If you’re planning to use your own money to start a business in 2025, you’ll need to open a business bank account, choose your funding source, complete the transfer, and record it correctly for accounting purposes. Each step comes with specific rules that can impact how you access and report your funds. Understanding these details early can help you avoid tax errors, compliance issues, and financial headaches down the road.
Following the steps in this guide will help ensure your personal and business finances stay separate and audit-ready. You’ll also find tips on managing cash flow, documenting transfers, and keeping clean financial records. I recommend using Wave Financial, one of the best free accounting tools for small businesses, since it offers built-in invoicing, payroll, and receipt tracking.
Step 1: Open a business bank account
Opening a separate business bank account is the first step in putting personal money into a business. Essentially, this helps you more accurately keep track of your business expenses when it’s time to file taxes. It can also protect your personal assets from liability in the event your business fails. This can also lend your company more credibility and make budgeting easier, as we discuss in our guide on separating personal and business finances.
Types of business bank accounts
To get started, you can choose between two main types of business bank accounts: a checking account and a savings account.
I recommend starting with a business checking account because it allows for more flexibility with daily transactions, withdrawals, and working capital needs. A business savings account, on the other hand, can be a better option for placing financial reserves for quick and easy access to cover unexpected expenses.
Below is a quick comparison of the features between a typical business checking account and a business savings account.
Business checking | Business savings | |
|---|---|---|
Best for | Daily expenses, regular withdrawals | Long-term savings |
0% to 1% | 4% to 5% | |
Transaction/withdrawal limits | Unlimited | 6 per month |
Minimum balance required | None | None |
Yes | Yes | |
Debit card provided | Yes | No |
How to choose a bank
Choosing the right bank can be overwhelming at first, as there are many options to pick from. If you’re unsure where to start, you can consider our roundup of the best small business checking accounts. There, we provide recommendations on the banks with the best rates, features, and services to suit your business needs. U.S. Bank, for instance, was selected as the best overall account for free checking and for companies with low transaction volumes.
In addition to the recommendations I’ve provided above, it’s also important to closely consider what features and other perks might be best applicable to your business needs. Below are some common categories to consider:
When choosing a bank, think about whether it offers any form of insurance for deposited funds, as well as how much the insurance is for. FDIC and NCUA insurance are the most common and are designed to protect your money in the event of a bank failure. Common insurance limits are $250,000 per depositor, per bank.
I recommend considering customer reviews, especially regarding any specific terms or features you’re on the lookout for. Check ratings on third-party sites to determine the level and type of experience you’re likely to have. This can provide insight into things like the bank’s responsiveness when it comes to resolving or addressing issues, as well as flexibility for things like fee waivers and policy exceptions.
Different banks offer varying features, rates, and fees for their banking products. I recommend thinking about how you plan on using your account and then shopping multiple banks to find the one best suited for your needs. Below are items that will apply to a majority of business owners:
- Interest rates and fees
- Minimum balance requirements
- Monthly transaction limits, if applicable
- Cash deposit, mobile check deposits, and cash withdrawal limits
- Ease of use of online dashboard or mobile banking availability
To keep things simple, you may want to look for a bank that lets you handle most of your day-to-day transactions in one place. Consider other products the bank might offer, such as lending, financial planning, credit repair, and bookkeeping services.
You should aim to take advantage of any incentives or welcome offers to help put some cash back into your pocket. Some banks may offer incentives to attract new customers. For checking and savings accounts, this can often include a welcome bonus if you deposit a certain amount of funds by a certain timeframe and complete certain qualifying transactions, such as debit card purchases or bank account deposits.
A bank’s customer service hours of operation can potentially impact your own business operations if you run into an issue and need help in resolving it quickly. In addition to its operating hours, you should consider whether it has availability by phone, email, or online chat. I also recommend looking at a bank’s physical branch locations, as some issues may require you to go in person.
Step 2: Determine the source of personal funds
Once you’ve opened a business bank account, the next step is deciding where your personal funds will come from. This could mean pulling from your savings, using a credit card, taking out a personal loan, or leveraging home equity. Each source comes with its own risks, costs, and qualifications, so it’s important to compare your options carefully before transferring money into your business account.
Here are some common sources of funding for a business bank account, along with a comparison table highlighting typical features and requirements.
