At one time, small business owners or entrepreneurs have asked themselves, “Can I use a personal checking account for business?” Technically, you can—but you should not use a personal checking account for your company finances, regardless of your business’ size and organization type.
While some small sole proprietors might consider using a personal bank account due to low income and expense volume, the potential headaches involved with not separating personal and business finances make it a bad decision. Having separate accounts protects you from potential tax issues, gives credibility to your business, and allows you to build business relationships with banks, which can help you get financing as your company grows.
Personal Checking Accounts vs Business Checking Accounts
The functionality of a personal and business checking account is the same. Both allow you to deposit and withdraw funds, write checks, send automated clearing house (ACH) and wire payments, and use a debit card for purchases.
However, there are a few key differences between personal and business checking accounts.
Personal | Business | |
|---|---|---|
Monthly Fees | Usually free | Low fees, often waivable |
Fee Waiving Thresholds | Usually low | Usually higher |
Minimum Balance or Opening Deposit Requirements | Usually no | Sometimes |
Transaction & Cash Deposits Fees | Usually no | Often a limit with fees for exceeding monthly limits |
Time To Open | Usually minutes | Usually minutes, although sometimes up to 48 hours |
Access To a Bank’s Business Services | No | Yes |
Personal checking accounts are often free or have very low waivable fees and usually have no minimum balance or opening deposit requirements. More often than not, they have no limits on transactions or cash deposit fees and can be opened in minutes. However, you won’t have access to a bank’s business services, such as merchant services, with just a personal account.
While some banks offer free business checking accounts, usually online-only accounts, most traditional banks charge fees that can be waived. Those fee-waiving thresholds are usually higher than with personal accounts. Some banks have minimum balance and opening deposit requirements, and there are fees if you exceed monthly transaction limits or cash deposits.
Due to federal regulations, it can sometimes take a couple of days to open a business checking account. Once you establish that account, you can access the bank’s business services.
Drawbacks of Using a Personal Bank Account for Business
While any large business wouldn’t even consider using a personal bank account for their company finances, small sole proprietors often just use their personal checking account for their business funds. Their revenues and expenses are usually small, they often don’t have employees to pay, and they see their business as a side hustle or a gig-type job.
However, no matter how small your business is, there are cons to not having a dedicated business bank account. Here are some drawbacks of using a personal bank account for business:
- Your business finances are commingled with your personal finances: Keeping your business finances in a personal account keeps them mixed in with your personal funds, and it can become challenging to determine what are business funds. This can cause major problems during tax season.
- Your business won’t build credit: Without a dedicated business account, your business will be unable to borrow money under the company’s name, which means you never establish business credit. This may force you to get personal loans for your business, putting your assets at risk.
- It is harder to assess how your business is performing: Having business finances in its own dedicated account makes it easier to see how your company is doing. This is much more difficult with your finances commingled.
- It can be harder for your company to earn credibility: A business seems more credible when payments come from a business account instead of a personal one.
- Tax preparation can be challenging: Since it’s harder to track income and expenses when your funds are commingled, figuring out your business taxes can become complicated. Your tax professional will appreciate it if you separate your business and personal finances.
- You won’t build a relationship with your business bank: Building a healthy business banking relationship with your provider allows you to eventually take advantage of all of its product offerings, including lending and merchant services. This helps your business grow and thrive.
- You might be unable to accept credit card payments: If you don’t have a business account, you won’t be able to use a bank’s merchant services to accept credit card payments.
Who Needs a Business Bank Account?
Nearly every business owner can benefit from a small business bank account. Many are free to open and have no minimum balance or opening deposit requirements, and some even earn interest. You should strongly consider opening a business bank account if you:
- Own a business: It will benefit you to have a small business checking or savings account as you can separate your personal assets from your business’s.
- Are a freelancer: Business bank accounts aren’t just for large corporations. A freelancer can keep their business finances separate from personal funds by having a business bank account.
- Have more than one business: A business bank account can help you keep the assets of multiple companies separated.
- Have a business partner: Because all partners will need access to business finances, you will want a separate account that everyone in your management team can check.
- Own real estate investment properties: If you open a bank account for each investment property, it allows you to keep the finances of each one separate, which not only limits personal liability but also helps your tax professional organize your deductions.
- Have employees: Many banks offer payroll services to businesses, which allows you to make sure all payroll and deductions are handled accurately. Some banks even offer discounts on accounts for your employees.
- Use multiple vendors: Banks also offer accounts payable and receivable assistance for your business to ensure all your bills are paid and received on time.
