Whether you’re a fledgling solopreneur or an established small business, your need a way to manage your business's finances.
For most business owners, that means establishing a commercial checking account. A commercial checking account is similar to a personal checking account, with a few special features designed to make the account safe and secure for businesses.
Here’s what you need to know about opening a commercial checking account for your small business.
What Is a Commercial Checking Account?
A commercial checking account, often called a business checking account, is a bank account designed for business use. It allows you to write checks, use a debit card, and issue payments in your business's name.
For most small businesses, the commercial checking account is a key piece of their financial operations. It’s the single most important account for tracking cash flow, managing the books, and conducting the daily financial operations of the business.
Why Do Businesses Need a Commercial Checking Account?
Businesses need a commercial checking account so that business owners can keep their personal finances and their business finances separate. Separating business and personal finances simplifies your bookkeeping, so you can more easily pay your quarterly taxes and file your taxes every year.
Commercial checking accounts also offer a higher level of credibility. For example, when customers pay your business, they will use your business name rather than your personal name. Even sole proprietors can take advantage of the “doing business as” feature of a commercial checking account.
Even if you own a very small business, like a side hustle, a business checking account can be beneficial. Aside from the simplified accounting, it sets you up for growth. If you have no expenses and limited income, you may be able to operate your business using an Excel spreadsheet. But as soon as you have recurring expenses and a growing customer base, you need the simplicity and professionalism that a commercial checking account provides.
Features of Commercial Checking Accounts
Here are some features to look for in a commercial checking account:
- Check-Writing. With a commercial checking account, you can write checks in the name of your business. This is especially important if you need to pay contractors or employees.
- Business debit cards. You should be able to get one or more debit cards which you can use for everyday business purchases.
- Employee debit cards. Most commercial checking accounts allow you to open debit cards for select employees. While you may not need it right away, it can be helpful to have this option later down the road.
- Allow payroll integrations. If you have employees to pay, you’ll probably want to use a payroll service. Thankfully, most commercial checking accounts allow you to connect a payroll processing service to the account.
- Credit card processing. Many small businesses opt to use a credit card processing service like Square to accept credit and debit card payments, but some commercial checking accounts have the feature built-in. You’ll need to compare pricing to decide what solution is right for you.
- Transaction limits. If your business is a high-volume business, you’ll need to be careful with transaction limits. Some commercial checking accounts limit the number of incoming or total transactions in a month. If you consistently exceed the transaction limit, it may be time for you to upgrade to a new account.
- Monthly fee. While no-fee business checking accounts do exist, most charge a monthly fee.
Benefits of Commercial Checking Accounts
While commercial checking accounts can be expensive, they offer several benefits to new and established business owners.
- Separate your business and personal finances: The primary benefit of a commercial checking account is that it prevents a business owner from mingling personal and business finances.
- Simplifies accounting: Figuring out profits and losses, budgeting for business expenses, managing your books. All of this is easier with a dedicated business bank account.
- Makes tax filing easier: With a dedicated commercial bank account, tax filing becomes much easier, particularly if you use high-quality tax filing software.
- Provides credibility: Your first few clients may not care that they need to write checks or pay you personally. But once you have an established business, you’ll want customers to use your business name instead of your personal name. A corporate checking account allows your customers to issue checks to the business instead of you.
- Protect your personal finances from business liability: If you have professional liability insurance, your personal finances may be protected in the event of some business liabilities. But when you use your personal checking account for your business, you have limited legal protections. You can better protect your personal assets by setting up a business structure and using a commercial checking account. With those structures in place, your personal assets are more likely to be protected in case you face a lawsuit.
- Sets the business up for growth: Regardless of the size of your business, you want to set yourself up well for growth. Even small side businesses may have recurring expenses that require a separate checking account. And if you start to have irregular expenses, you’ll want the ability to track those through a separate account instead of doing forensic accounting every tax season.
- FDIC-insurance: Most commercial checking accounts offer FDIC insurance up to $250,000, which is enough to cover most small businesses.