Funding source | Interest rate | Funding speed | Loan amount | Credit score | Time in business | Loan term |
|---|---|---|---|---|---|---|
N/A | 2 to 3 weeks | N/A | None | None | N/A | |
Credit card | 20% to 30% | 7 to 10 days | $5,000 to $75,000 | 700 | None | Revolving |
7% to 9% | 30 to 45 days | $25,000 to $500,000 | 680 | 2 years | 30 years | |
Personal loan | 5% to 36% | 24 hours | $100,000 | 660 | None | 7 years |
Friends & family loan | Varies | Varies | Varies | None | Varies | Varies |
Personal savings | N/A | N/A | N/A | N/A | N/A | N/A |
A Rollover for Business Startups (ROBS) allows access to your retirement accounts without the associated penalties or tax requirements typically necessary for an early withdrawal. It’s not considered a loan, so there’s no interest accrual or monthly payment obligations. Qualification requirements typically include that there be a $50,000 balance in your retirement account and that your business be structured as a C Corporation (C-corp).
| PROS | CONS |
|---|---|
| Access your retirement funds tax-free and penalty-free | Risk of losing retirement funds if the business fails |
| No time in business requirement | Must be a C-corp to qualify |
| Allows for debt-free funding of business for higher monthly cash flows | Must maintain annual requirements to avoid taxes and penalties |
If you have good personal credit, you may be able to qualify for a business credit card. This can be a great financial solution for startups that might not have the required qualification history just yet, or are unable to provide a personal guarantee. Keep in mind that a business credit card should be used strictly for business expenses so that you’re not personally liable for accumulated debt.
They can be ideal for business expenses that you can pay off in the short term and can be utilized on a revolving, as-needed basis. Interest rates vary, generally anywhere from 20% to 30%. Depending on your desired credit limit and terms of use, you should choose a business credit card that serves your business needs. See our picks for the best small business credit cards to find one that works for you.
| PROS | CONS |
|---|---|
| Can be a quick way to access funds for your business | Interest rates can be high after introductory rates expire |
| Good for new businesses that don’t have enough business credit yet | Your personal credit is on the line and can be damaged if payments are late |
| Ongoing rewards can help your business save money or earn bonuses | Credit limits are usually very low compared to loans and lines of credit |
If you own a home with equity, you might consider a home equity loan (HELOAN) or a home equity line of credit (HELOC). These are often cheaper than unsecured loans but carry one major risk: if your business fails and you default, you could lose your home. You will need to have sufficient equity in the home and good personal credit to be eligible.
There are some key differences between a HELOAN and a HELOC.
HELOAN terms | HELOC terms |
|---|---|
Lump sum disbursement | Flexible access to loan funds as needed |
Fixed interest rate | Variable interest rate based on the prime rate |
Monthly scheduled principal and interest payments for the term of the loan | Loan funds can be borrowed and repaid on a revolving basis |
Amortization period of up to 30 years | Draw period (usually 10 years) |
Proceeds are used to finance large expenses | Uses include short-term or emergency expenses |
Note that borrowing against your home comes with risks, as your residence will be at stake if your business fails. Consider this carefully before taking this route and determine if there are any alternatives better suited for your business.
| PROS | CONS |
|---|---|
| Less expensive than other financing options | Tied to homeownership |
| Available for startups | Your home is at risk if you default |
| No restrictions on how funds are used | Requires strong personal credit to qualify |
If you’re unable to obtain traditional financing via a startup business loan, you might consider trying for a personal loan instead. They are typically easier to qualify for since they are tied to your personal credit history and are usually more accessible from a variety of lending institutions.
Application and approval are generally quick processes, although lenders have varying rates, terms, and qualification criteria. Keep in mind that personal loans may offer lower loan amounts than business loans, but can still be useful for startup costs or other business expenses. To find a lender best suited for your needs, check out our roundup of the best personal loans for business funding.
| PROS | CONS |
|---|---|
| Available to startups with limited resources | Personal credit is at risk if you default on the loan |
| Same-day funding is often available | Smaller loan amounts in comparison to business loans |
| No or limited collateral requirements | Potential for tax or legal issues if funds aren’t transferred properly |
Raising business funds from friends and family is a low-risk funding opportunity that allows you access to capital without the need for strict qualifications like specific credit scores, time in business, or annual revenue that are associated with standard business loans. This is particularly useful for business owners with bad credit or limited resources.
There are a few ways to structure how the funds will be granted, whether you receive a gift or a loan, and you’ll likely still need to repay the funds, albeit at a lower interest rate than most lending institutions. Keep in mind that there are still tax regulations to follow when utilizing this funding source, whether for a gift or a loan, and you’ll need to apply an applicable federal rate.
| PROS | CONS |
|---|---|
| Available to new businesses with limited capital and credit history | Potential for tax liabilities if transactions aren’t properly recorded |
| Less formal than traditional loans offered by banks | Personal relationships can become strained in the event of default |
| Flexibility of returns, such as loan repayment or equity stakes | Investors may offer unwanted business advice |
Your personal savings are likely the most accessible way to fund your business, with no debt obligations or strings attached. Depending on the amount of funds you transfer, it can support your cash flow and help cover business expenses.
