As a former banker who helped business owners open checking accounts, I know how frustrating it can be when an application is denied. Opening a business checking account is essential for any entrepreneur, but rejections can be discouraging. Banks and financial technology (fintech) companies have several reasons for denying business accounts, so understanding these upfront can help you avoid setbacks.
Key takeaways
- Business checking accounts can be denied for several reasons, such as a lack of business history, credit issues, or incomplete documentation.
- A common issue is the bank’s inability to verify your company’s information. Before applying for a new account, ensure all necessary documents are complete. For a list, see our guide on how to open a business bank account.
- Monitor both your personal and business credit reports. A business account can be denied because one of the people on the account has poor credit or a history of checking account issues.
- Some businesses or organizational types may be ineligible for certain types of accounts.
Below are nine common reasons you may be denied a business checking account and instructions on how to address or avoid these potential issues.
1. Your business is new with no financial history
New businesses may be rejected due to a lack of financial history or minimal documentation. While being new isn’t a dealbreaker, many banks and fintechs prefer working with established businesses and may hesitate to open accounts for ventures that haven’t been operational for long.
Solution:
If you’re a new business owner, applying with your local bank, where you already have a personal account, can increase your chances of approval. They may have more flexibility and even connect you with an attorney to help complete your documentation.
2. Your business is missing documentation or has incomplete info
A frequent reason for business account rejections is missing or incomplete documentation. This is especially common with online applications, where documents may not be properly uploaded. If you are missing critical documents, it can be hard for the bank to verify crucial information about your business, which leads to a denial or hold until the required documents are provided.
Solution:
Make sure all critical documents are on hand before applying. This includes your business formation documents, tax ID number, and specific licenses your business needs. Consulting an attorney during the business formation process can help ensure all necessary documentation is complete. You can consult our guide on how to start a business for more information.
3. The bank can’t verify your information
If there’s a mismatch in the data provided, whether it’s the business address or the name on the registration, the bank may deny your account if it’s unable to verify your business information. Home-based businesses or those using personal addresses for business correspondence are particularly susceptible to this.
Solution:
Verify that your business address and mailing address match what is on file with government agencies and the IRS. If you run a home-based business, ensure that all the information matches across all your documents and records.
4. Your business or business owners have credit issues
Banks often check the credit report of the business and its owners before approving an account. If your business has no credit history, they may look at the personal credit of the business owners. A history of late payments or outstanding debts can lead to rejection, so you should monitor your personal and business credit reports to avoid being denied new accounts.
Solution:
Regularly check both your business and personal credit reports to stay on top of any issues. If there are negative marks, try to resolve them before applying. For newer businesses, be aware that banks may still check the personal credit reports of the business owners.
5. Your business appears in check verification systems
Another reason you may be denied a business checking account is for your business or one of your owners to show up in a check verification systems report. Services like ChexSystems, Early Warning Services (EWS), and TeleCheck track account history, including issues such as unpaid fees or frequent overdrafts. If your business or its owners have been flagged in these systems, a bank may reject your application.
Solution:
If you or your business shows up in ChexSystems or your business is listed on a check verification system, the first step is to obtain a copy of your ChexSystems report. Dispute any inaccuracies and resolve any outstanding issues.
6. Your type of business is not supported
Certain businesses considered high-risk cannot get a business bank account at most banks. These businesses may be involved in completely legal activities but carry a risk that banks are unwilling to take. Federally-backed banks are prohibited from opening accounts for some business types. In addition, businesses performing illegal activities cannot get an account.
