Personal Vs. Business Checking Accounts

A checking account is essential when you're starting a business, and having the right one is even more important. Ideally, you want the right business checking account and to keep it separate from your personal finances.

Below, we explain the differences between the two and why you should use a business checking account instead of a personal one.

Personal Vs. Business Checking

What's the difference between the two? While the two are very similar—it lets you deposit and withdraw money, make payments with check or ACH, and use a debit card—although there are a few major differences.

A personal checking account is used for your personal finances and may come with fewer fees and balance requirements than a business checking account.

A business checking account is necessary for business owners, even if they are small-business owners just starting out or even freelancing. It can give you protection and flexibility to help you grow your business and may come with fees (that may be difficult to waive), minimum requirements, liability protection, and the option to order debit cards (and set limits) for their employees.

Why You Shouldn't Mix Personal And Business Banking

While you can use a personal checking account if you're a sole proprietor, it's not advisable to do so for many reasons:

• Specific terms and conditions from your bank may not allow you to use a personal checking account for business reasons.
• You could lose your personal assets if you're in a lawsuit because it can be difficult to separate your business transactions from your personal ones.
• You will need to split your personal and business transactions before tax season, which needs to be done manually and comes with a risk of error. Using a business checking account will simplify that process, make it easier to identify deductions, and make it less likely that you will be audited by the IRS.

Additionally, if you own an LLC or a corporation, It's a good idea to keep your personal and business finances separate. You may also lose any liability for business transactions if you mix the two.

Why You Should Open A Business Checking Account

Opening a business checking account is important and beneficial as a small-business owner for multiple reasons:

• It gives you credibility. A business checking account makes your business appear more legitimate to clients when you have checks and payments coming from an account under your business name.
• Prepares you for business credit. A business checking account builds a relationship with your bank that can help you receive future financing for business credit cards and loans.
• Keep track of your business finances. Having a separate bank account is helpful when you need to see how your business is performing, specifically how much revenue you are bringing in and what you are spending.
• Makes taxes easier. Having a business checking account that tracks your expenses makes it easier for you when it comes time for taxes because the IRS is likely to accept deductions connected to a business bank account.
• Protects your assets in the case of a lawsuit. In the case someone sues your business, only your business assets—and not your personal ones—will be affected. Having a separate business account demonstrates a separation of your business and personal finances. If you use a single account, it blurs the lines and makes it easier for a creditor to legally hold you responsible for business expenses, even if you have a limited liability company.
• Open subaccounts: Business checking accounts give you the ability to open accounts for employees to use for business expenses.
• Low or no fees: Small-business owners can find online banks that charge little to no fees for business banking.
• Account integrations: This allows you to connect your current accounts to other accounts (business credit card or line of credit) to make payments and transfers.

When To Open A Business Checking Account

So, when do you open a business checking account? If you're a small-business owner or plan to make your side job your main income, it's clear that you should separate personal life and work and opt for a business checking account.

It gets a little murkier when you have a side gig that you don't plan on making your main income. If you don't plan on getting a business checking account, it's important that you keep your personal and business finances separate manually. However, you might find that it will eventually be easier for you to get a business checking account to keep your personal finances and assets secure.

Whatever your business goals are, a business checking account will help you in the long run. Ideally, you'll want to open a business account before you open your business so your finances and businesses are secure from the get-go.

What To Look For In Business Checking

When you're looking to open a business checking account, you will probably be looking for a reputable bank or credit union, flexible account options, and services that will meet your needs.

Here are a few factors you'll want to look for in a business checking account:

• No fees, including hidden, monthly, ATM, and non-sufficient funds fees
• No minimum balance requirements
• Unlimited transactions for deposits and withdrawals
• Pay bills and vendors by ACH, check, or wire transfer
• User-friendliness through online services and a mobile app for easy banking
• Excellent customer service, dedicated live support, and a physical location if needed
• Receive APY (annual percentage yield) on your current balance
• Business credit card with a low interest rate, low annual fees, cashback and rewards
• Debit cards for your employees
• FDIC-insured banking

How To Open A Business Checking Account

What You Need

You don't need any revenue to open a bank -- after all, opening a business checking account should be one of your first steps.

In order to do so, you will need the following documentation:

• Social Security number (SSN) if you are a sole proprietor or Employee Identification Number (EIN) if your business is a corporation, partnership, or limited liability company (LLC)
• Government- or state-issued personal ID, such as a driver's license or passport
• Business license
• Organizing documents filed with the state
• Certificate of assumed name or DBA (Doing Business As) name (if you are operating a business under a different name than your legal name)
• Articles of Organization (LLCs) or Articles of Incorporation (for corporations)
• Partnership agreement with the business name and its partners (if your business has multiple owners)
• Any additional documentation depends on the bank you are applying to and your legal structure

We recommend NorthOne and BlueVine checking to small-business owners. These banks offer comprehensive online banking, APY growth, low or no fees and allow you to better control your finances so you can grow your business.

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

A personal checking account is a bank account that is generally designated for personal use and usually has low or no fees. Business checking accounts are geared toward business owners who are looking for financial tools for their businesses.

Can I use my personal checking account for business purposes?

You can, but you shouldn't. It may seem like a lot of work to have two checking accounts, but you should keep your personal and business finances separate due to tax purposes and legal liabilities because you can lose your personal assets in a lawsuit.

About The Author

Andy Chang

Founder of TheCreditReview

Andy Chang is the founder of TheCreditReview, a review site started in 2017 that is dedicated to helping consumers find the best companies in financial services. Andy is passionate about financial education and wellness, and helping others reach financial freedom. He consistently writes about topics ranging from credit to banking and lending.

Articles by Andy Chang

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