Can You Open a Business Bank Account Without an LLC? (2022 Guide)

10

Min Read

Tom Smery

There are some business bank account requirements that you have to meet to get it approved for a new checking account. This brings us to our topic today. Is being an LLC one of those requirements?

Can you open a business bank account as a sole proprietorship or as a partnership?

The short answer is, Yes. You can open a bank account without an LLC. As long as you are running a formally registered business, you can and should open a business bank account.

It will be impossible to achieve real success unless you have a separate business bank account to manage your finances.

Having one account for your personal and business finances will make it really hard to track your business income and spending.

Also, the Internal revenue service (IRS) won't recognize your business as legit if you are using a personal bank account. This means you can't take advantage of tax deductions to reduce your tax debt.

Not to mention having a bank account tied to your business is a great step in building business credit.

Note: If you are looking to open the best business bank account for LLCs, try Bonsai Cash. Our account has no hidden fees or daily balance minimums and is guaranteed for approval. Our envelopes feature allows you to instantly create as many sub-accounts you need to organize your finances. Open an account today.

Can I open a business bank account without an EIN?

What about sole proprietorships that don’t have an EIN to open a business bank account? Don’t banks require an EIN to approve a business account?

Well, every bank will need that you provide them with your EIN also referred to as tax ID before they can approve your account.

However, Sole Proprietorships are not legally obligated to have an EIN. Therefore, most banks also accept the sole proprietor’s social security number instead of a tax ID when approving the business bank account.

But, that’s the only exception. All other business entities including partnerships need an EIN to open a business bank account.

Now that we have that out of the way, what are the other requirements for opening a business bank account? Follow along as we address the most critical documents you need to have to get your business account approved.

Better yet, we will also touch on factors to consider when choosing a bank because it’s not enough that you have a business bank account. You need to work with a bank that provides you with the right tools to help your business grow.

What do you need to open a business bank account

Personal identification

Are you really who you say you are? The bank will need a government-issued photo ID not only to verify your identity but also to ensure that not just anybody can access your account.

Both your driver’s license and passport are acceptable forms of identification.

Some banks may also require that you provide your personal mailing address and social security number.

And if you are a business with multiple owners, most banks typically require that you provide the personal details of all owners with a stake of 25% or above in your business

Employer Identification Number (EIN)

Individuals have social security numbers, businesses have an employer identification number. Unless you are a sole proprietorship you already have an EIN. As it turns out the EIN is a mandatory document that you need to have if you want to open a business bank account. You cannot open a bank account with just an EIN either.

It’s one of the ways used by banks to verify the legitimacy of your business.

If you don’t have one, don’t worry. The process of applying for one is very straightforward and won’t cost you a dime. Apply on the IRS website here.

Business formation documents

The other way for banks to prove the legitimacy of your business is through your business formation documents.

So, if you are a sole proprietor you will need to have your business name registration form ready. If you are using another name other than your own for the business, you also need to have a copy of your Doing Business As (DBA) certificate.

If it’s a partnership, you will need to provide the bank with the partnership agreement document.

These documents are necessary for the bank to confirm important details such as your business name, address, entity type, industry, and the type of business you are running.

The partnership agreement helps the bank determine the role each member plays and their specific rights in the business.

Business license

The bank needs to determine that you are operating your business legally. A business license helps them do that. In states that don’t need businesses to have a general license like Texas, the banks will have other verification methods.

Monthly credit revenue estimate

This only applies when you are looking to open a merchant's service account. This is the business bank account for processing debit and credit cards. Your monthly credit revenue or proof of income documents gives the bank an estimate of your expected income from credit cards and debit cards.

The process of opening a business bank account

Let's quickly review the steps to open a business bank account for LLC owners.

Step 1: Know your account type

Just like personal bank accounts, business bank accounts come in several forms. The 3 main types are checking accounts, savings accounts, and merchant services accounts.

Business checking account

This account allows you to deposit and withdraw your money at any time. It’s perfect for receiving payment from your customers and holding money for everyday business use. When you want to spend the money on activities such as buying equipment, paying employees, and rent, you just withdraw the money or use the assigned debit card.

Business savings account

This is the account you use to hold money that you have no intention of using immediately. You can deposit money in your savings account at any time but, there are conditions for withdrawing. For instance, you can’t withdraw the money until a certain period is over. Breaking these rules will have consequences. For instance, withdrawing the money before it has matured may see you lose any interest it may have earned.

