Opening a business bank account with EIN only through a traditional bank may seem challenging. The banking regulations in the U.S. stipulate that entrepreneurs must present specific documentation, depending on their business structures. Fortunately, opening a business bank account online is much easier, and you can use your social security number or EIN.
4 Steps to Open a Business Bank Account With EIN Only
Opening an online business checking account is straightforward, and should only take a few minutes. Make sure you have the primary documents handy and be ready with the fees that apply unless you intend to open a fee-free business banking account. Here are four steps to complete the process.
Step 1: Get Your Documents in Order
The documents you need to open your business bank account depend highly on the form of your business organization. For a start, you will need your Social Security Number or an equivalent identification such as your business’s EIN (employer identification number).
An EIN is a unique identification number for your business. This nine-digit number is issued by the IRS and works pretty much like your social security number. You will need your EIN to file your annual business taxes, and you can obtain it for free through the IRS website. You should also gather the following documents depending on your type of business organization.
- Sole Proprietorship — DBA certificate
- Partnership — Business partnership agreement and business license if you operate an eatery or healthcare facility
- Corporation — Certified articles of incorporation, corporate bylaws, a signed corporate resolution, business license, and IRS 501(c) letter if you are a non-profit corporation.
- Limited Liability Company (LLC) — Certified articles of organization, operating agreement, and business license
Step 2: Choose a Bank and Bank Account
If you want to open a business bank account with EIN only, your best bet is to stick to fintech and online banking companies instead of traditional land-based banks. These offer relatively affordable services, making them ideal for businesses that mainly handle all transactions online. Also, they have fewer restrictions and bureaucracies, making the account opening process easier and faster.
There are different types of business bank accounts designed to match specific needs. The most common include checking accounts, savings accounts, and credit unions for business banking accounts. Also, you can get a credible fee-free business bank account where you don’t have to worry about monthly fees or minimum balance requirements.
If you are interested in opening a fee-free business account, here is a detailed BlueVine Review and Novo Review packed with information about the pros, cons, and alternatives to both fintech companies.
Before choosing the account to open, it is imperative to compare your options in detail. Compare the fees, the financial tools and features, and the range of integrations allowed by different platforms. Also, check out the available bank account options and ensure that your business will have adequate room for growth as you expand and your financial needs increase.
Step 3: File an Application to Open Your Account of Choice
Once you have done your research to identify the most suitable bank and bank account for your business, it is time to apply. The majority of banks allow the entire process to take place online conveniently. As long as you have the correct documents, the process should only take a few minutes.
Even companies offering fee-free business bank accounts must adhere to federal regulations. They make the application process dead simple, although you are not guaranteed of not bumping into issues that may see your application declined. Take your time to fill in all requirements correctly and reach out to the support team if necessary. This will ensure that you also don’t face IRS issues in the future.
Step 4: Start Managing Your Account
Once your application is approved, you can now start managing your new business bank account. Deposit funds using checks, invoices, wire transfers, or cash where you purchase a money order from a vendor authorized by your bank. The bank will automatically deduct any applicable fees and give you access to various financial tools to help you manage routine banking tasks.
Reasons to Open a Business Bank Account
Opening a business bank account with an EIN only protects your SSN from unnecessary exposure. The benefits of applying for an EIN and opening a business bank account include but are not limited to the following perks.
Protect Your Personal Assets and Finances
Your EIN is your business identification number. It establishes that your business is an independent entity and even allows you to open a bank account for it, separate from your personal bank account. You can further distance yourself from business debt liability by registering your business as a corporation or LLC.
Keeping your business affairs separate from your personal finances ensures that creditors cannot legally reach for your personal assets without breaking the law if the company cannot pay its debts. By keeping your company money separate with a business bank account, you also make bookkeeping more straightforward and legally distance yourself from any business liabilities.
Using an EIN instead of sharing your social security number around can help to reduce the risk of identity theft. Even though your EIN can also get stolen, cases of SSN theft are more rampant.