- Makes borrowing easier: You'll need more than just a business plan to get a business loan. If you have a proven track record of business income and profitability, you may be able to get a loan to expand your business more easily. A commercial checking account makes it easier to confirm your business income.
Fees and Interest Rates In Commercial Checking Accounts
Here are some of the typical fees charged to commercial checking accounts.
- Monthly fee. Most commercial checking accounts charge a monthly fee. The fee typically ranges from $12-$50 depending on the bank and the features offered by the account. If you have a relatively small business, you may be able to find a free monthly checking option.
- Transaction fee. Commercial accounts typically limit the number of transactions you can post in a month. If you post more transactions, you will pay a fee per transaction. These fees can add up, so be careful if you’re running card processing services through your checking account.
- Cash deposit fee. Commercial checking accounts may place limits on the amount of money you can deposit at one time or in one month. Banks have to report large cash transactions, so this fee allows them to account for the extra effort associated with managing the account. If you operate a cash business, this is a fee that you need to be careful to understand.
- Overdraft fee and Not Sufficient Funds fee. If you overdraw your account, most commercial accounts will charge a fee. As a business owner, you need to be careful because you may not have the option of connecting a backup savings account to your commercial checking account.
- Wire Transfer fee. Wire transfer fees can add up, but most of the time wire transfers are only required for transferring large sums of money.
Another consideration is the yields offered on commercial bank account deposits. Many checking accounts don’t pay interest on the deposits. For those that do offer yields, the interest rates tend to be lower than savings accounts. The commercial checking account shouldn’t be viewed as a place to store savings. Instead, view it as an account to hold “operating capital”. Put the rest of it to work in a business savings account or take a distribution to invest outside of your business.
Commercial Checking Vs. Personal Checking
Like a personal checking account, a commercial checking account allows you to write checks and use a debit card to buy items for your business. But a commercial account often adds a few more bells and whistles that make it a better choice than using a personal checking account for your business.
For example, a corporate checking account may allow you to open debit cards for employees, provide services for processing debit or credit card purchases, or allow you to integrate with payroll processors.
The downside of commercial checking accounts is the monthly cost. Most charge monthly fees that are not easily waived. If an account does offer a low monthly fee, the monthly transaction limit will also likely be low.
How To Open a Commercial Checking Account
One of the most important prerequisites to opening a commercial checking account is getting an Employee Identification Number (EIN). This is a number that you can use in lieu of a Social Security Number, and you have to request it through the IRS. Depending on when you apply for an EIN, getting one issued can take up to several months, so start this application early.
To open a commercial checking account, you will need your name, contact information (including a physical address), and your Tax ID number (usually a Social Security Number or your EIN). Most of the time, you'll also need to supply a photo ID and a copy of your Articles of Incorporation.
Typically, you can open a commercial checking account online through a bank’s website. You may need to wait a few hours after submitting an online application for the bank to review your documents and issue an account.
How To Choose The Best Commercial Checking Account For Your Business
When it comes to commercial checking accounts, there is no “one size fits all”. A good starting point for established businesses is our updated article on the best business checking accounts. If you own an established or growing business you’ll want to look at the fees on different accounts, but you also need to look at the features, such as mobile check deposit. Companies that want to use their checking account to accept credit card payments need an account that can handle that function.
If your only goal is to separate your business and personal finances, consider these startup-friendly checking accounts that prioritize low fees over other features.
Is a Commercial Checking Account Right For Your Business?
Whether you own a freelance business, a busy shop on Etsy, or a small business about to hire its first employee, your business needs a commercial checking account. Thankfully, free or low-cost commercial checking accounts are readily available.
Larger companies may need more features, but the cost of the account shouldn’t scare you. These accounts can simplify your life, add professionalism to your business, and protect you legally. The bottom line? If you own a business, it deserves its own commercial checking account.
Hannah is a wife, mom, and described personal finance geek. She excels with spreadsheets (and puns)! She regularly explores in-depth financial topics and enjoys looking at the latest tools and trends with money.