How to choose a business checking account

Finding the right small business checking account can be confusing. Many options for a business bank account seem more appropriate for larger businesses. A lot of features, but a lot of complexity.

For a small business, the monthly fee alone can eat into your capital. For many small businesses, a free business checking account seems like the best option. In this article, we’ll review a number of factors to consider when evaluating a business checking account.

What’s typical in the industry

It’s hard to think of a typical financial institution these days. There are brick-and-mortar banks (also called retail banks), online banks, credit unions and more. Each has a different focus when it comes to supporting small businesses.

As a small business owner, when you’re looking for the right bank, it’s important to focus on the bank’s commitment to small businesses.

Larger banks often have many fees, including monthly maintenance fees and transaction fees, and unwieldy conditions for avoiding or reducing those fees. The challenge is that the minimum balance required to avoid fees is often out of reach for small business owners.

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 credit unions 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.

What to look for in a business checking account

Simplicity is something you should expect from your business banking account:

  • Simple terms
  • Easy-access debit card
  • No ATM fees
  • Low or no monthly service fees
  • Branch banking and ATM access
  • Mobile banking
  • Online banking
  • Overdraft protection

Working with an FDIC- insured company is another key factor, since it offers important business protections.

Getting an attractive interest rate can be very beneficial. But be sure to read the fine print to ensure the checking account doesn’t have a bunch of challenging requirements making it difficult, if not impossible, to earn interest.

What Is the best business account for you?

The best business account for you is the one that checks off all the boxes you need checked off. If you need low or no fees, a competitive interest rate and free access to many ATMs, the bank that can deliver this is your best option.

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 doing so can be a business advantage over accepting only cash.

The benefits of Kabbage Checking™ with the power of American Express

Kabbage Checking is designed expressly for small business owners. Our business accounts come with no monthly maintenance fees and free in-network ATM access. Plus, when you bank with Kabbage, it pays to deposit. Literally. Why? Because our online Kabbage Checking comes with an industry-leading 1.10% APY on balances up to $100,000. Plus,

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

Want to dig deeper?

Have questions about how to choose a business checking account? Check out our FAQs on this topic.

What factors should I look at when comparing business checking accounts?

You should look at fees, interest rates and whether the financial institution is small-business friendly.

Can you use a personal checking account for your business?

We do not recommend doing this. It will make it more difficult to track your business expenses separately from your personal expenses, and it could result in more headaches at tax time. Also, having a separate business account will give you a more professional image.

What is the difference between a business bank account and a personal bank account?

A personal checking account is for managing personal finances. A business checking account is for managing business finances.

Want to dig deeper?