Some banks won’t touch businesses, which may harm their reputation or expose them to higher regulatory risks. Here are several types of businesses that may be denied a business bank account:
- A business selling illegal products or performing illegal activities
- Drug-related businesses, including medical marijuana and cannabis
- The sale of tobacco, vaping products, or e-cigarettes
- The sale of weapons, firearms, or other items that might cause injury
- The sale of products and services that may be patently offensive
- Gambling-based businesses
- Multi-level marketing businesses and other get-rich-quick schemes
- Telemarketing companies
- Payday lenders
- Bail bonding services
- Political action committees
- Businesses that could do reputational damage to the bank
- Activities by entities located outside the United States
Solution:
Check with your bank to confirm your business type is eligible. If not, consider specialized banks or fintech companies that cater to your industry. However, ensure they offer insurance for your funds, as they may not be backed by the Federal Deposit Insurance Corp. (FDIC).
7. Your business organization type may be incompatible
Not all banks support every business structure. For example, certain fintech platforms may not allow sole proprietors or multi-member limited liability companies (LLCs) to open business accounts. Check the bank’s website to see which organization types are eligible for an account. Note that traditional banks may require in-person visits depending on your business type.
Solution:
Review the bank’s requirements for business structure eligibility before applying. If your business structure is complex, you may need to open the checking account in person at a branch.
8. Your personal banking is with a different institution
While this one likely won’t happen if you choose a bank from our list of the best small business checking accounts, this can occur at some small community banks. They may reject applications for business accounts if they aren’t familiar with the business owner, especially if the owner’s personal account is held at a different institution.
Solution:
If you’re applying to a small, community bank, consider opening a personal account first to establish trust and increase your chances of approval when you apply for a business account.
9. Your transactions were flagged for suspicious business activity
If your business has been flagged for suspicious activities, such as money laundering or fraud, you may be denied opening a new business bank account. These activities can also cause an existing account to be closed.
Banks must file suspicious activity reports (SARs) under the Bank Secrecy Act if they detect potentially suspicious transactions, such as:
- Cash transactions over $10,000
- Attempts to avoid the $10,000 threshold
- Activity indicating possible criminal behavior like money laundering or tax evasion
Solution:
Make sure your business adheres to all financial regulations. Be aware of the Bank Secrecy Act and ensure your transactions comply with its rules. If your business is flagged for suspicious activity, seek legal advice to resolve any issues and comply with the law.
Alternative solutions for businesses denied a business checking account
Second chance bank accounts
Some banks, like Woodforest National Bank, offer second-chance accounts for businesses that have been rejected elsewhere. Read our Woodforest National Bank business checking review to learn more about this account offering.
Prepaid debit cards
While not a full replacement for a checking account, prepaid cards can help businesses manage cash flow without the need for a traditional business bank account.
How to avoid denial and open your business account successfully
In my experience, there are indeed several reasons why your company may be denied a business checking account. However, many of them can be easily avoided with proper preparation.
I recommend that you:
- Ensure your business documentation is complete
- Verify your credit is in good standing
- Guarantee your business complies with banking regulations
If your account is denied, banks will provide a reason, and addressing the issue will likely allow you to reapply successfully.
Frequently asked questions (FAQs)
The most common reasons for businesses to be denied a business checking account include being a new business with no financial history, missing or unverifiable documentation, or credit issues with the business or its owners. Businesses in restricted industries may also face denials.
Yes, banks can check your credit score when opening a business checking account, though it’s not always the case. While most banks primarily check for a business’s creditworthiness, they may also look at the personal credit history of the business owners, especially if the business is new or lacks a credit history of its own.
Business accounts present higher risks and require more effort to open for a bank than personal accounts. They often involve larger balances, which can lead to greater losses if issues arise. Additionally, business accounts are subject to more federal regulations, including compliance and anti-money laundering requirements.
In most cases, if your business is well established, has no credit or check issues, and all required paperwork, it is easy to get approved for a business bank account. You can open a business account with an online fintech in minutes. If documents are missing or there are credit issues with your business, it may be harder to get an account approved.
Digital banks and fintechs can offer a more flexible, streamlined process for opening business checking accounts than traditional banks. They use technology for quicker sign-ups and risk assessment, while traditional banks often require more paperwork and in-person visits. However, even if online banks and fintechs are more accessible, both still follow regulatory guidelines.
