Setting up a bank account for a sole proprietorship is a simple process and can be done in five steps. You can start by registering your business name, finding the best account to open, and gathering the required documents. Once you have the required documents, you can apply online or in-person at your local branch. The process of opening a bank account is complete once you make your first deposit.
1. Register Your Business Name
Depending on the bank, you may be required to provide proof that your business name is registered with the state or county it operates in. If your business operates under any name other than your personal name, it’s a good idea to register your fictitious business name certificate before you apply. Registering your business name will ensure you have documents to verify your business before it’s time to open a business bank account.
You can register your business with your secretary of state’s office, county, or other local business agency. Some states allow you to register your business online, but most states process applications in-person or by mail. You can also use a legal filing service like LegalZoom to register your business for you. Registration costs vary by state but generally range from $40 to $500. Whether you apply online, in-person, or by mail, it can take up to 30 days for approval.
2. Research to Find the Best Bank Account
Finding the best business checking or savings account involves doing research beforehand. Before setting up either bank account, it’s a good idea to shop around and review account costs, bank locations, services, and account terms. You can usually find this information on the bank’s website, in the depositor agreement, or in the account terms and conditions.
Business Checking Accounts
It’s important to consider your business habits when deciding on a business checking account. Take into account the services your business uses frequently, including payment processing and client invoicing as well as the banking experience you’ll need. For example, if you don’t take cash payments or need a physical branch location, an online-only bank with fewer fees may be the best option. However, if you handle daily cash transactions, then consider a bank with a physical branch location.
It’s important to review the following factors when choosing a checking account:
- Terms and fees: Business checking accounts often have fees associated with account activity, including minimum balances, number of transactions, wire transfers, and cash processing. Digital banks are usually free of many, if not most, of these fees. However, most banks offer options to waive monthly service fees.
- Account features: Most business accounts come with online and mobile banking, but some have additional business services like payroll, invoicing, payment app integration, and business lending. Choose an account that offers features your business can take advantage of.
- Bank network: Most traditional banks offer both physical branch locations and an online banking experience. Meanwhile, online-only banks only offer a mobile banking experience with some providing in-network ATMs. Consider the access your business needs to a branch when choosing the best account.
Best Business Checking Accounts for Sole Proprietors
Business Savings Accounts
A business savings account is a great tool for sole proprietors to save money for unexpected expenses, earn interest, and keep personal savings separate from business savings. These accounts are a great companion to business checking accounts to help you grow your deposits over time. The best business savings accounts earn interest rates that are 10 times the national average or more.
Review the following factors when choosing a savings account:
- Terms and fees: Some savings accounts have monthly maintenance fees when you don’t keep a minimum balance. However, all business savings accounts limit you to six withdrawals per month before charging a penalty fee. Penalties may vary depending on the bank, so you should review your account terms for specific transaction limit fees.
- Account features: The best savings accounts offer high APYs that can help you maximize your dollar. Depending on the type of savings account, you may also have access to checks and ATM cards.
- Bank network: Although traditional banks take cash deposits, most digital-only banks don’t have physical locations and, therefore, don’t accept cash deposits. If you need in-person access to your savings account, a traditional branch with nationwide locations may be best.
Best Business Savings Accounts for Sole Proprietors
3. Gather the Required Documents
Unlike with other businesses, you don’t usually need more than a couple of documents to set up a sole proprietorship bank account. In most cases, your identification and business name documentation is all that’s required. So, before you visit your local bank, be sure to bring the following items with you:
- Valid identification: Most banks require one or more valid forms of identification like a state ID, driver’s license, or passport. However, some online banks can verify your identity through other digital methods.
- Fictitious business name certificate: In most cases, you’ll need to provide a certificate of trade name, assumed name certificate, or doing-business-as (DBA) certificate, if your operating business name is not your personal name.
Generally, you’ll need valid identification and proof of any registered business name. It’s also perfectly acceptable to use your own name, in which case, you may not need additional proof of your business name or operation outside your personal identification. However, you may still need a business license or proof that your sole proprietorship is registered with the state or county.
4. Apply Online or In Person
Most major banks allow you to open a sole proprietorship bank account online or at a physical location. Traditional banks like Bank of America offer both as an option, but digital banks only offer online applications. Opening your account at a branch allows you to get temporary checks and business cards on the same day, so you won’t have to wait for them in the mail.
Unlike an in-person visit that requires you to adhere to business hours, online applications let you apply at any time. Online applications are fairly easy and usually take five to 15 minutes to submit. However, you’ll typically need to send in your business documentation via fax or email within the first 10 to 15 days of account opening.
5. Fund Your New Account
Once your account is open, you’ll need to make your first deposit. With most business accounts, you can fund your account easily with an electronic transfer from another bank account. This is especially true for digital and online-only banks, which don’t typically allow cash deposits. However, if your bank does allow for cash deposits, you can make a deposit inside the branch or through an ATM.
Some banks have an initial probationary period where deposited checks may be held longer than normal for additional verification. When a bank places a hold, you won’t have access to your funds until the hold has expired. This cautionary period usually lasts from one to six months, depending on the bank. However, as long as you maintain consistent activity, any new account restrictions should be lifted after the probationary period.
Tip: Make your first deposit using an electronic transfer or cash instead of checks for immediate access to funds.
Separating Your Business and Personal Finances
Opening a specific business bank account can help sole proprietors separate their business and personal finances. It’s a good idea to separate business and personal finances because it makes tracking business activity easier. You can also export your business finances to your accounting software, making accounting simple, and avoiding unnecessary confusion when it’s time to do your taxes.
Sole proprietors who have clearly defined boundaries between business and personal can more easily identify business transactions. This makes it easier to analyze areas of growth in your business as well as see where you may need to reduce expenses. Additionally, you can open a sole proprietorship credit card to improve your cash flow beyond opening a business account.
Frequently Asked Questions (FAQs)
We’ve covered a lot of information on setting up a sole proprietor bank account. However, there are usually additional questions that people have regarding this topic, which we address in this section. If you have a question or comment you’d like to add, please place it below and someone will respond as soon as possible.
Can I use a personal bank account for a sole proprietorship?
You can use a personal bank account for your sole proprietorship because it’s not considered a separate business identity. However, if your sole proprietorship is more than a part-time side gig, a business checking account is a better option. It can help keep your business finances separate from your personal finances and make business finances more manageable.
Do I need an employer identification number (EIN) to open a sole proprietor bank account?
An EIN isn’t required to open a bank account for a sole proprietor. An EIN is only required for businesses that operate as incorporated entities. Instead, sole proprietors will need to provide a Social Security number to open a bank account.
What is the difference between a business bank account and a personal bank account?
Personal accounts allow you to deposit funds, make withdrawals, and transfer funds to an account under your name. Business accounts give you access to all of those features as well but also offer additional services, including payroll, business app integration, and merchant services that make business banking more convenient.
Opening a business bank account for your sole proprietorship is easy and helps organize your finances. With your ID and proper business documentation, you can open an account online or at your local branch. Wherever you choose to bank, it’s a good idea to have a separate account for your business activities, even if you’re a part-time freelancer or contractor. Be sure to choose a bank account that offers the features and fee structure that aligns with your business.