How To Open a Sole Proprietorship Bank Account in 4 Steps
This article is part of a larger series on Business Banking.
Opening a business bank account as a sole proprietor is easy and important for your business. It allows you to keep business and personal finances separate, helps you build business credit and reputation, and simplifies your tax preparation. All you need to do is to register your business name, gather the necessary documents to start your account, find the best business bank account, and then open and fund your account.
If you are looking for a great business bank, Bank of America is an excellent choice. It offers two business checking options with waivable monthly fees and up to $500 in cash back and statement credit rewards. You can apply for an account online or in a branch with either an employer identification number (EIN) or your Social Security number.
Step 1: Register Your Business Name
Registering your business name with state and local agencies will be needed before opening a business bank account. Depending on your line of business, you may be required to register your business before you can begin operating.
You will need to choose a business name before you begin the registration process. While you can file taxes using your Social Security number because you are a sole proprietor, it is recommended you obtain an EIN from your state. Getting an EIN from the IRS is free, and it can be applied for online, by fax, or by mail. If your plan is for your business to grow beyond a sole proprietorship, then you’ll need an EIN eventually.
For more information about registering your business and helping determine if a sole proprietorship is appropriate for your business ventures, check out our guide on how to register a business. You can also click here to download our checklist to help you through the registration process.
Step 2: Gather the Required Documents
You’ll need to provide your bank with certain documents to open an account. As a sole proprietor, documents may include:
- Social Security number and/or EIN, if you have one
- Fictitious business name certificate or doing-business-as (DBA) certificate
- Business formation documents
- Organization documents, including your ownership agreements
- Business licenses
- Government-issued photo ID, such as a passport or driver’s license
- Your contact information
- Business revenue and tax information, if available
Step 3: Find the Best Bank Account
There are many choices when it comes to the best banks for small businesses. Once you choose a bank, you will need to select an account type that will work best for your sole proprietorship. While we recommend choosing a business checking account, there are several types of accounts to consider when opening a sole proprietorship bank account.
- Free business bank account: Many banks will waive fees or provide fee-free accounts, which is ideal for a small or startup business.
- Traditional business checking account: Provided by traditional banks like Bank of America and Chase, these are checking accounts that offer a wide variety of business services. Many of these banks have physical locations, if needed.
- Online business checking account: Financial technology (fintech) companies provide online business checking accounts, many of which come with limited fees and unique features. These banks are online-only, which is not ideal for businesses that handle cash regularly.
- Business savings accounts: Many business banks offer savings, money market, and certificate of deposit (CD) accounts that draw interest, allowing your reserve funds to grow. This is ideal for sole proprietors that have been in business long enough to accumulate financial reserves.
Here is a table that includes the three best options for checking accounts for sole proprietors (Note: Bluevine is a business fintech platform backed by Federal Deposit Insurance Corp. (FDIC)-insured Coastal Community Bank.):
Monthly Fee | Fee Transaction | Annual Percentage Yield (APY) | Free Cash Deposit Limit | Minimum Opening Deposit | |
|---|---|---|---|---|---|
 ''Fundamentals Business Checking | $16; waivable | 200 monthly | N/A | $7,500 per month | $100 |
 Business Complete Banking | $15; waivable | 20 monthly | N/A | $5,000 per month | None |
 Business Checking | None | No limit | 2.0% on qualifying balances of $250k or less | None free; $4.95/deposit (Green Dot) | None |
Step 4: Open & Fund Your New Account
Once you have chosen a bank and account type, you can open your business bank account. Some providers will allow you to complete the entire process online, while others may require you to visit a branch. If the bank requires you to visit a branch to finish applying for an account, then make sure you choose one with a nearby location.
Some banks will require you to make an opening deposit when you open the account. You can deposit cash or checks or use electronic deposits, such as wire or automated clearing house (ACH) transfers. Most accounts can be opened within one business day, while others might take a couple of days to verify all of the business paperwork before opening.
Why Sole Proprietors Should Open a Business Account
While some sole proprietors might consider using a personal account for their business, it is highly recommended that you open a business bank account to keep your personal and business finances separate.
Here are some benefits of having a business checking account:
- Keeps your business and personal finances separate
- Enables you to build your business credit
- Lets you assess your business performance more easily
- Lends credibility to your business
- Helps simplify tax season
- Allows you to build a banking relationship
- Permits you to accept credit card payments
Also, consider using a tax preparer or a certified public accountant to assist you with your business finances and ensure that you don’t run into problems with the IRS down the road.
Frequently Asked Questions (FAQs)
Should I open a bank account for my sole proprietorship?
Yes, it is recommended that you open a business bank account for your sole proprietorship. It will help you keep your business and personal finances separate, build business credit, lend credibility to your business, and simplify tax preparation. Many banks offer great startup business checking accounts that are either completely fee-free or have waivable monthly fees—ideal for small businesses starting with limited revenue.
Can I use a personal bank account for sole proprietorship?
Managing your business funds from your personal checking account is strongly discouraged because it can cause tax problems down the road. A business checking account will allow you to identify business income and expenses separately from personal ones. This will make tax preparation easy. On top of that, if your business plans to expand and hire employees, then you’ll need a business bank account.
What do you need to open a bank account for a sole proprietorship?
You will need to create and register a name for your business. You will also need some, if not all, of the following documents to open a business bank account:
- Social Security number and/or EIN, if you have one
- Fictitious business name certificate or DBA certificate
- Business formation documents
- Organization documents, including your ownership agreements
- Business licenses
- Government-issued photo ID, such as a passport or driver’s license
- Your contact information
- Business revenue and tax information, if available
Bottom Line
Setting up a bank account for sole proprietorship is an essential step in legitimizing your business to customers and financial institutions. Any business bringing in revenue, even a small amount, should have a business bank account to keep those funds separate from personal finances. The steps in this guide will help you open a business bank account, which will be a major step for the growth of your company.
