Does a Sole Proprietor Need a Business Bank Account?

When starting a new business, many sole proprietors wonder whether they need to open a business bank account. Good news: You don’t have to wonder any more because we have the answers for you. In this article, we cover whether a sole proprietorship bank account is necessary, which type of business bank account could work well, and how to qualify if you decide to go that route.

Can I Open a Bank Account as a Sole Proprietor?

Yes. A sole proprietor can open a personal or business bank account and use it for business purposes. While there aren’t small business bank accounts that are made specifically for sole proprietors, any small business checking account is open for your consideration. So you can apply for any business bank account that you qualify for as a sole proprietor. 

Does My Sole Proprietorship Need a Bank Account?

It’s not necessary to open a sole proprietor bank account to act as a sole proprietor. Technically, business owners can use an already-existing personal bank account to receive payments and make purchases, and it will be perfectly legal. 

However, there are several perks to having a separate bank account for your personal and business expenses.

Your Bookkeeping Will Be Easier

When you use a separate business debit card, you can quickly and effectively keep track of cash flow. Having a clear understanding of what’s coming in and what’s going out is essential to tracking your small business’s financial goals and sticking to your business plan. You won’t have to put in extra labor to filter out your personal expenses to do your accounting if your accounts are already separated.

Tax Season Will Be Smoother

Taxes are already a pain — and maintaining a separate sole proprietorship bank account can help. Your taxes will be much easier to file since you won’t have to decipher months or a year’s worth of expenses and pick out which were for your small business and which were personal. With many business checking accounts, you can link them to your accounting software, like QuickBooks or FreshBooks, and your transactions can integrate automatically. This is only effective when you have separate business and personal expenses.

You’re More Protected

Keeping your personal and business expenses apart can help you protect yourself as well. If your business ever gets audited by the Internal Revenue Service (IRS), you’ll need to be able to provide a paper trail for all your business finances. This process is much smoother if you can see exactly what you have spent on your business without having to sort out your personal purchases.

You’ll Have Access to Business Financing

If you’re looking to get a business loan or other business funding in the future, you’ll likely need a business checking account. Many lenders require you to have a business checking account before they will consider you for funding because they will want to verify your business’s cash flow. Lenders often will need to verify that your business has the appropriate funds to pay back the loan. 

Your Business Will Appear More Legitimate

Having a business bank account will help you to appear more credible as a business to customers who pay you. Many people are cautious when sending payments to a personal account. Think of buying something and writing out a check to Jane Johnson — then compare that with writing a check to Johnson Enterprises. The latter feels safer and more legitimate as the customer.  

What Type of Bank Account Does a Sole Proprietor Need?

Any business checking account can technically work for sole proprietors. Some features that make a great deposit account for sole proprietors are:

• Low monthly fees. You don’t want your bank account fees to eat into your profits. Consider the maintenance fees, transaction fees, ATM fees, and foreign transaction fees before choosing a bank account for sole proprietorship.
• Low minimum balance requirement. Make sure you don’t have to keep a higher balance in your account than you can manage. Many small business bank accounts don’t require a minimum balance.
• Online banking. Sole proprietors are entrepreneurs and need easy, quick access to their bank accounts. Make sure the online banking platform and the mobile app are well rated.
• Ability to link to other accounts. Check out the other accounts the bank offers, like savings accounts or lines of credit, in case you want to expand your banking portfolio in the future. You’ll want to be able to link these to your checking account.
• Can take card payments. A business bank account that also offers merchant services will allow you to accept credit and debit card payments directly into your account. This service can simplify your bookkeeping while offering customers easy ways to pay.
• Its website says “Member FDIC.” The Federal Deposit Insurance Corporation (FDIC) is the governmental body that insures your deposits. If the bank goes under, your money is covered. Before applying to open any account, make sure that the bank states clearly it is a Member FDIC.
• Annual percentage yield (APY). Some checking accounts offer interest that members can earn from their balances, although it’s usually lower than savings accounts. Compare interest rates across different accounts.

Best Business Bank Accounts for Sole Proprietors

One Platform to Manage All Your Business Finances

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Lili - Banking designed for your business

Lili empowers business owners by combining business banking, accounting, invoicing, and tax preparation in one platform. For business owners, centralizing all aspects of their business finances streamlines their business operations and provides clarity about their financial position. Lili accepts S-Corps, Partnerships, and LLCs (both single and multi-member). Lili is a financial technology company, not a bank. Banking services provided by Sunrise Banks N.A., Member FDIC.

Minimum Balance

None

Monthly Cost

$0

Monthly Free Transactions

Unlimited

Noteworthy Perks

Fee-Free Overdraft

Great For High Interest Rate

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Bluevine Business Banking

Earn 4.0% APY on Bluevine Premier and 2.0% APY on Bluevine Standard when you meet a monthly activity goal. Save time and pay vendors with unlimited transactions via ACH, same day ACH, domestic wires, and international payments. Add up to 5 sub-accounts, each with designated account numbers. $95 (waivable) monthly fee for Premier, $0 for standard. No overdraft fees, no minimum balance requirements. To earn the $300 bonus, customers must apply for a Bluevine Business Checking account anytime between now and 12/31/2024 using the referral code above. After opening the account, customers must add funds within 30 days, then meet at least one of the following eligibility requirements every 30 days for the next 90 days from account funding: Deposit at least $5,000 from eligible merchant services to your Bluevine account Make at least $5,000 of outbound payroll payments from your Bluevine account using eligible payroll providers Spend at least $2,000 with your Bluevine Business Debit Mastercard® and/or Bluevine Business Cashback Mastercard®

Minimum Balance

None

Monthly Cost

$0-$95 (Waivable)

Monthly Free Transactions

Unlimited

Noteworthy Perks

Up to 3.7% APY

How To Open a Sole Proprietorship Bank Account 

If you’re looking to open a business bank account for a sole proprietorship, there are a few steps you’ll want to take.

1. Register your business 

The first step to getting a business bank account is registering your business at the federal, state, and local levels (as needed).. You may not need to register as a sole proprietor, but it depends on your state. 

Check out the Small Business Administration for more information on how to register your business.

2. Find the right business checking account

There are many kinds of business checking accounts, so you’ll have to look around to make sure you find the right fit for your business. 

3. Gather your documents

You’ll need to be able to prove you are who you say you are and that your business is legitimate before you can open a business checking account. We outline below all the documentation you’ll need before you apply to open a business bank account.

4. Apply for the account

Many business bank accounts allow you to fill in an application completely online. If you prefer to apply in person, find a bank that has physical branch locations near you.

Details You’ll Need to Apply for a Business Bank Account Online as a Sole Proprietor

Getting organized before you start the application can increase your chances of getting approved for the account. To apply for a business bank account for sole proprietors, you’ll need:

• Your business name
• Your business address, including the country and the state the business was formed in and operates in
• Your driver’s license or other personal identification
• Your business’s tax ID number, like an Employer Identification Number (EIN) or your Social Security Number (SSN)
• The type of business you own
• The month and year the business was established (often the date you applied for an EIN)

You may also be required to submit other business documentation, when applicable, like:

• A business license (also called an Occasional Tax License)
• A Fictitious Name Certificate
• A Certificate of Trade Name
• A Certificate of Assumed Business Name
• Doing Business As (DBA) documents

Get Started with Business Checking

Having a business checking account can open up a lot of opportunities for your small business. You’ll qualify for business funding more easily and can create banking relationships that allow you to get a business credit card. At Nav, we have over 70 financing options from more than 50 different lenders. We’re here to help you get the money you need to grow your business.