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The best places to set up your small business checking account

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For many people, one of the first signs of adulthood is opening a personal checking account. Similarly, for many businesses, a business checking account is a sign of "adulthood," so to speak. 

Larger startups or offshoots of established companies have advisors and will know to get a bank account right away. But, what about small businesses? Many small business owners don't have the luxury of an on-hand business or financial advisor, leaving them unsure of where to go next. But, just like with larger businesses, a business checking account should be one of the first stops a small business makes. 

Before diving into how you go about opening a small business checking account, let's take a look at how these accounts differ from personal ones, and then we'll go over your options for opening a small business checking account.

What is a small business checking account?

A small business checking account is exactly what it sounds like: a bank account that enables businesses to store money, send wire transfers, write checks, use a business credit card, and fulfill other business needs.

A small business checking account is different from a small business savings account, which is used strictly for saving money and earning interest. A business savings account is also important, but doesn't have the same utility and functionality as a checking account. In either case, your business should aim to have both business accounts — or an account that does both — as quickly as possible.

You might be wondering if you can simply use a personal account for your business needs during the early stages. In short, no. And, there's a good reason for this.

Is a business account different from a personal account?

At first glance, a business checking account and personal checking account look very similar. Both allow you to write checks, deposit checks, make transfers, apply for a credit card, and so on. But, this is where the similarities end.

A personal account is exactly that — personal. It's singular and isn't suited to serve a business. With a business checking account, you can typically use multiple credit cards, qualify for unlimited ACH transfers, make unlimited electronic deposits, and be considered for business loans. Multiple credit or debit cards can allow you to safely send employees on supply runs or business trips, while unlimited deposits can prevent your business from getting hit with penalties simply for doing business. 

A business checking account and business credit card will also help you build your business credit history. A strong business credit history is essential to getting the best interest rate possible on a business loan. Business loans are a common step for many businesses on their road to funding, so this point is huge.

Personal accounts and business accounts may have a lot of the same baseline functionalities, like mobile apps, the ability to check your account balance, and maybe even overdraft protection. But, a business account is absolutely essential to properly manage your business finances because it allows you to keep your personal and business finances separate.

Your options for a business checking account

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You have a number of options when it comes to opening a business checking account. Each route comes with its own pros and cons, so think about your business goals and needs before going any further.

1. Credit unions

Credit unions are a lot like banks, only they're owned by the members, making them a co-op. Credit unions are generally smaller in scale than banks with fewer physical locations and ATMs, but with this smaller size, often comes a more personal experience and a sense of community. Credit unions can also have better APY rates for savings accounts in many cases.

If you're looking for a more personal experience with business banking, a credit union can be a great option. But, keep in mind they will often have fewer locations. If you travel for business, this can make financial support hard to find. 

Many credit unions are smaller in size and don't offer 24/7 online support. Coupled with fewer physical locations, you could find yourself in need of assistance and unable to get it. Many credit unions also can't compete with banks when it comes to business debit card or business credit card rewards, offering less cash back or no cash back at all.

The possibility of fewer locations and less support shouldn't be a total deal-breaker, though, because again many credit unions will offer great in-person support and this option supports your local economy.

2. U.S. Banks

If you're in the market for something a little larger than a credit union, a traditional U.S. bank can offer a wider variety of account options and more physical locations, among other things.

Traditional banks are owned by private investors and corporations, unlike member-owned credit unions. As a result, banks generally have more money and can afford to provide 24/7 support, offer more ATMs and physical branches than credit unions, and have competitive credit card interest rates and reward programs.

While credit unions can have many of the same offerings as banks, they won't necessarily have the same breadth of services and account types to match all banking needs. Banks, on the other hand, generally offer a number of perks, like cashback rewards, lower transaction fees, mobile check deposit, better business interest rates on credit cards, lower maximum cash deposit requirements, and more. Banks are also insured by the Federal Deposit Insurance Corporation (FDIC), which ensures your money is safe in the event of loss or theft.

The biggest downside of using a bank is that it's easier to feel like a number, not a person. Big banks have many, many customers. But, banks can be more likely to offer 24/7 support and be there when you need them. For many business owners, that support is worth the tradeoff of the less-than-personal experience.

