Starting a business is exciting, complex and fraught with countless decisions before you make your first sale. One important choice is where to set up your business bank account and what kinds of accounts to get.
Every business is different and has its own product cycles, financial withdrawal needs and specific financial requirements. That means we can’t tell you what kind of bank account you should have, but we can share the most important questions to consider before you open an account.
Here are the top 20 questions to ask before opening a business bank account.
1. What Business Banking Services Do You Need?
Business bank accounts come in a variety of options. General categories, each of which have multiple sub-options at most banks, include:
- Checking accounts
- Savings accounts
- Investment and money market accounts
- Credit/debit cards
- Deposit-only cards
- Online business banking
- Employee checking accounts
Most new businesses will want a business checking and savings account. But you may want more or fewer options depending on how you expect funds to flow through your company coffers.
2. Do You Need Quick Lending?
Some businesses have a smooth flow of expenses and revenue and only need lending for a major expansion, renovation or project. Others have spikes in their business and need a short-term cash infusion. For example, a seasonal business might need to advertise and buy products in the spring to be ready to sell by summer.
If your business needs short-term cash, you will want a bank that can provide rapid credit. You may be looking for a line of credit or on-demand lending for existing customers. In either case, if your company needs it, make certain your bank offers it.
3. How Much Impact Will Your Credit Have?
If you’re starting a business, all of the credit inquiries will be on your personal credit until you’ve established business credit. Find out what your credit looks like by getting your free annual credit report from each of the three major bureaus. Ideally, you should do this a year or so before you start shopping for banks to give you time to increase your credit rating.
After you know your credit score, inquire among the banks you’re considering about what degree your credit score will impact the offerings. You may find different credit policies will alter your final decision.
4. Is There a Minimum Balance Requirement?
Each bank account has a minimum balance requirement, below which you accumulate extra fees for keeping the account open. Find out what the requirement is for each account you consider.
Further, find out if that minimum is for an average statement balance (the mean of the balance for all days in the billing cycle) or for the lowest balance in the month. Once you know that, compare it to your anticipated cash flow to see if you can reliably stay above that limit.
Some accounts will also have thresholds at which you’re encouraged to keep money in the account. For example, you pay no fees if you have a balance of $3,000 or more, but you pay a monthly fee of $5 for a balance between $1,000 and $3,000. If your balance is below $1,000, you pay a $10 monthly fee.
5. What Is the Fee Schedule?
Banks are for-profit businesses, and they make a profit in part by charging their customers fees. Some also fail to post all of their fees clearly. Ask specifically about each of the following fees for any account you consider:
- Monthly service fee
- Transaction fee
- Cash deposit fee
- ATM usage fee
- Wire transfer fee
- Minimum balance fee
- Overdraft fee
- Maintenance fee
Know the exact and total cost of each account so that you can compare pricing.
6. Is There a Maximum Transaction Limit?
Although this practice is less common than it once was, some banks still charge an extra fee if you make more than a prescribed number of transactions in a given month. In some cases, these are broken out into types of transactions — for example, 50 total transactions but no more than five written checks.
Know these limits and if it’s possible for your business to work around them.
7. Are There Minimum Transaction Amounts?
Some money market and savings accounts charge extra for transactions below a set amount. That’s because their costs per transaction are largely static regardless of a transaction’s size, so they want transactions large enough to be profitable.
Again, check these amounts against the amounts your business is likely to produce in its day-to-day operations.
8. Are There Linked Service Discounts?
Ask what other business services each bank provides. For example:
- Payroll services
- Employee bank accounts at discount rates
- Business insurance
- Loans and lines of credit
- Credit cards
Some banks offer discounts on fees or increased interest on balances if you use more than one service. Don’t sign up for things you don’t need to get this discount, but take it into consideration if you need multiple services.
9. Is the Account Interest-Bearing?
This is a simple question. Does the account pay interest, and if so, at what rate? Does the rate change according to the balance, and if so, at what different levels? Is interest calculated daily, monthly according to average balance or through some other method?
10. What Are the Online Banking Options?
Ask for a demo of the bank’s online business banking tools. These vary widely at banks and are hard to predict based on other characteristics. A small credit union might have better online banking than a global conglomerate or even an online-only bank.
11. What Perks Matter to Your Business?
In the brisk competition for business customers, banks often offer a variety of perks for new customers. Common options include:
- Cash bonuses
- Limited time interest rates
- Payroll services
- Accounting software
- Travel agent services
- Hotel discounts
- Discount club memberships
- Air mile access
- Tax prep help
- Business advice
Few of these perks are big enough to be deal-breakers, but they make for good qualifiers and tie-breakers as you narrow down your decision.
