Everything You Need To Know About Small Business Banking

Everything You Need To Know About Small Business Banking

Everything You Need To Know About Small Business Banking

The banking needs you have for your company are likely different from those you have for your personal banking. It’s a smart idea to have separate accounts for your business banking so that you can easily identify business expenses for tax purposes.

Let’s look deeper at small business banking.

What is Business Banking?

Business banking, also called commercial banking, refers to any financial accounts used exclusively for a company. These could include a business checking account, business savings account, certificates of deposit, or money market accounts.

Business Banking Services

Let’s go a little further discussing different banking services your business needs since you should consider the bigger picture of what you’re looking for when considering a bank.

Business Checking Account

A checking account allows you to accept payments from customers as well as pay business expenses. You can spend the money in your account by taking out cash, writing checks, or using a debit card.

Money Market Account

A cross between a checking and savings account, a money market account allows you to earn interest on high balances.

Business Savings Account

If you want to put money aside for a rainy day (and you should), having a dedicated savings account can help you earn interest on your money. You may be charged if you make over a certain number of transactions each month.

Certificates of Deposit

Another investment opportunity for your business is a certificate of deposit, or CD. You invest your money (typically a minimum of $1,000) for 1-12 months for a fixed rate of return.

Business Credit Cards

One of the most popular financing options for businesses is a business credit card. Business credit cards let you make purchases even if you don’t have the cash available on hand. Many cards come with rewards that let you earn points on purchases you can redeem for travel perks and cash back.

Term Loans

Many banks also offer a variety of small business loans, from SBA loans to commercial real estate loans. You may get preferential rates if you’re already an existing business customer.

Benefits of Business Banking

One of the biggest benefits of having a separate checking account for business owners is that it makes it easy to separate out personal and business finances. Then, when it’s time to file taxes, you’ll have no trouble at all identifying how much you invested in your company, which may be helpful if you have deductible expenses that can reduce your taxable income.

Having a business bank account also lets you manage cash flow more efficiently. You can see, at a glance, all the income and expenses your business has.

Many banks offer other business services to customers, such as online payment processing, debit cards for employees, and discounts on other financial services. Having an online business bank account that also offers a mobile app can be convenient for cash management.

How Do Business Bank Accounts Work?

Business bank accounts work much like personal accounts. You can deposit money, withdraw it, or make purchases with a check or debit card. There may, however, be a few differences in how to open a business bank account than a personal one, since you will need to provide details about your business, including its business entity paperwork, if you run it as an LLC or corporation.

Note that some accounts may charge you if you make over a certain number of transactions (that’s both withdrawals and deposits) in a given month.

When and How to Use Business Banking

As I mentioned before: one of the main purposes of business banking is to separate your business transactions from your personal ones. So the first place to start is to make sure you only use the account for business-related transactions, such as purchasing office supplies or paying your staff. If it’s a personal expense, it needs to come out of a personal account.

Set up business online banking with your accounting software so you can automatically download transactions to the software, which may be able to categorize them into categories, saving you time.

If you have employees who need access to the account, consider giving them a debit or ATM card, though you might want to set limits for how much money they can have access to.

Choosing the Right Banking Resources for Your Business

There’s no single answer for what the best business checking account or free business checking account is because your business’ banking needs are unlike any other’s.

Start by deciding what features you need, based on the business banking services we discussed earlier. Do you also want a savings account? Do you think you’ll want to take out a business loan down the road? Is having a local branch important to you, or would you like the ease that an online bank can offer? Do you want to earn interest on your account, while still having checking features?

The next step is to look at reviews of banks. You can find some on Nav, and an internet search will provide even more. Look to see what customers say about service, fees, and overall experience. 

Finding the right bank with the best services for your business is important, so don’t just jump on the first option you find. This is the account that will be with you for the rest of your business’ life, quite possibly, so invest the time and energy into getting exactly what you need.

This article was originally written on October 5, 2021 and updated on April 18, 2022.

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