What are your banking options when starting a business?
Starting a business can be challenging, so it’s important to choose the right financial products to help you achieve success. There is a wide range of banking account options that allow companies to manage their payments and cash flow with ease. Financial institutions also offer a variety of borrowing options to help you fund those essential business expenses.
Account options for start-up businesses
You will need to open a business bank account if you set up a limited liability company, as it is a separate legal entity. Even if you are a sole proprietor, it’s still advisable to have a dedicated bank account, as it makes it easier to track income, manage expenses, and gain a clear understanding of your company’s financial health.
Traditional business bank accounts
Traditional high-street banks provide various business account products to accommodate the needs of companies of all sizes and across all industries. Many of these banking products include protection, including limited personal liability protection and purchase protection for merchant services accounts. Merchant services make it possible for businesses to accept credit and debit transactions from customers.
Start-up founders may choose to open their business account with the same bank as their personal account. This does have some benefits. It can make it simpler to manage all your financial responsibilities in one place. If you have poor credit, you may find it easier to get approval for a business account with a bank where you already have a history. Some banks also give customers exclusive deals if they hold both a business and a personal account with them.
Non-bank online business accounts
Online financial service providers offer alternatives to banks. These non-bank business account products are fully regulated and verify the details of the business and the identity of its owners to comply with legislation. As the services are all digital, the registration process can be quick and straightforward.
These alternative banking options often feature innovative tech solutions which can make it easy to manage business finances, including connection to existing accounting software. Going digital also facilitates real-time notifications of charges and transfers, as well as borderless banking. This is ideal for organizations that need to conduct international transactions, as they may be able to take advantage of fast international wire transfers at low costs.
Business cash management accounts
Non-bank financial service providers can also offer business cash management accounts (CMAs). These streamline the management of business finances by delivering similar services to a checking, savings, and investment account in a single product. They can feature check writing, a credit line, overdraft programs, and FDIC insurance from a third-party bank.
Another benefit of CMAs is that they tend to offer higher interest rates. For example, the Brex Cash account gives customers an industry-leading yield with no transaction fees for wire transfers. Many CMAs offer zero fees thanks to the lower operating costs of online-exclusive banking services.
Borrowing options for start-up businesses
Flexible borrowing options allow companies to meet their day-to-day financial demands, whether that’s paying for business travel or stocking up on inventory from vendors. These credit options can be available on revolving or non-revolving and secured or unsecured terms. All borrowing products offer companies the opportunity to build a credit history to improve their business credit score.
Business credit cards
Business credit cards are available to organizations of all sizes, including start-ups and sole proprietors. Applicants only need to have a good personal credit score and give a personal guarantee to be eligible. These credit cards can come with high credit limits, giving companies more financial flexibility and higher purchasing power.
Owners can authorize employees to use their business credit account for approved expenses. By doing so, they can spread the responsibility of day-to-day banking tasks and run operations more effectively. They also tend to come with reward points that incentivize spending. Points can be redeemable on everything from frequent flyer miles to cash rewards and purchases at participating retailers.
Business lines of credit
Business lines of credit (LOCs) can be an ideal way to meet short-term cash flow needs, like purchasing equipment or providing relief through slump seasons and emergencies. Although they are similar to business credit cards, they typically come with lower APR and are a more affordable way to take out cash advances.
Companies have access to revolving credit with a LOC, meaning they can draw capital whenever necessary up to a preset limit. Interest is only due on the amount spent and, unlike credit cards, there is no requirement to make monthly payments.
Term loans are another popular choice for businesses looking to finance essential expenses. They are a more method suitable for funding larger investments and big-ticket purchases than credit cards or LOCs, due to the lump sum payment and low-interest rates. The borrowing terms of loans, including the amount and repayment duration, can be flexible to suit the needs of the company.
Loans are temporary, and once the borrower repays the full balance and interest, the account closes. This makes repayment schedules for loans straightforward and predictable, as the same amount is due each billing cycle. As a result, budgeting and accounting are simpler for businesses, with the interest of a term loan being tax-deductible.
If your business relies on inventory from a supplier or vendor, it can be worth negotiating net terms with them. This option involves suppliers fronting vital stock to companies and deferring payment for an agreed period. It can be quick to get approval through a short trade credit application process, and it lets businesses get the goods they need without delay.
Common net terms include Net 30, Net 60 and Net 90. This means that full payment is due within 30, 60 or 90 days. Many vendors also incentivize early invoice settlement with discounts, which can add up to significant savings for a business over time.
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.