How to choose a business checking account

Finding the right small business checking account can be confusing. You will have many options for a business bank account that seems specific for larger businesses. For a small business, the monthly fee alone can eat into your capital. For many businesses, a free business checking account is the best option.

Here are a few things to consider when evaluating a business checking account.

What’s typical in the industry

What to look for in a business checking account

Interest Rates An estimated interest rate earnings range from 0% to 1% is typical.  

However, it is not uncommon to see brand new banks that offer higher interest rates than other well-established banks. 

This tactic helps bring in more new customers. 

Be on the lookout for a high-interest checking account. But be sure to read the fine print to ensure the checking account will meet your needs.
Fees Large banks typically have fees tied to small balances, deposit amounts, ATM withdrawals, ACH transactions, and more. 

Many business checking accounts come with a minimum balance or deposits, require a customer to use the bank‘s bill-pay service or require paychecks deposited directly to get the annual percentage yield (APY.) 

Today, there are many free business checking accounts that don’t charge monthly service fees — but typically, you’ll need to stay within cash advance and the transaction limit to keep the total costs low. 

Many credit unions don’t charge monthly fees for their business checking accounts. Credit unions can have high cash deposit limits — $20,000 per month in some cases — making them a good choice for restaurants and other businesses that deal mostly in cash or debit card transactions. 

While they are known for good customer service, the downside of a credit union for a business owner is that they might have limited banking locations and ATMs. 

Again, it’s important to read the fine print.

Commitment to the Small Business Owner Many small business owners open a checking account at the same large bank they have a personal account with.

Unfortunately, small business checking accounts do not always have the same perks as larger business checking accounts. 

Look for a company that is committed to providing small businesses with the best interest rates, no monthly fee, and no minimum opening deposit requirement. 

Also, make sure you have easy access to key information about your checking account.

Finally, working with an FDIC-insured company offers very important business protections.

Complexity  Large banks are complicated, with many fees and unwieldy conditions for avoiding or reducing those fees. Simplicity should be something you expect from your business banking account: simple terms, easy access debit card, no ATM fee, low or no monthly service fee, mobile banking, online banking, and overdraft protection.  

Using a business vs. personal checking account for your business 

Opening a business checking account is one of the most important things you can do for your business. A business checking account can play a key role in helping you grow your business, while protecting it and yourself at the same time. 

Some of the benefits of having a business checking account are: 

  • Tax and legal issues: Having separate accounts and keeping separate business records makes it easier for you to categorize business versus personal outlays. It also enables you to deduct business expenses for taxes. Plus, you’ll be better protected if legal action is taken against your company.
  • Accurate and clean bookkeeping: If you combine business and personal activities in a single account, you’ll end up with difficulties as you try to sort through everything at tax time. Remember to keep all of your receipts and invoices to reconcile against your bank statement and checkbook. 
  • Business vs. hobby: The IRS expects you to show business expenses for both profits and losses to help  determine if you are running  a viable business and not just a “hobby business.” Having a separate business checking account helps prove that your business is a legitimate money-maker, not just a hobby.
  • Look like a business professional: Having a business checking account helps establish your brand and professionalism. Your clients may be hesitant to pay you personally, versus paying the business.
  • Credit card payments: It’s easier and safer to accept credit card payments when you have a business checking account, and credit card payments give your business advantage over only cash acceptance. 

Checking on your terms 

At the end of the day, you need a straightforward way to manage your money with an FDIC-insured business checking account. Look for: 

  • The ability to get started in minutes, from any device.
  • No monthly fees
  • Cash withdrawal and deposit capabilities
  • No minimum balance requirements

Learn more about how Kabbage Checking™ can support your small business.

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