When choosing a bank to open a business savings account lookout for factors such as minimum deposit that will earn you interest and percentage yield every year.

Merchant services account

If you plan on receiving debit and credit card payments, you will need to open a merchant services account on top of a checking account.

Step 2: Choose a bank

How do you choose the best business bank account for LLC owners? By putting these factors into consideration.

Account fees

Does the business bank account have no monthly account fees? What about transaction fees? Some banks are completely free to use making them the perfect choice for your business account. The fees may seem small at first glance but cumulatively they will end up costing you money that could have been spent on other business needs. Be sure to carefully read the fine lines and compare how much it would cost to open a business checking account.

Daily limit

Every bank has a limit on the total amount that can be transacted on a single day. If your bank of choice has a very small limit it could hinder your business operations.

Interest rates

This mostly applies to business savings accounts but, there are banking providers that allow you to earn interest on deposits made in your checking account. However, this sort of arrangement usually has conditions so don’t just jump into any bank that promises interest on your checking account.

Branch and ATM network

It would be very unfortunate if you have money in your account but can’t access it because there is no ATM or bank branch near you. And while still on ATMs, there are banks that allow fee-free ATM withdrawals. That’s something to consider.

Account management tools

It’s not enough that you can easily deposit and withdraw money from your account. What other options are there to manage your finance. Can you set the account to make automatic payments, does the bank have a dedicated web app or mobile app, and can the account generate automatic reports to help track your finances?

In short, there are a ton of banks accepting new business accounts. Just compare which one best suits your specific needs.

Online checking account vs traditional checking account

Another really important decision you will need to make when choosing a bank is whether to go the traditional way or opt for an online financial institution. A lot of business owners are now preferring to open online business bank accounts because of the convenience they offer.

Unlike in a traditional setup, online banks are not limited by time or location. You won’t have to leave important business matters unattended just so that you don’t find the bank closed. With online accounts, everything is virtual. And to compensate for the lack of physical location, online banking services tend to have the best customer service.

You don’t have to wait in line for hours to be attended to. Instead, you call their service desk in a few minutes you are talking to your account manager.

Also when it comes to the actual process of opening an account, online accounts are much easier to open. Sure, in some cases you may have to wait longer to get your documents verified but, overall applying online is less stressful than traditional.

The other great thing about online bank accounts is that they are not as reserved as traditional banks. Traditional banks may deny you a business bank account based on how you managed your personal accounts. Online banks, on the other hand, are more accommodating and are willing to give second chances even to those with bad credit or a poor ChexSystems score.

And, you don’t have to look far to understand what I’m talking about. We have just the perfect online banking solution for you.

Bonsai Cash: The Best Business Checking account

Bonsai Cash is our new guaranteed business bank account that provides you with an easy and efficient way to manage, save, and spend your funds. The account ticks all the best features of a business checking account.

For starters, it can be integrated with any payment tool including our own Bonsai Payment to facilitate direct payments to the checking account. If you want to make purchases or fund a subscription, Bonsai Cash provides you with both virtual and physical cards to use.

However, the one feature that really makes this account stand out is the envelope feature. The envelopes work as sub-accounts within the main business account where you can hold money for specific purposes. For instance, you can have an envelope for tax money, employee salary, savings, or any other business use you can think of.

But here is the best part. You don’t have to manually transfer money into these envelopes. You can set the account so that any time you receive funds a certain percentage is sent to a specific envelope. Now, even as you use the money for other purposes you already know the important needs are taken care of.

The daily transaction limit for this account is $300 for ATM withdrawals, $2000 for card transactions, and $3000 for transfers to external banks. All that translates to a total of $5300 per day.

As of right now, Bonsai Cash is free to open and maintain. That means no initial deposit, no minimum balance to maintain, no transaction costs, and no monthly fees.

How does that sound?

Conclusion

Anybody running a formally registered business can and should open a separate LLC business bank account to keep personal finances distinct from business finances. So it’s not limited to LLCs.

The one most important file you should not miss is an EIN. This is a mandatory requirement unless you are running a sole proprietorship or a single-member LLC in which case you can use your social security number to get the account approved.

The banks will also need other details to approve your account and we have explored all of them.

We have also determined that one of the most important decisions you are going to make when opening your account is whether to go the traditional way or open a business bank account online banking solution.

Spoiler alert, online banking is the future. We are not just saying this, we believe it. That’s why we ended with a recommendation for one of the best business checking accounts you can choose for your business.

Hopefully, you will use the information in this post to make a smart decision.

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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