minimum business checking accounts)
  • Maintenance fees
  • Wire transfer fees
  • Overdraft fees
  • ATM fees and potential surcharges

Typically, online banking options tend to charge fewer fees as compared to a traditional bank or even a credit union. Since they don't have a brick-and-mortar location, they don't have as many maintenance fees - which makes the price of the business account very attractive for small business owners that start out.

Bonsai Cash is one example of such an online bank. Once you create an account online, you will not be subjected to any transaction fees, monthly fees, or penalties for not meeting the minimum balance. Online ACH transfers and payments are free of charge as well, and typically requiring no surcharge either.

The only exception is if you integrate with Bonsai Payments to pay your bills, in which case you will need to pay the regular processing fee (which is not decided by Bonsai). If you surpass your daily limits, you may need to pay a surcharge.

Discover more about why Bonsai Cash is the best guaranteed business bank account.

Introductory Offers

Many banks have various offers to encourage owners of small businesses to open a business bank account. For instance, you may get a cash bonus for opening an account and making a set deposit, or you may receive a better interest rate for business savings accounts for a limited amount of time.

Before you settle on one business bank account, check out the fine print. Bear in mind that most of these bonuses are taxable, so the bank should be able to offer a fine print of the form. Different banks offer different bonuses, so you'll want to compare them.

Services Provided

When opening a business bank account at a certain bank, check what services are provided. Can you open a savings account alongside your business checking account? Can you get access to online banking? Can you use your account to pay bills? Can you get business loans, in the event that you will ever need them?

Each bank has its own service packages, so you should make sure that they fit your business. This applies especially if you have a business checking account with multiple service fees. If you are paying for this business bank account, you might as well get your money's worth.

Industry Experience

It might seem like every bank fits all, but while this may apply to the bigger banks, it may not be the same for the smaller ones. Some business banking services are oriented towards specific industries, which may benefit you as a small business owner.

For example, let's say that your small business is in real estate and that you are an investor. In this case, you might be looking for a bank that offers business loans to real estate investors. It's not mandatory to work with a bank that has experience in your industry, but it may come in handy.

Availability and Network Size

Before you settle on a bank, think about how you are planning to access your potential business and personal accounts. Can you use the provided debit or credit card on any other ATM in the world? Is the bank widespread enough so that you won't have a problem finding a branch or an ATM?

Moreover, if you are planning on opening a joint business bank account, you need to make sure that the other business owners can also access the account. That being said, if you have no problem with online payments, an online-only bank may offer you the biggest availability and network size for your small business.

Scalability and Growth Support

As your business grows and you are making more and more transactions, you have to work with a bank that may accommodate those needs. For instance, you may need multiple business banking accounts, or you may want to switch to an account that has a higher transaction limit.

You may also want to check whether the chosen bank for your small business offers business loans. This way, you can support the future growth of your small businesses.

Interest Rates

If you want to open a business bank account that bears interest or you want to set up a business savings account, then you might want to check what the rates are. Each bank offers different rates, so you will want to choose the one that is most beneficial for your future.

This step is particularly important to remember when the average APYs are beginning to fall. If the banks offer great interest rates, then small businesses have more opportunities to grow.

Average Transaction Limits

Each bank has its own transaction limits, which you will want to know about. Most business checking accounts offer unlimited online transactions, but put up a daily or monthly limit for ATM transactions.

For example, Bonsai Cash offers daily limits of $300 for ATM withdrawals, $2000 for card transfers, and $3,000 for external bank accounts. These sums are enough for a small business, as they get reset on a daily basis rather than a monthly one.

If you are planning to make more cash deposits and withdrawals, you should find out what the transaction limit is. Similarly, if you make your payments online, you must make sure that the limits for the business accounts meet your needs.

Ease of Integration

If you are using different accounting programs to manage your bank accounts, then you should look into their ease of integration. See what the program can do once it is fully integrated.

This is a useful feature to look for if you are managing multiple business banking accounts. It can be used when your business is using online payroll software, or if you are using any tax preparation programs to manage your taxes.

Fund Protection and Insurance

Is the company that you are planning to use insured by the Federal Deposit Insurance Corporation (FDIC)? You'll need this especially if you are opening business savings accounts, as certain unfortunate incidents (i.e. hacking or businesses going bankrupt) can compromise your funds.

Compatibility with Different Banks

There may come a time when you may not be able to pull money from the designated ATM for your chosen bank. In that case, you will want to make sure that your bank of choice offers a business credit or debit card that can be used for transactions in other ATMs. Most do, but it never hurts to make sure.

If it does, you also need to determine what the surcharge for withdrawing from another bank is. Some online business checking accounts provide free withdrawal for a certain amount of money, whereas others take a certain percentage of the withdrawn money.

Types of Banking Provided

When choosing a bank for your business account, you should remember that not every bank works on the same system. Here are the different types of banks that you can go for.

Traditional Brick-and-Mortar Banks

Most of the big banks in the U.S. and perhaps all over the entire world are brick-and-mortar banks. These are typically insured by the Federal Deposit Insurance Corporation (FDIC) and have several branches spread out all over the country.

These banks are typically a great option if you are dealing with a lot of cash or if you do not like to transfer your money digitally. They also provide physical ATMs, which means that you can withdraw cash from the bank at any time.

