8 Legit Reasons Why You Need a Separate Bank Account for LLC - Your Business Success Depends on it

8

Min Read

Tom Smery

Are you still using a personal checking account for your Limited Liability Company? That’s a big mistake and we are going to tell you precisely why.

In this post, we give you not one but 8 reasons why it makes sense to have a business bank account for your LLC. And not just any account, it needs to be an LLC business bank account.

Then to close it off, we will go ahead and recommend our top business banks for LLCs. With so many of them to choose from, we understand that settling for one can be overwhelming.

Hopefully, this post is exactly what you need to make the right decision regarding a business bank account and your financials.

Note: Opening a business bank account is not hard. Bonsai Cash is an LLC bank account that is easy to set up and has no hidden fees or monthly minimum requirements. Our business account allows you to create as many sub-accounts as you need to organize for taxes. Open an account today.

Reasons why you need a separate bank account for your LLC

Let's quickly review all the reasons why you should have a distinct bank account for your LLC.

Easy accounting

Can you imagine how hard it will be to maintain your business books if your personal and business finances are mixed? If you are hiring someone to do bookkeeping for you it means you have to pay them more because of the added hassle.

All that can be avoided by having a separate account dedicated to your LLC financials only.

Protects you from liability

The main reason that business owners opt to register their businesses as LLCs is that this business structure offers protection against liability. In case the business goes into debt, the creditors cannot come after your personal finances.

However, if you are using your personal bank account for business then you are not drawing a line between yourself and the business and it could lead to piercing the corporate veil. This is a situation where the court removes liability protection because of bad business practices.

In effect, this would allow creditors to use the money in your account to offset the business debts even when the money didn’t come from the business.

Allows you to claim deductions during tax time

Business owners are always looking for a way to minimize their tax burden and one perfect and legal way to do it is to take advantage of tax write-offs. The internal revenue service allows you to deduct business expenses from your taxable income.

However, this is only possible if you have a separate business checking account for your LLC. If you are using your personal account for the business, the IRS will not recognize your business as legitimate. Discover how to separate business and personal taxes here.

To secure business financing

Your business bank statements play the biggest role when applying for a business loan or a business credit card. If you want to stand a chance of securing a big loan without much hassle, then you will need to open a separate business account early in your business so that you can begin building your credit history.

Easier tracking of business performance

The key to running a profitable business is to never lose track of the flow of money in the business. Having a separate bank account allows you to easily track money coming in and money coming out so that you know when the business is making a profit and when it’s making a loss. 

Accept debit and credit card payments

People are beginning to ditch cash in preference for card payments. Consequently, if your LLC has no way of receiving debit or credit card payments it could lead to lost business. Personal bank accounts don’t have a provision to receive these kinds of payments but business checking accounts do.

This is another reason why it makes sense not to just have a separate bank account for your LLC but a separate business bank account.

Boost business credibility

Customers will have increased trust in your business when they make payments to a business bank account as opposed to a personal bank account.

This is especially true for online transactions where the customer has never met the business owner and is a bit skeptical about completing the payment.

Access to startup events and resources

Some banks hold special events for their clients as a way to attract more customers and also to help their client's businesses grow. These events can be incredible sources of business knowledge that you can apply to your LLC to advance it further.

Requirements to open a business bank account for LLC

Opening an LLC bank account is a bit different from opening a personal bank account. The bank will need that you provide some documents before they can approve the account. The documents may vary depending on the bank but we have listed some of the most common ones that every bank will require from you.

  • Personal identification - A personal identification document is important to prove you are who you say you are and that nobody else can access your account once it’s opened. To prove your identity, the bank you choose will require that you provide them with a government-issued photo ID. This could either be your driver's license or passport.  
  • Employer Identification Number (EIN) - This is also called a tax ID and unless you are running a single-member LLC with no employees, every bank will require that you provide them with yours. In the case of single-member LLCs, you can use your social security number instead. If you don’t already have an EIN for your LLC you can go ahead and apply it now. It’s a simple process and it’s free of charge.
  • Business formation documents - The bank you choose will also need that you provide them with a copy of your formation documents. In the case of an LLC that’s your Articles of Organization. This is necessary to prove that your business has been formally registered.
  • Business license - Banks need your business license to ensure that you are operating a legal business. However, if your state does not require that your business have an operating license, don’t worry. The bank will make an exception.
  • DBA certificate - If you are using a different name for your LLC other than the one written on your formation documents, the bank will require that you provide them with your “Doing Business As” certificate.
  • Operating agreement - The bank will also require that you provide them with your operating agreement to help them understand the role of each member in the LLC. They need to know who has the authority to manage your business finances.
  • Estimated monthly credit card payments - This is only a requirement if you are applying for a merchant services account. If your business is new you just need to provide an estimate of the expected payments.

Best business bank accounts for LLCs

Let's quickly break down our top picks for a business account. Starting with our own.

Bonsai Cash - Best online checking account for small businesses

Bonsai Cash is a new checking account that’s perfect for small businesses because of its simplicity. The account makes it incredibly easy to manage your business funds.

You will particularly love the Bonsai envelope feature. It allows you to create envelopes that work as sub-accounts within the main account. And, you can create as many envelopes as you want.

For instance, you can have an envelope for tax money, another one for employee salary, and another one for emergencies. You can then set your account so that every time you receive money in your account, a certain percentage of the money is sent to a specific envelope.

This really simplifies things because you don’t have to manually move the money into envelopes and your bills will never catch you unprepared.

Bonsai Cash is completely free to open and use. No initial deposit, no minimum balance to be maintained, and no monthly service fees.

Also, immediately after you open a Bonsai Cash account you get a virtual card that you can use for online payments and subscriptions as you wait for your physical card to be ready.

This account can be integrated with any payment service you are using which enables you to receive payments directly into your account. No credit checks either so you'll have a guaranteed business checking account.

The daily transaction limit for Bonsai Cash is $5300. That is $300 for ATM withdrawals, $2,000 for card transactions, and $3,000 for transfers to external banks.

Chase - Best traditional account for LLCs

If you don’t mind the limitations that come with a traditional bank with a physical premise then Chase is a great option to consider. It has all the services you need for your LLC. Free business checking accounts, a savings account, a merchant services account, and business financing through lines of credit and business loans.

And to their credit, the bank has done a great job with their web app and mobile app to try and offer the same level of flexibility you get with online banking solutions.

With the app, you can manage alerts, schedule automatic payments, make international money transfers, and generate paperless reports to give you an overview of your business income and spending.

Unfortunately, the bank is not completely free to use. You only get 20 free transactions. For any other transaction after that, you will be required to pay 40 cents. You also get free deposits for up to $5,000. After that, you will be charged $2.50 for every $1,000 deposit you make.

Chase bank also requires a monthly service fee of $15 but if certain conditions are met the fee can be waived. Some of these conditions include maintaining a daily balance of $2,000 in the account and making purchases of up to $2000 using a Chase business card.

Live Oak Bank- Best business savings account

If you are looking for a business savings account for your LLC, Live Oak Bank will be a good choice. The fact that it’s an online account means it’s not limited by location or time. The account is also free to open. There is no initial deposit required and it has no monthly maintenance fee.

However, they only allow 6 free withdrawals or transfers per statement cycle. The fee for extra transactions is $10.

The annual percentage yield for Live Oak bank is 0.50% which is above the national average.

To make deposits into your Live Oak savings account you can use ACH payment, mobile check deposit, mailed check, or wire transfers. Unfortunately, the bank does not support cash deposits.

On the upside, as you build your credibility with Live Oak bank you may qualify for SBA loans and other types of business loans.

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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