12. How Much of Your Deposit Is Insured?
The Federal Deposit Insurance Corporation (FDIC) covers your deposits for up to $250,000 for any FDIC-insured bank. That’s high enough that few personal account holders need to worry about that limit. For businesses, though, it can be a different matter.
If you do business at those levels, year-round or even only during peak seasons, find out about deposit insurance options with any bank where that limit might become an issue.
13. What Is the Lag Between Deposit and Availability?
Sometimes, businesses need funds right away. Find out how long after deposit funds become available for you to access. In most cases, different kinds of transactions take different amounts of time. For instance, cash deposits are generally available faster than checks. In some cases, larger amounts will likewise be subject to a longer wait.
Find out what the normal wait times are and what procedures exist for expedited availability in emergency situations.
14. Who Will Need to Sign Checks?
Of the owners and employees, who will need to sign company checks? You will need identification for, and possibly the presence of, each of these people when you open the account.
15. What States (and Countries) Does the Bank Do Business With?
This is usually only important if your business will take you out of state. If so, does the bank do business in all of the states and countries where you’ll do business? If not, do they belong to a network or have a satellite company that can take care of you when you’re out of the area? Are there extra fees for transactions made when you’re away from home?
16. Does the Account Integrate with Your Bookkeeping Software?
Some banks have online business banking interfaces that integrate with Quicken, Intuit and other bookkeeping tools. It’s difficult to overstate how convenient and helpful this seemingly small detail can be to your business.
17. Who Are the Bank’s Business Partners and Owners?
Is the bank owned by, or operating in partnership with, other businesses or conglomerates? If so, it suggests two follow-up questions.
First, are you comfortable with the practices and reputation of every member of their corporate family? What does the reputation of the owners say about any promises they’ve made or customer service concerns you anticipate?
Second, will you do business with some of their partners? If so, is there a discount with those partners for customers of the bank?
18. Can the Bank Grow with You?
When asking many of these questions, don’t just answer for your immediate starting needs. Ask about what you’re likely to need in two years, three years and five years. Will your transaction volume, minimum balances and financial flexibility still be optimal if you stick with this bank?
Making the best decision might mean taking a slightly more expensive product in the short term or walking away from attractive perks, but business success is a long-term proposition. It’s best to prepare for future success as early as possible.
19. Can the Bank Provide 3-5 Positive References?
Ask this of every vendor you ever work with, always. Banks are no exception. Ask each of those references for the name of somebody they know who also works with that bank. Secondary references will give you a more honest answer.
20. What Documents Will You Need to Provide?
Few things are more frustrating than taking the time to open your business bank account only to discover you lack the proper documentation. By law, you will have to provide the following documents for most business accounts:
- Employer Identification Number (EIN), along with whatever documentation accompanied getting it
- Your business formation documents (for example, Articles of Incorporation)
- All relevant ownership agreements
- Business license, where applicable
Some banks also require other documents, such as photo ID for company officers and check signers. It’s a good idea to call ahead and ask to make sure you arrive with everything you need.
Final Thought: Local Branch or Online Only?
One final question you should ask: Should you go with a physical bank or an online-only bank?
Both options work with almost all of the answers to the earlier questions, so we’re saving this consideration for last.
Local Business Bank Branches
A bank with a physical, local branch offers more personalized service and accountability. If there’s a problem, you can walk inside and speak to somebody with the ability to fix what’s gone wrong. That personal connection can also make it easier to get certain lines of credit and other options, compared to an online bank where you have no personal contacts.
By contrast, local branches have several drawbacks. The physical locations create greater overhead, which often manifests as higher fees. They have set hours, outside of which it can be hard to get customer service. Their pace of business is also frequently slower, which can make a difference in certain industries.
Online Only Business Banking
Online-only banking is largely a mirror image of traditional banking. But there is no personal connection. Customer service can be spotty, and even finding the right person to help you with a problem could take a day. Not all internet banks offer loans, so you may have to complete other financial transactions with a different entity.
On the plus side, their fees tend to be lower, and they offer better interest rates on balances. Hours are usually 24/7/365, and the pace of business can help your business move forward in real-time rather than waiting on the lags associated with more traditional banking.
There is no right or wrong answer here, and each business owner must decide what works best for their business.
Thomas Reed runs a small consulting business in Michigan where he helps news businesses set up their back offices, including banking.