Simplify Tax Preparation and Accounting Tasks
A separate bank account makes tax preparation tasks easier because your business income and expenses run through a single account. You could use tax preparation software to connect to your bank account data and automate various processes to eliminate blunders and maintain a clean tax trail. When your personal and business monies mix, it’s easy to make tax mistakes that can leave you in IRS trouble.
Whether you intend to hire a tax preparer or are comfortable handling your bookkeeping in person, a business bank account can make tax preparation tasks easier and less time-consuming. You can eliminate the trouble of separating your business and personal expenses at that point when you need to put your books in order.
Apart from avoiding the risk of being audited by the IRS and enjoying the perks of using accounting software, you can also take advantage of other programs. There is helpful software that can also simplify business budgeting and invoicing. Unfortunately, you cannot make maximum use of such programs if your personal and business finances are mixed up.
Benefit From Tax Deductions
All expenses incurred when running a hobby are subject to business taxation. However, you can enjoy tax deductions if you show the IRS that your venture is more than just a favorite pastime. The easiest way to make the intended statement is to apply for an EIN and open a business bank account. Also, ensure that you maintain all financial records in a “businesslike” fashion.
Enhance Your Professional Image
A business bank can enhance your professional image, primarily if you transact money with your customers using invoices and wire transfers. Sending or receiving funds from a personal account appears unprofessional. It can make clients feel insecure, and could even give your operations an illegitimate vibe.
In contrast, customers will perceive you as well-established if they receive invoices or wire transfers from an account branded with your business name. The branding shows that your venture is more than a hobby, and you have made an effort to maintain the highest standards of professionalism.
Build Business Credit
A business account allows you to maintain clean records of all cash flow. It is easy to point out money received from customers, company expenses, taxes, etc. Such records can be quite helpful when seeking out loans from lenders. A lender can easily find out whether you qualify for a loan and the ideal repayment plan by going through your banking data.
Any lender will want to see your cash flow statements before approving a loan. Generally, a statement tainted with personal expenses is less likely to work in the best interests of your business.
A business line of credit comes in handy whenever you want to expand your operations, or invest in more assets. A business account makes you appear legitimate and serious even in the eyes of potential creditors. If you have an appealing credit history, this could provide grounds for favorable interest rates.
Qualify For a Business Credit Card
Keeping your business finances separate could also make it easier to qualify for a business credit card. You will again need an EIN to apply for the card. It is also important to note that customers can pay for goods or services using both debit and credit cards if you open a business account. Clients may be limited to using cash or check if you only have a personal bank account.
Why Open a Business Bank Account With EIN Only?
Obtaining an EIN opens more banking options for your business. You’ll be able to take full advantage of the features and perks offered by different financial institutions. Whether you wish to seek the services of a credit union or a well-established online or land-based bank, your business will have an easier time qualifying for the available options.
If you do not have an EIN, you have to enter an equivalent alternative, which is your social security number. While the option may seem okay at first, it is likely to cause unnecessary exposure of your SSN to other institutions, including the IRS.
With an EIN, your business assumes an identity separate from your personal I.D. This allows you to keep your personal finances and affairs distant from your company. If your business bumps into legal trouble, you don’t have to worry about your personal assets being seized.
Moreover, opening a business bank account with EIN only makes it easier to build business credit. This can give you an upper hand when seeking loans from credit unions because the institution will only need to worry about how responsible your business is with settling debts. Even if you have a poor personal credit score, this will not tamper with your business affairs.
Frequently Asked Questions (FAQs) for Opening a Business Account with EIN Only
The following are some frequently asked questions regarding opening a business account with EIN only.
Final Thoughts on How to Open a Business Bank Account With EIN Only
With ongoing debates about Biden’s proposal to authorize the IRS to obtain more customer information from banks, it is safer to open your business bank account with EIN only. Even with all plans to maintain clean bookkeeping records and diligently pay your taxes, it makes sense to open an account using your business’s I.D. and keep its financial affairs entirely separate. This makes it easier to maintain a clean audit trail for the IRS, build business credit, and even benefit from loans that can move your venture to the next level.