Personal Vs. Business Checking Accounts

December 21, 2022 Business Banking
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 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

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What's the difference between the two? While the two are very similar -- it comes with overdraft protection, allows you to 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 typically comes 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 usually comes 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 personal checking account if you're a sole proprietor, it's definitely 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 since 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 also comes with a risk for 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, you are legally required 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.
  • Makes your business appear credible and legitimate. A business bank account can verify its legitimacy and assist when you apply for a business credit card or loan.
  • 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 since 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.
  • 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 easily 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, then 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 immensely 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, flexibility, 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 easily 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 on your current balance
  • Business credit card with 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-issued personal ID such as a driver's license or passport
  • State-issued ID
  • 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 Azlo, 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 generally have higher monthly fees and are specifically geared towards business owners with its flexibility, tax simplification, and fees.

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 since you can lose your personal assets in a lawsuit.

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