Online Banks

If you don't like going to brick-and-mortar banks and spending half your banking time in a line, then you might want to try online banks. These banks are typically a great option if you prefer doing your banking from a computer, without going to a physical institution.

Most of these banks are associated with traditional banks as well. For example, a brick-and-mortar bank may decide to expand in the digital world, creating a platform for Internet banking. This way, you can choose at all times whether you wish to make a digital transfer or if you just want to use your physical debit card.

Mobile Banking Apps

Mobile banking is for those who wish to handle their small business transactions in a digital manner, but without using a desktop platform. These banks offer mobile apps instead, making them the perfect option for small business owners on the go.

Many of these banks don't even need a debit or a credit card. They work through Near Field Communication (NFC) technology. So, as long as you have a phone that supports it, you can make your payment with the app. Plus, many of these banking apps allow you to open a free business checking account, so your expenses remain low.

Most of the traditional big banks also feature a mobile banking app, although they will usually ask for an extra fee as well. If you already have business checking accounts opened at different banks, then you may want to check whether they offer mobile banking or not.

Credit Unions

Credit unions are non-profit organizations that are somehow similar to regular banks, but instead of customers, they have members.

Credit unions are more about business credit rather than simple deposits. Each credit union member will obtain access to a line of credit, but they also get standard services such as a business checking or savings account. They also frequently provide typical loans alongside the business credit lines.

The larger the credit union, the more you will likely get in terms of features and business credit. Some larger credit union establishments will even sell stocks or help you open up an investment small business account.

Types of Business Accounts

Each bank offers its own types of business accounts. When choosing the bank for your small business, you need to check whether it has the following accounts:

Business Checking Account

A business checking account is the type of account where all of your cash transactions will take place. With every payment that you receive and every payment that you make, the money will go through a business checking account.

Most business checking accounts don't make any money, nor do they require any extra fees or minimum balance. You can set up online and mobile banking for them as well, and some banks may offer this option for free.

However, some banks do offer the option of an interest-bearing checking account, but you will have to maintain a minimum balance. An interest-bearing checking account is typically more expensive to maintain than a traditional business checking account.

Note: Bonsai Cash is a business bank account made for small businesses. Our checking account is easy to set up and has no hidden fees or minimums. Our online account comes with a debit card and a digital card to manage payments. If you are looking for a simple way to manage your business's funds for taxes, open an account today.

Business Savings Account

Most business owners that get a business checking account will also open up a business savings account. These accounts are used to set aside a certain percentage of your earnings, building up interest over time.

Most of these accounts have minimum requirements for balance, but the amount typically depends on the bank that you choose. Go with the bank that fits your needs the most after you manage to gather a few funds in your checking account first.

You should remember that the interest builds the more you leave the savings account untouched. If you tap into the savings account and withdraw money, it may also affect your interest rate.

Joint Banking Accounts

Joint business bank accounts are common with businesses that have multiple members, such as LLCs or corporations. These accounts can be business checking accounts, but savings accounts as well (read more about our picks for the best LLC bank accounts).

These bank accounts are a good option if you have employees on a payroll, but multiple people are making payments to their respective departments.

Not every bank offers this kind of account, so if you have a growing business or are planning to bring new members around, make sure your bank offers this option.

Cash Management Accounts

A cash management account is an online checking, savings, and investment account - all rolled into just one account. It's a good choice for small businesses that have trouble managing multiple checking and savings accounts.

A cash management account provides high interest rates for a savings account, as well as lower service fees as compared to the standard business checking account.

Moreover, it offers business credit at more attractive rates compared to the average business loan. Business owners that have multiple businesses but only one business checking account will often get a cash management account as well, to make money management easier.

Documentation Needed to Open a Business Bank Account

As a requirement to open a business checking account at a bank, you will have to gather some documentation first. Each bank will require different documents, mostly depending on the type of business that you are opening.

For the most part, these are the main documents you will be asked for when opening a business checking account:

  • The legal name of your business, as you registered it with the IRS.
  • If you are the sole proprietor and the name of your business is not the same as your own, you will need your DBA registration.
  • Contact information for your business, such as email address, phone number, or business website.
  • Official business address, as stated on your license. If you are a sole proprietor that does business from home, then you may want to consider using a P.O. box.
  • The number on your driver's license (if you have one).
  • Photo ID to prove your identity (for example, your passport or any other ID proof).

The above-mentioned documents are typically required in case you are a sole proprietor. That being said, if you are an LLC or corporation-owner looking to open a business checking account, then most banks will require you to provide the following as well:

  • The business license
  • The Partnership Agreement, if you are running a partnership
  • The Articles of Organization, if you are running an LLC
  • The Articles of Incorporation, if you are running a corporation

Each bank may ask for various pieces of information about you. The more prepared you are, the smoother the process will go. Don't be taken back if the bank asks for many documents - it just means that they are thorough, ergo secure.

The Bottom Line

When you are choosing a bank account for your business, you must be thorough and do your research. Everything is important - from the service packages they provide to their availability and prices. You are trusting them with your finances, so you must take your time and go for the right business bank account for your needs.

Tom Smery
Tom Smery is a certified CPA for over a decade. In his free time, he writes articles to pass on his expert knowledge on taxes and accounting. Thomas has a wide range of deep knowledge on 1099 taxes, and finance topics. You can find him fishing when he is not preparing taxes for his clients or writing about accounting.

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