That being said, you run the risk of a return on your investment in the instance your business fails or you’ve exhausted the entirety of your savings. This can put your personal expenses at risk as well, so be sure to plan accordingly and only transfer what you can afford; otherwise, you might have no way of repaying both business and personal debts.
| PROS | CONS |
|---|---|
| Should be able to access funds the same day | Putting personal savings at risk in your business |
| No obligation to pay back funds right away | Amount of funds available is limited to what you have in savings |
| Flexible loan repayment if it is structured as a loan | Can cause tax issues depending on whether it is a loan or an equity contribution |
Step 3: Initiate and verify the transfer of funds
In transferring your funds, you can choose to have it done as either an equity contribution or a loan to your business. Each option has different implications for taxes, repayment, and ownership, so it’s important to decide which structure makes the most sense for your situation.
Equity injection
Using personal money to fund a business is commonly done as an equity injection, as it does not require repayment. It’s also simpler to track and manage, as it acts as an investment in the business, with the company’s success serving as its own return on investment.
Loan to the business
If you choose to structure your funds transfer as a loan, you’ll have to take legal precautions and draft paperwork that documents repayment terms owed by the business. You’ll need to outline a payment schedule and define an interest rate that corresponds with the loan amount provided.
Loans have a tax benefit for the business that a contribution doesn’t provide, as interest on a business loan is tax deductible. If you are a sole proprietor and lend money to your business from your savings, the interest deducted on your business return or Schedule C must be reported as income on your personal tax return. In this case, there’s no personal tax benefit.
Step 4: Record the transaction in your accounting software
Once the transfer of funds is complete, you’ll need to track it properly for accounting purposes. We recommend accounting software like Wave Accounting. It was selected for our list of the best small business accounting software as it is free for accounting and invoicing. Paid features include payroll, bookkeeping support, coaching, and mobile receipts. You can learn more about it through our review of Wave.
Use reliable accounting software to help you when it comes time to file your business taxes — you’ll be able to complete your taxes more quickly and more accurately. See our article on how to choose the right business accounting software for guidance.
Implications of improperly recording the transaction
Failing to record your transactions properly can lead to costly mistakes, including IRS fines or penalties. Even if there are no immediate financial consequences, you may face extra paperwork and stress during an audit. Incorrect or missing entries can also distort your financial statements, giving you an inaccurate picture of how your business is performing.
What to consider when putting personal money into your business
You’ll need to make sure every transaction between your personal and business finances complies with tax laws and proper accounting standards. This includes following IRS rules, maintaining accurate balance sheet records, and understanding any related financial impacts. Working with a financial advisor or accountant can help you navigate the process and reduce the risk of costly mistakes.
1. Risk of using personal assets
Using personal money to fund your business can put your own finances at risk, especially if the company doesn’t perform as expected. Once those funds are invested, recovering them can be difficult or even impossible if the business fails. It’s important to keep a separate financial cushion to cover personal expenses and emergencies so you’re not left vulnerable.
This level of personal risk makes it especially valuable to speak with a financial advisor. They can help you balance business funding with other financial priorities, like saving for a home, college tuition, retirement, or unexpected personal expenses.
2. Timing of the transfer & tax implications
Depending on the time of year and your business calendar year, you may be able to time the transfer of funds to maximize tax benefits. This typically comes into play if you decide to sell your ownership in the business or if you funded the business with a personal loan and receive interest payments from the company. In some cases, your payout could be affected in the event your business is sold or dividends are paid out to owners.
3. Business legal structure
There are various ways to structure your business, whether as a corporation, a sole proprietorship, a limited liability company (LLC), etc. There are certain tax and legal obligations tied to each structure, and there are varying advantages and disadvantages depending on how you operate. Be sure to familiarize yourself with your intended business structure and the tax and legal requirements that follow.
Pros & cons of putting personal money into a business
| PROS | CONS |
|---|---|
| Lets you access money for your business quickly in most cases, except for ROBS | Puts your personal finances and credit at risk |
| Can allow you to get funding before your business has credit or income to get business financing | Limits you to your personal credit and income, or the amount of retirement funds you have |
| Makes you even more committed to the success of the business because you're using personal funds | Comes with possible tax implications when borrowing money or selling shares |
Frequently asked questions (FAQs)
Liability protection and separation of business and personal transactions are two primary reasons you should get a business bank account. Intermingling personal and business transactions can result in you being held personally liable for the company’s debts. Additionally, having a separate business bank account makes it easier to identify business-related transactions when it comes to filing taxes.
This depends on a number of factors, such as the tax structure of your business, the purpose of the funds, the manner in which the funds are transferred, and how the funds will be classified. Due to the complex nature of tax rules and regulations, it’s recommended that you contact an accountant to review your specific circumstances.
One of the biggest risks is that you could lose your personal funds in the event your business fails. Additionally, if you fail to separate your personal and business finances, your personal assets could be used to settle business debts.
Bottom line
For business owners who have the means, using personal money to fund a business can be a practical and flexible way to get started. You can draw from savings, loan proceeds, or retirement funds, depending on your financial situation and comfort with risk. Just make sure you understand the potential downsides, keep accurate records, and follow the steps outlined above to protect both your personal and business finances.
