So you've applied for a business bank account and been denied. While it may be tempting to chalk it up to unfairness, there are actually several reasons why your application may have been rejected.
The good news is that, in most cases, it’s not the end of the world and there are steps you can take to try and remedy the situation. In fact, it may simply be a case of going to the right bank or filling out your application correctly.
That said, here are a few of the most common reasons why you may be denied a business checking account or a loan – and what you can do about it.
Note: if you wan to open a guaranteed business account with no monthly fee or minimum balance requirements, try Bonsai Cash. Our checking account is easy to set up and allows you to instantly create sub-accounts to organize your finances better. Open a new account without a ChexSystems report today.
Many banks use ChexSystems reports to determine if you qualify for a new bank account or not. The ChexSystems reports is merely a log of your deposit accounts with banks and credit unions. It shows your account activities, payment history and the reasons your past accounts have been closed.
If you are denied a business account, it is because of negative information on your ChexSystems report. Second chance banking options are available for folks with bad credit and banking history. Let's dive deeper into all the grounds for why your bank account was rejected.
Personal credit is one of the most important factors in getting approved for a business bank account. If you have bad personal credit, it’s going to be very difficult to get approved – no matter how strong your business finances are.
The first step is to pull your personal credit report and see where you stand. If you have bad credit, there are a few things you can do to try and improve your chances of getting approved:
This is a big one. If you’re caught lying on your application, you will almost certainly be denied a business checking account. And if you do manage to open an account with false information, the bank will close it as soon as they catch wind of the deception.
It’s important to be truthful on your application, even if it means your chances of being approved are slim. If you’re not sure whether or not the information you’re providing is accurate, err on the side of caution and leave it out. It’s better to be safe than sorry.
There are some businesses that banks simply won’t work with. This includes businesses that are considered high-risk, such as adult entertainment, gambling, or marijuana-related businesses.
If your business falls into one of these categories, you may have to look for a bank that specializes in working with high-risk businesses. These banks are few and far between, so it may take some time to find one that’s a good fit for your business.
Just like personal credit, business credit is also important when it comes to getting approved for a business bank account. If your business doesn’t have any credit history, the bank may be reluctant to approve you for an account.
Paying your bills on time is one of the most important things you can do to build up your business credit. Make sure you pay all of your bills – including utilities, rent, and other expenses – on time, every time.
Banks may require that you have a certain amount of money in your account to open an account. This is typically referred to as the “minimum balance requirement,” and it helps banks ensure that you can cover any unpaid bank fees or charges that may be incurred.
If you don’t have enough money to meet the minimum balance requirement, you may want to try to find a bank that doesn’t have one. Read our review of the best no minimum business checking account. Alternatively, you can try to negotiate with the bank to see if they will waive the requirement.
Banks are required by law to know the purpose of your business. If you can’t provide a clear explanation of what your business does, the bank may be concerned that you are using your account for illegal activities.
Make sure that you have a clear and concise explanation of your business before you go to the bank. You should also be prepared to provide any documentation that the bank requests.
Banks typically require that you fill out an application when you open a business account. If you don’t complete the application or provide all of the required information, the bank may deny your request.
Be sure to double-check that you have filled out the entire application and included all of the required information before you submit it to the bank.
Banks are required by law to perform background checks on all of their customers – and this includes business account holders. If your business fails the background check, you will not be able to open an account with that bank.
There are a few things that can cause a business to fail a background check, including having a criminal record, being on the terrorist watch list, or being listed as a high-risk business by the FDIC.
If your business fails a background check, you can try to find another bank that doesn’t perform them. Even better, you can work on improving your business’s reputation.
The bank is going to want to see that your business is in good financial shape before they approve you for an account or a business loan. This means having strong revenue, profitability, and cash flow or proof of income for self-employment.
If your business doesn’t have strong financials, there are a few things you can do to try and improve your chances of getting approved:
When you apply for a business bank account, you will need to provide identification for both you and your business. The most common ID documents that banks accept are a driver’s license, passport, or state ID for individuals, and an Articles of Incorporation or EIN Certificate for businesses.
If you don’t have any of these documents, you may not be able to open a business bank account. However, you can usually get a driver’s license or state ID from your local DMV, and you can get an EIN by applying for one online through the IRS website.
Here are ways you can open a business bank account without an EIN.
If you have a history of excessive overdrafts, banks may be concerned that you will do the same with your business account.
One way to avoid this issue is by setting up a line of credit with your bank. That way, if you do happen to overdraft your account, the money will be automatically transferred from your line of credit to cover the shortfall.
Also, you can try to find a bank that is more forgiving of overdrafts. You can also try to improve your personal financial habits so that you are less likely to overdraft in the future.
Banks are required by law to report any unusual activity in their customers’ accounts to the government. This includes things like large cash deposits, wire transfers to foreign countries, and credit card chargebacks. Applying for too many accounts may also raise a red flag to the bank.
If your business regularly engages in any of these activities, you may want to find a bank that is more tolerant of them. Even better, you can try to find a way to avoid these activities altogether.
If you’re denied a business bank account, don’t despair. There are a few things you can do to improve your chances of getting approved next time.
Here are the steps you can take:
Banks are required by law to tell you why you were denied a bank account. Be sure to ask the bank for specific reasons so that you can address them.
For example, if you were denied because of a ChexSystems report, you can take steps to improve your credit score and try to open an account again in the future.
Even though banks use the information they receive from reporting agencies – such as ChexSystems – it's ultimately up to them to decide whether or not you get approved for a business bank account.
You generally need a credit score of at least 640 to qualify for most business bank accounts or loans. If your personal credit isn’t good enough to open a business account, you may need to focus on building your credit before you can open one.
You can do this by getting a secured credit card or becoming an authorized user on someone else’s credit card account.
You can also try to improve your personal financial habits so that you are less likely to overdraft in the future. This includes things like creating a budget, tracking your spending, and automating your bill payments.
If you can’t get approved for a business bank account on your own, you may be able to get one if you have a cosigner. A cosigner is someone who agrees to sign for the account with you and is responsible for any debts or charges that you incur.
Of course, this option is only available if you know someone willing to cosign for you. Since this person will be responsible for repaying any debts that you incur, make sure that you choose someone financially stable and trustworthy.
Try asking family members or close friends if they would be willing to cosign for you. You can also look for businesses that offer cosigning services.
There are a few alternative banking options available if you can’t get a standard business bank account.
The first is a second chance checking account, which is designed for people who have had trouble qualifying for a traditional bank account in the past. These accounts typically come with fewer features and higher monthly fees than a regular checking account, but they can help you get started on the right foot.
You can also look into getting a business prepaid debit card. These work like regular debit cards, but you load them with money in advance. This can be a good option if you don’t want to (or can’t) open a bank account but need a way to pay your business expenses.
You should also look into online banking options, which may be more accessible to you than traditional brick-and-mortar banks. Discover more about how to choose the right bank account for your business.
While being denied a business checking or savings account can be frustrating, there are still plenty of options available to you. By taking the time to improve your credit score or banking history, you can increase your chances of getting approved for an account in the future. And if all else fails, you can always look into alternative banking options that may better suit your needs.
Applying for a business checking account at traditional banks often means you have to deal with lots of paperwork, set aside time for appointments, and incur high banking fees.
Bonsai Cash offers you the convenience of online banks at a fraction of the cost. It’s free to open and run – so you’re not required to maintain a minimum balance, make an initial deposit, or pay a monthly maintenance fee. Open an account today.
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?