- Need proof of business finances: If your business continues to grow, you’ll need financing at some point. If you take out credit in the business name, you’ll need tax documents that support your business’s ability to repay the loan.
Benefits of a Business Bank Account
There’s almost no reason to ask whether you need to open a business bank account to support your small business because it
- Keeps your business and personal finances separated
- Helps you build your business credit
- Lets you assess your business performance more easily
- Lends credibility to your business
- Simplifies tax season
- Helps you build a banking relationship
- Allows you to accept credit card payments
If you’re planning to open a bank account, see our roundup of the best small business checking accounts to find the provider that’s right for you.
How To Open a Business Bank Account
Opening a business bank account requires a process similar to opening a personal bank account. Your account can be opened in as little as a few minutes but could take longer, depending on the organization of your business. Many business bank accounts can be opened entirely online, while others might require you to visit a branch location.
Though individual banks may require different documents to open a business bank account, here is a general list of what you will need:
- Employer identification number (EIN) or Social Security number if you’re a sole proprietor
- 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
Checklist: Unsure which documents you need to open a business bank account? Download our business bank account required documents checklist to see what you need to open an account based on your business organization structure.
Considerations When Choosing a Business Bank Account
Now that you know the benefits of opening a business bank account, it’s time to evaluate these factors before choosing a bank for your small business.
1. Service area and online banking access
Choose a business bank with brick-and-mortar branches if you need in-person banking services for regular cash deposits. If you want more convenience, ensure the bank allows you to perform online banking.
U.S. Bank offers online account opening in all states. Visit U.S. Bank to learn more or read our U.S. Bank business checking review to see its account features.
2. Fees, limits, and balance requirements
Generally, business bank accounts have transaction and monthly service fees, though most banks waive these fees if you meet the required balances or certain conditions. Some banks also provide a free transaction allowance and charge fees only once you exceed the limit. However, many banks require a minimum opening deposit to open an account.
Consider a fintech provider like Novo if you prefer an account without monthly service fees, transaction limits, and minimum deposit requirements. Visit Novo for more information. You can also check out our Novo business checking review to see if it’s a good fit.
3. Annual percentage yield (APY) rates
Among the best ways to earn interest for your business is by opening an interest-bearing account. If you’re looking for a high APY rate for your business account, Bluevine provides an outstanding 2.0% APY for qualifying balances of standard checking accounts. Learn more by visiting Bluevine’s website or reading our review of Bluevine business checking.
4. Promotions
Some banks offer a cash back bonus for a designated period when you open a new business bank account and meet certain conditions. If you want to take advantage of this perk, check out our roundup of the top business bank account promos and offers.
5. Business services and software integrations
Depending on your business needs, it’s important to check if the provider offers integration with accounting and payment software, such as QuickBooks, Xero, PayPal, Square, and other programs your company uses. See our list of leading banks for ecommerce businesses to find options.
If you engage with international vendors regularly, you must have the best international business support. Our guide to the top banks for international business can help you decide on a compatible provider.
6. Federal Deposit Insurance Corp. (FDIC) coverage
As your business scales, your funds increase, and you will likely need a higher FDIC coverage for additional protection. While all banks provide the standard $250,000 FDIC-insured limit, some banks offer a higher FDIC coverage for business accounts. See our guide on FDIC Insurance for business accounts to learn more.
Frequently Asked Questions (FAQs)
While very small sole proprietors might be tempted to run their businesses through their personal bank account, it isn’t recommended. You should get a business bank account to separate your finances, which has multiple benefits, including avoiding tax issues. Any incorporated businesses legally must have a business bank account.
It’s a great idea to open a business bank account at the same bank your personal accounts are located since you already have a banking relationship established with the bank. If that bank offers business banking products and services that can benefit your company, opening a business account has many benefits. Also, it may be easier to get business financing with a bank where you have both business and personal accounts than with a new bank where you are opening your first account.
While you can technically use a personal bank account for an LLC, it isn’t advisable, especially if it’s a multi-member LLC. Running the finances of a multi-member LLC through a personal account opens up all members to personal liability. By using a business account, that account would fall under the liability protection offered by an LLC. This is extremely important when the business begins taking out credit in the company’s name.
Bottom Line
While small sole proprietors and single-member LLCs might be tempted to use personal bank accounts for business finances, it is strongly discouraged. In addition to potential tax issues, using a personal bank account limits your company’s growth potential. You’ll be unable to build business banking relationships, which will make getting loans and credit cards in the company’s name impossible. No matter how limited your revenue is, opening a business bank account will give you peace of mind that your company and personal finances will be protected.