If you're interested in opening a bank account, do some comparison shopping and then find an account that suits your needs.

3. Online banking

Online banking isn't what it used to be. In the past, an online bank account was little more than a way to view your account balance or statement cycle. Now, online banking has become an industry that stands on its own, with online banks offering virtually every account type and stellar customer service.

Online banks don't have physical locations, but many of them prioritize great customer support and a great user experience because they're built from the ground up as online-only experiences. This generally means a solid mobile app, the ability to deposit checks on the go, bill pay tools, and the ultimate mobile banking experience. Many online banks also forgo any kind of monthly fee or monthly maintenance fee.

Even if you only want a free business checking account to start, online banking can be a quick, simple way to ensure you have a basic account set up. From there, you can upgrade from a free checking account to something more advanced. In short: online banking is a fast option for businesses comfortable forgoing a physical location.

Cash management account: Your ultimate alternative

A cash management account (CMA) isn't a bank account. Instead, it's a type of financial account that features the functionality of multiple account types — a checking account, savings account, and money market account — in one. This means a CMA allows you to safely store your funds, utilize a credit card, initiate and receive write transfers, and even make money through an investment account.

Still, a CMA won't be right for all businesses. Because CMAs are not technically bank accounts, they can't be offered by banks. Instead, they're offered by private financial institutions. This means the account FDIC insured. But, many CMAs, such as the Brex Cash account, are covered through Securities Investor Protection Corporation (SIPC) memberships, which means your funds are still.

Beyond the above, the only businesses a CMA might not be a good fit for are those that aren’t ready for investing. If you don't want to worry about investments or savings and only want a business checking account, you should likely pursue a standard business checking account.

But if you're interested in simplifying your money management with a CMA, the Brex Cash account includes SIPC protection, and gives you the ability to secure a credit card, manage savings, and more.

Checking the right boxes

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No single financial institution, bank, or account will be the right fit for every new business out there. Think about what it is your business needs most and what it is you're comfortable with. From there, do comparison shopping and keep a list. 

If you find an account that checks all the right boxes, it's probably time to open a business checking account. You're taking an important step that can ultimately help your business grow financially.

Brex Cash is offered by Brex Treasury LLC, a registered broker-dealer and member FINRA and SIPC. Brex Cash is a program that allows you to elect to automatically place your cash balances into certain money market mutual funds. Brex Treasury LLC is not a bank, your Brex Cash account is not a bank account, and it may not offer all of the services and protections that banks may offer. The cash you deposit into your Brex Cash account will not be stored at a bank.

You could lose money by investing in a money market mutual fund. Although the fund seeks to preserve the value of your investment at $1 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The fund's sponsor has no legal obligation to provide financial support to the fund and you should not expect that the sponsor will provide financial support to the fund at any time.

Brex Treasury LLC is not an investment adviser, and therefore investors should consider the investment objectives, risks, and charges and expenses carefully before investing. See program disclosures and the applicable fund prospectus for details and other information. Contact us for a copy of the fund prospectus and recent performance data. You should read the prospectus carefully before investing.

Brex Treasury LLC does not charge transaction or account fees. However, money market funds bear expenses and fees. Fees are subject to change. Yield is variable and may fluctuate as market conditions change.

Brex Treasury is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Securities in your account are protected up to $500,000. For details, please see www.sipc.org.

This is not an offer, solicitation of an offer, or advice to buy or sell securities, or to open a brokerage account in any jurisdiction where Brex Treasury LLC is not registered.

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©2020 Brex Inc. “Brex” and the Brex logo are registered trademarks.The Brex Mastercard® Corporate Credit Card is issued by Emigrant Bank, Member FDIC. Terms and conditions apply. See the Brex Platform Agreement for details.Brex Inc. provides a corporate card. Brex Treasury LLC is an affiliated SEC-registered broker-dealer and member of FINRA and SIPC that provides Brex Cash, a program that allows customers to sweep uninvested cash balances into certain money market mutual funds. Investing in securities products involves risk, including possible loss of principal. Neither Brex Inc. nor any of its affiliates is a bank. Please see brex.com/cash for important legal disclosures.