Considerations When Starting A Business – Part 6
Choosing The Right Bank
Once your business is on track to “go live” and commence business operations, you’ll need to find a good bank and open a business bank account. To start off, you’ll probably only need one business bank account - typically, a business checking account but as the business needs and requirements change, opening additional accounts may be warranted.
You’ll want to find a bank that is reputable, convenient, accessible and offers no or low fees on your business checking account. You’ll also want a bank that has dedicated representatives or an account team that are responsive should you run into any issues with your account and/or need to discuss additional banking services and resources. Look for a bank that has branches that are convenient to your business location in the event you need services from a local branch.
Some business owners opt to open business accounts at banks that handle their personal accounts. There are generally no issues with doing this and in fact, it may be easier to open a business account at a bank that already handles your personal banking especially if you have a good relationship and standing with the bank though this is not guaranteed. Keep in mind that the bank may not offer the best rates when it comes to fees on business accounts, so it is still best to do comparison shopping at other banks. You don’t want to pay exorbitant monthly bank fees on your business checking account at a time when you are just getting started nor even as your business continues to grow.
Banks typically have a selection of tiered account offerings. When choosing an offering, be sure to inquire with the bank about bank fees applicable to the respective offering (request a bank rate card, if available), how you can reduce or eliminate your monthly bank fees (ex: maintain minimum monthly average balance) and what is included as part of the offering (ex: number of monthly transactions at no additional fee, number of checks that you can write per month with no additional fee, are incoming and outgoing ACH/Wires included and if so, how many?, do you get free checks? do you get free official bank checks?, etc.). The key is to get the most bang for your bank business!
Today, many banks offer accounts which cater specifically to startups and small businesses. That is, the accounts have lower initial deposit requirements to open the account and the minimum requirements to waive monthly fees are easier to meet (ex: lower monthly average balance). That said, be sure to exercise due diligence and ask questions about monthly fees and service offerings so you know exactly what the respective account includes. Never assume!
For startups and small businesses, your check deposit options will usually be limited to in branch or mobile deposit. Just keep in mind that most banks have a daily and monthly limit on mobile deposit which may be significantly lower than what you expect to deposit per day or month. Some banks will increase the limits as you build history, some banks will increase your limit upon request and review of our account history, and some may not offer increases at all. In the latter case, you may need to deposit checks in branch or receive payments electronically.
As your business and banking needs grow, you may eventually migrate to an account which supports remote check deposit. Many commercial banks offer remote deposit capabilities to mid to large size business banking customers, so they do not need to make deposits at a branch. There are usually equipment, monthly service, and transaction fees for remote deposits, so be aware of those costs. Typically, remote deposit will be associated with On Analysis accounts. The monthly bank fees can be offset or reduced by maintaining a significantly larger monthly average balance in the business account.
You may also consider opening additional accounts like an interest-bearing business savings account. A business savings account is useful if you tend to be cash heavy and want to earn a little interest in an FDIC insured account while your cash remains idle. Interest rates are still low so don’t expect to earn a lot of interest, but it’s a good way to earn some passive income on that idle cash. Just keep in mind that each additional bank account may incur additional monthly bank fees, so you’ll want to make sure you can find ways to offset those additional costs.
To open a business bank account, you’ll typically need your business Employer Identification Number (EIN) or Federal Taxpayer ID number (FTIN or TIN) – some banks may ask for a copy of the IRS Form SS-4 confirmation letter, a copy of your Articles of Formation (LLCs) or Articles of Incorporation (Corporations), DBA name and registration (if applicable), business and ownership information (ex: business address & telephone, name of owners, ownership stake), credentials of business owners and authorized signors on the account, copy of the Operating Agreement (LLCs) or copy of the Corporate Bylaws (Corporations), corporate resolution (Corporation) or other permitted document(s) authorizing certain individuals to open a business account on behalf of the business and so forth. It is best to check with the bank to determine exactly which documents and what information they require to open and setup an account. If opening an account at a local branch, all authorized signors may need to be present with their credentials.
While the process may seem tedious, banks must exercise due diligence to prevent fraud. That said, a good bank should work with you and your business as a partner throughout the process (and beyond) to make it as smooth and fluid as possible.