Why Is A Business Bank Account Rejected? Here’s Everything You Need to Know

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Updated on:
February 1, 2023

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.

Reasons Why A Business Checking Account Is Rejected

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.

Bad personal credit

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:

  • Pay off your debts: This will help improve your credit score and show the bank that you’re capable of managing your finances. Although opening a business bank account won't affect your credit score, it may help you access loans or business credit cards to help you build good credit.
  • Get a co-signer: If you have someone with good credit who is willing to co-sign for you, that may improve your chances of getting approved.
  • Look for “non-ChexSystems” banks or credit unions: These banks don’t use ChexSystems to screen applicants, so even if you have bad credit, you may still be able to open an account. Review the best non-ChexSystems business bank account here.

Falsified information

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.

Prohibited business types

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.

Insufficient business credit

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.

Insufficient funds

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.

Unclear business purpose

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.

Incomplete application

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.

Failed background check

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.

Unsatisfactory business financials

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:

  • Show proof of revenue: If you have strong revenue but weak profitability, the bank may still be willing to approve you for an account. Showing proof of revenue – such as invoices, sales receipts, or tax returns – can help improve your chances of getting approved.
  • Get a cosigner: Having someone with good credit cosign for you may improve your chances of getting approved.
  • Look for a “startup-friendly” bank: Some banks are more willing to work with startups and businesses with weak financials. If your business is in this situation, it may be worth looking into these types of banks.

Unacceptable ID documents

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.

Too many overdrafts

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.

Unusual or fraudulent activity

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.

What to do if you’re rejected from opening a business checking account

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:

Step 1: Find out why you were denied

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.

Step 2: Improve your credit score or banking history

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.

Step 3: Try to get a cosigner

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.

Step 4: Consider alternative banking options

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.

Final Thoughts

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.