What are business bank accounts?
A business bank account is a kind of bank account that offers features and benefits specific to businesses. Banks and fintechs offer different kinds of business bank accounts, based on business size and requirements.
Does my business need a business bank account?
The short answer: yes.
All businesses need a separate business bank account for a number of reasons. Here are a few:
Limiting personal liability
By using a separate bank account for business transactions, founders make sure that there is a separation between personal and business liability. For example, all business debts should be paid out of the business bank account only – paying debts from your personal account could result in personal financial issues.
Better business finance management
Personal savings accounts are simply not built to handle the needs of businesses. Most business bank accounts come with a host of features that help businesses handle their finances better – vendor management, payroll, corporate credit cards, capital and so much more.
Creditworthiness
Before lending to a business, banks and lending institutions conduct thorough checks and risk analyses to ensure that repayment is sound. This creditworthiness check becomes a lot easier if the business has its own bank account where all transactions go through.
Professionalism
Asking customers and vendors to make payments to an official business bank account projects an air of professionalism – in contrast to receiving payments on your personal account.
Regulation and Compliance
There are certain legal compliance mechanisms in place to ensure that businesses pay taxes correctly and disclose their accounts. Having a separate bank account only for business transactions makes it much easier to understand inflows and outflows and thus follow these compliances.
Features of business bank account
The main reason you should opt for a business bank account is the host of features offered. These features make financial management for businesses easier than ever. Here are a few:
- Online banking: Business bank accounts typically offer online banking services, which allow businesses to access their account information and make transactions from anywhere with an Internet connection.
- Vendor management: A vendor management feature helps businesses deal with invoices and payouts to vendors, ensuring on-time payments and easier recordkeeping
- Credit cards: Some business bank accounts offer business credit cards, which can be used to make purchases and earn rewards. This can be a convenient way for businesses to make purchases, especially if they are eligible for rewards.
- Payroll: Tools like RazorpayX Payroll help businesses handle employee salary payouts, compliances and tax payments and more with ease.
Considerations before opening business bank account
As a business owner today, you have before you a huge variety of banks and bank accounts to choose from. Here’s a list of the things you must keep in mind before committing to any kind of bank account:
Fees: Make sure you check and compare the opening fees across banks and account offerings. Some banks require an annual fee, while some deduct fees quarterly. Some banks might not demand a fee at all!
Read more: A Guide to Current Accounts in India
Minimum Balance Requirement: All business bank accounts have a monthly or quarterly minimum balance requirement. For some banks, this MAB can be as low as Rs 1,000 but some higher-end business bank accounts might demand an MAB of as high as Rs 10 lakhs.
Features Offered: Business bank accounts offer a variety of different features and benefits for businesses, but these features vary across banks.
What are the types of business bank accounts?
The 7 different types of business bank accounts are as follows:
- Regular Current Account
A regular current account is the most versatile and widely used form of business account. It helps in receiving and sending money, managing payroll, expenses and other basic financial tasks which keep the business running. It comes with a business debit card and chequebook to manage transactions along with internet banking and mobile banking facilities.
- Merchant Account
A merchant account is necessary if a company accepts debit and credit card transactions or e-commerce payments. When a customer pays the business, the money gets deposited into this account and then automatically gets transferred to other business bank accounts after processing.
- Money Market Account
A money market account is a type of business bank account for companies that wish to maintain regular access to their funds. It is an interest-bearing savings account that offers flexibility by blending some features of both business checking and business saving accounts. For example, it offers cheque-writing capabilities and debit cards for ATM withdrawals.
- Business Credit Card Account
A business can have a credit card account and use the card for emergencies or pay for miscellaneous items of a business. The main benefit of such an account is that it can help businesses improve or maintain their credit score.
- Certificates of Deposit Account
A certificate of deposit account is an alternative to a savings account which can earn a business more interest than the latter. However, a business owner doesn’t get access to the money in this account for a set amount of time, which can range from a few months to several years.
This account is suitable for businesses with excess capital. If an individual takes money out of a CD account before maturity, then they will have to pay a steep penalty charge.
- Trust Account
Professionals use a trust account in a business to keep an account of their unearned incomes. These accounts can hold different assets, including cash, bonds, real estate, stock, mutual funds and other investments.
- Foreign Currency Accounts
A foreign currency account is a business bank account ideal for transactions that involve paying and receiving funds in another currency. It is also known as a multi-currency or borderless account.
This account allows a business to send and receive funds in multiple foreign currencies and can be maintained by an onshore or offshore bank. This money can even earn interest depending on the account.
How to open a business bank account?
The 4 easy steps to open a business bank account are:
Step 1: Choose your preferred bank or financial institution/platform where you wish to open your business bank account.
Step 2: Prepare the documents required to submit before opening the account. The documents should provide information on the employer identification number, business owner identification, business details, agreements, etc.
Step 3: You may open the account through the financial institution’s online platform or by visiting the branch of your preferred bank. The online process might vary from one bank to another.
Step 4: Submit the required documents along with the application form. After the verification process, your online account for business transactions will be set up successfully.
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Frequently Asked Questions
When should you open a business bank account?
An individual should open a business account before accepting the first payment for their company’s goods and services. It is typically opened during the company’s incorporation process.
What are the things to consider before opening a business bank account?
The 3 essential things that should be kept in mind before opening a business bank account are:
Minimum balance requirement and withdrawal rules of the account.
Account maintenance requirements.
Sign-up bonuses or any other bonuses
Is it better to apply online or in person while opening a business bank account?
An online application for opening a business account is always better as it is less time-consuming. An offline process would take more time as it involves multiple rounds of manual review, documentation, etc.
Do you need both a business checking and savings account?
Ideally, a business should have both a checking account and a savings account to separate funds for various particular purposes. Having a savings account provides access to liquid funds during emergencies.
How many business bank accounts does one need for a small business?
There is no limit to the number of bank accounts business owners can open. One can open multiple current accounts with the same or different banks whenever necessary.
What is a free business checking account?
A free business account does not incur a monthly maintenance fee. However, in most cases, one needs to maintain a specific minimum balance to avoid penalties.
