What is a business account and what are its benefits?

What is a business account?

A business account is a bank or credit account dedicated solely to your business finances. While you may use a personal account to pay your mortgage or budget for groceries, you should use a business account for business-specific tasks like processing customer transactions and sending invoices to vendors.

It's also important to separate your business finances from your personal finances for tax purposes. With a separate business account, you can more easily track expenses and manage your business assets. You can also build business credit for future loans.

While the IRS recommends that corporations and LLCs open a business account, it can be tough for small businesses and entrepreneurs to know when the time is right to separate their finances.¹ Once you start earning or spending funds specifically for your business, you should have a business account to process and manage those funds.

Remember that you must meet certain business account requirements to apply for an account, such as your:

• Employer identification number (EIN) if you're incorporated or your EIN or Social Security number if you're a sole proprietor²

• Business formation documents like articles of incorporation, ownership agreements, and operating agreements

Tip: Visit the Small Business Administration to get your federal and state tax ID number and apply for business licenses and permits, if they’re required for your industry.

Ways to separate your personal and business finances

Separating business and personal finances can help streamline your bookkeeping and give you peace of mind.

Here are six ways to separate your personal and business finances:

• Make your business official. Start by making your business a distinct legal entity, separate from your personal information and Social Security number. Legal entities include C corps, LLCs, and more.

• Create a small business bank account. Set up a dedicated account for your business transactions.

• Open utility accounts for your business. Establish separate accounts for your business' phone, internet, cable, and electricity services, if you’ll be running your business outside of your home. Consult a tax professional for insight about how to categorize the percentage of these accounts you use for work if you run a business from your home.

• Acquire a DUNS number. A Data Universal Number System (DUNS) number is a unique, nine-digit number that the Federal government uses to identify your business for credit purposes. You can apply for a number directly on the Dun & Bradstreet website.

• Apply for business financing. Use your company's information to apply for loans and financing solutions in your business' name. Learn more about how to apply for business financing options with PayPal.

• Obtain a business credit or debit card. You can use a business credit card like the PayPal Business Cashback Mastercard^® or debit card like the PayPal Business Debit Mastercard^® to pay for expenses and build your business credit score.

Benefits of a business account

Business accounts can come with many helpful tools and perks for growing your business. The biggest benefits of a business account include:

• Keeping your personal and business tracking separate for easier bookkeeping

• Tracking business expenses in one place

• Accessing helpful features like merchant services and fraud protection

• Building business credit history, which you can use to apply for loans like the PayPal Business Loan

• Offering better interest rates and spending limits than personal accounts

• Ensuring compliance with IRS tax standards

What are the types of business accounts?

Common business account types include:

• Business checking account for processing day-to-day business transactions, bills, and expenses.

• Business savings account for storing emergency funds and accruing interest from your income.

• Business credit card account for making business purchases, accessing rewards, and building your credit history.

• Business investment account for investing your income in stocks, bonds, mutual funds, or exchange-traded funds (ETFs).

• Merchant services account for accepting credit card and online payments from customers.

• Payroll account for paying and managing employees' wages.

How to choose the right account type for your business

Figuring out how to choose a business account can be tough. You'll want to find the right account type for your financial needs.

Consider these factors:

• Fees. Banks may charge fees such as transaction fees, early termination fees, and Address Verification Service (AVS) fees.

• Interest rates. Compare interest rates, especially for savings and investment accounts, to see how you can earn more money from your income.

• Balance requirements. You might have to meet a minimum monthly balance or risk paying a fee.

• Transaction limits. Some banks set weekly or monthly transaction limits for business accounts.

• Usability. Make sure your account is easy to set up, access, and manage on the go.

Opening a dedicated account can help take your business to the next level. Research your options to find the best solution for your immediate and long-term business goals.