Good Banks For Small Businesses – Written by René Bennett Written by René BennettArrow Right Bank Writer René Bennett is a writer for Reporting on Banking Products and Personal Finance. Rene Bennett
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Good Banks For Small Businesses
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A person who operates a business with fewer employees or less revenue than a corporation or normal sized business is considered a small business owner. If you fall into this category, you may be wondering where to open a business account.
Although the definition of a small business is rather loose, small businesses tend to operate on a more limited scale with fewer employees and may not have the same resources as businesses or larger businesses. However, small businesses are a huge part of the business world. According to the U.S. Census Bureau, most U.S. businesses have fewer than five employees, accounting for 54.4% of businesses in 2018.
The COVID-19 pandemic has significantly impacted the growth of small businesses, particularly online businesses. According to a survey by Venture Forward, a research initiative of web hosting company GoDaddy, 2.8 million small online businesses were started in 2020, up from the previous year. 90% of these businesses have 10 or fewer employees and about one-fifth started out unemployed, up 8% from before March 2020.
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Opening a small business bank account is an essential step in managing your business and maintaining your finances. If you’re a small business owner looking for the right business account for you, here’s where to get one, what to look for, and how one of these accounts can help.
Business owners are required to open a business account and submit additional documentation to verify that they own a registered business. When you open an account, it will appear with the business name associated with the account holder’s name.
Business accounts may have higher fees, but having one account will help you keep your business transactions separate from your personal finances. An account with your business name attached gives your business more professionalism and helps customers feel more confident writing checks or making peer-to-peer payments for your business. It can also help boost your business’ credit rating.
Some banks offer accounts specifically tailored for small businesses. It has less complex features, limited free transactions, and may have a lower or no monthly fee.
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Here are some of the best options to choose from, with fees to watch out for and benefits that come with them.
Having a business account for small businesses registered with the US Small Business Administration has four main advantages:
Keeping your business account separate from your personal account will prevent business transactions from being lost or confused with personal transactions. When you handle all your business transactions in one place, it’s easier to track expenses and avoid mistakes. And even if you face a personal financial crisis, your business credit rating will not be adversely affected.
A business account helps give your business a more professional image. Customers can write checks to businesses, not personal accounts. Having a professional account can mean securing better deals for your business, of which minimal business loans are not accepted. If 70% of business owners do not have a business account, their ability to meet business-related expenses could be severely impacted in the event of a loan being turned down.
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The US Small Business Administration says that business accounts often come with a line of credit option, helping business owners better prepare for emergencies. For example, Bank of America offers four types of lines of credit for businesses to help manage cash flow, avoid overdraft fees and make purchases.
Business accounts can also provide more purchasing power to their owners by establishing a good credit history. Separate bank accounts have separate business credit ratings, which lenders use to evaluate the creditworthiness of a business. As your credit improves, more funds are available.
A final benefit of having a business account is taking advantage of tax deductions. Reporting business tax deductions from personal accounts can trigger an audit. Valuable small business tax credits include utility costs, inventory costs and interest on loans.
A business checking account is essential for managing your business’ day-to-day expenses and transactions, but it can also be a good idea to open a business savings account to store income you don’t need on a whim. Money in a business savings account can be used as an emergency fund or savings for major future expenses.
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A business savings account may have benefits not available through a business checking account, such as a higher annual rate of return (APY). However, it may not be worth it if you can’t meet the minimum balance requirement to avoid fees.
Millions of new businesses open each year, playing a vital role in the economy. Most small business owners handle business accounting themselves. Finding a business account that fits your business needs, along with all the responsibilities that running your business entails, can help make managing your finances easier.
It is important for small businesses to open a business checking account that they can use to make payments in and out of their business name and to obtain business loans. When looking for the right business account, look at the fees, transaction limits and features of the account that come with it.
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