How to Open an Online Business Bank Account

After finishing up the How to Start an Online Business series, I thought it’d be good to also discuss the all-important step of how to open an online business bank account.

Starting up your own business can be a hectic and nerve wracking task, but one that is fulfilling and very rewarding when done right. One of the most important things when you set up a new business is to plan out the finances of your new business.

Most entrepreneurs who start their business by themselves are usually so involved in proving their idea and generating revenue, they forget some other foundational tasks.

You must know how much you are going to need to get the business going, what your breakeven point and how are you going to deal with all the transactions that are going to come in the course of doing business.

One of the most importing things therefore is to set up a business bank account. When you’re going to start generating revenue, it’s a good idea to get your finances separated from your personal accounts.

One of those key foundational tasks forgotten is not setting up a separate business account, which can be a big mistake for several reasons.

Mixing up business and personal transactions

If you do not set up a separate bank account, then you run the risk of mixing up your personal transactions with bank transactions. It is likely that your business will generate anywhere from dozens to hundreds of transactions per month. You will have to spend a lot of time trying to separate your personal transactions from the business transactions at the end of the month to find out the figures that related only to your business.

Even if you’re not generating revenues just yet, I’m sure you’re spending money. The majority of businesses will require some costs, so what I do is I’ll deposit $100 into a new bank account that’s specifically for my new business. And I’ll also set aside a credit card just for business expenses. It doesn’t have to be a new credit card either. It’s just one that I don’t use often and can dedicate to only business expenses, so I don’t have to sift through any personal expenses in between. This helps to keep expenses clear.

It’s a good idea to open up a separate account for your business and cut off “was that a personal or business expense” questions later when you and/or your accountant are figuring out your books.

Ability to apply for loans and advances

If you use your personal account for business purposes then you may not be able to receive certain special business benefits. Benefits can include credit cards with higher limits and more lending options.

You may be able to get loans at better rates based on your assets and revenues. Your available lines of credit to help you with your operations could also be higher.

Legally Required

In some jurisdictions, businesses are required by law to have a separate bank account for tax and compliance reasons. If your business happens to be audited, then you will be required to have a separate bank account under law. A sole entrepreneur “might” be able to pass under the radar, but it’s not something I’d advise if it’s required by law in your area.

If you want to grow and develop your business and are thinking about incorporating your business in future then it is better to have a separate account from the beginning to have as little disruption in your business activity later on as possible.

If you have partners, then you’ll 100% want to have a separate account. You want to have as little finance issues with your partners as possible.

Traditional Banks

Opening a business bank account should be a pretty straight forward task.

You walk into a bank and decide what type of account you want to open. There are mainly two types of accounts for businesses:

• Checking account
• Savings account
  

If you need an account for daily transactions, then you should go for the checking account. If you are opening an account to build up cash reserves of your business, then you should go for a savings account. A savings account will offer interest and the ability to increase your reserves over time. Most small businesses will only have a checking account as that’s all that’s necessary.

But that process also involves walking into a brick and mortar bank.

There is now a third option for businesses – online banks. Online banks are mostly digital-only.

The traditional brick and mortar banks all have an online component to their services now, but they often still require customers to go into a physical store, especially to open an account. That’s not convenient for those who travel a lot and for those who mostly live abroad.

How to Open a Business Bank Account

Online banks don’t have a brick and mortar location for you to walk into, but that’s ok, because the majority of your banking needs is already done online.

If you have an online business, it makes even more sense for you to utilize an online bank.

Since these banks have low overhead costs with no physical locations, they also have minimal or no bank fees.

Research different online banks available in your country, before settling for any single bank. Not all online banks are available in every country. Countries have their own financial regulations that these online banks still need to abide by.

After creating your list of online bank options, compare the features and fees they have. Some may have minimum deposits to open an account, as well as a minimum amount of money in the accounts or they’ll charge monthly fees. Choose the bank that suits your business needs.

Once you have decided the bank, you can then proceed with opening up your business bank account. The specifics may change depending on the country you are based in, but each country will have more or less the same requirements for opening up your online business bank account. In the United States, you’ll generally need:

• Social Security Number (SSN) or Employee Identification Number (EIN)
  
  • Other countries may have a General Sales Tax (GST) number or National Tax Number (NTN).
• You will also be required to furnish your business formation documents and certificates of business registration / organization.
• Depending on local regulations, you’ll be required to submit a permit for eCommerce activities if you’re selling online.
• Personal identification documents proving your identity and ownership in the business.
  

Upon successful submission of these documents your business bank account should be up in no time.

Top 5 Online Business Banks

There are many types of online banks out there.

The 5 options below I either currently have (marked with *) or have gone through the application process to open one of the popular online bank account providers. I’ll make a note as to why I wasn’t able to open an account for those I don’t have. If you’re a digital nomad, it’s good to know why accounts weren’t able to be opened, so you’re not wasting time applying and waiting for a response.

Before I start the list, if you’re a solopreneur / single-member LLC, you’re technically legally allowed to use a personal bank account. So if you have trouble opening a business bank account for any reason, you can open a personal bank account to use for your business. I’d still suggest opening a business bank account if possible. I’m not a lawyer or accountant, so do check with yours. Banks with an asterisk are ones where I have accounts.

1. Transferwise for Business – I have this and it’s the best if you want to deal in multiple currencies. There’s no minimum deposit here. The best part of Transferwise are the exchange rates when dealing in multiple currencies. You’ll be able to create accounts for different currencies like USD, RMB, HKD, Euro, Pound, etc. You’ll have different account numbers and routing numbers for each one, because each currency needs a separate account.
   
   1. Transferwise for Personal is also another option if you decide not to go the Business account path.
      
2. N26 Personal – There’s no minimum deposit amount required. Great UI/UX mobile and web experiences. They have a Free plan and two Paid plans. The Free plan gives you everything you need with a bank account. The Paid monthly plans give additional features like special offers, insurance coverage, and sharing accounts with others. There are 55,000 fee-free AllPoint ATMs, plus 2 additional free out-of-network withdrawals per month anywhere in the US.
   
   1. N26 Business – They do have a Business bank account, but it’s only available for certain European countries. See the list of countries in their FAQs section at the bottom.
      
3. Azlo Bank – One of the best reviewed out there, but I don’t have any personal experiences. Unfortunately, need a physical address and cannot use a virtual address. Need either a utility bill or lease/mortgage bill to prove the physical address.
   
4. Novo Bank – Minimum $50 to open an account. Couldn’t open an account here either, because you need a phone number that is not a VOIP number (eg., Google Voice). I could’ve used a family or friend’s phone in the US, but it would’ve been frustrating if I were to get SMS text verification codes like most sites do now for security.
   1. If you do want to try Novo out and create a Novo Bank account, sign up with the affiliate link here for a $25 Signup Bonus.
      
5. Axos Bank – Has a high opening deposit fee but on the plus side it offers free unlimited ATM fee reimbursement and interest bearing checking accounts. Requires $1,000 minimum opening deposit for their Business Account. This is one I didn’t apply for because it was further down on the list for me due to the minimum opening deposit required.
   

The online banks are similar in terms of services and my needs. Because I’m abroad, the fee-free ATM withdrawals in the US are not a big draw for me.