Do You Need a Business Checking Account for a Small Business Loan?

Image by GettyImages; Illustration by Bankrate

You will most likely need a business checking account when applying for a business loan, whether you’re a small business owner or sole proprietor. Not only does a business checking account keep your finances organized and separate from personal expenses, many lenders require it when applying for a business loan.

As someone who operates their own small business, having a business checking account is not only essential for keeping accurate financial records, it provides valuable insights on how my business operates. Lenders may also need this critical information in case I apply for a business loan in the future.

Why you need a business checking account for many business loans

Lenders will likely prefer lending to a small business owner with a checking account for a few reasons.

A business checking account can provide lenders with a snapshot of your business revenue, transactions and expenses. Keeping all transactions flowing through the business account provides a source of truth for accounting and filing taxes and all within a single location.

Lenders will see the cash flow, can verify revenue and analyze the business activity, which are essential for operating a business.

Business checking accounts also provide legitimacy to a business. It shows a lender your business is separate from personal expenses. It also clearly shows you’re operating something more serious than a hobby, with real income and expenses.

It’s possible you can find a lender offering a business loan without a bank account, though you will likely have to provide other forms of documentation. Business lending alternatives, such as merchant-cash advances, may review future sales versus current transactions — though these are often riskier lending options.

How a business account is different from a personal account

A business checking account differs from a personal checking account in a variety of ways

Lenders that require business checking accounts for a loan

Not all lenders disclose up front if they require a business checking account for a business loan application, so it’s best to confirm with a particular lender if you’re unsure about the requirements.

Lenders we have confirmed require a business checking account include:

How to get a business checking account for a business loan

The process for opening a business checking account so you can get a business loan is straightforward but can take time when comparing depending on the features you need from the account.

The first step to getting a business checking account is to compare the best accounts across different banks with the features that complement your business. Make sure you compare:

• Minimum opening balance requirement
• Bank fees
• Interest rate for interest-bearing checking accounts
• Bank locations and ATMs
• Digital tools

The next step is to gather the required documents to apply, including tax forms, the business license and a business checking account application. Many banks will list the documents required online, saving you time during the application process.

Many banks let you open a business checking account online. But you may need to go in person for accounts with a traditional bank. In this case, you’ll work with a bank representative to open the account. Once there, you’ll review and sign the bank agreement and present the cash deposit.

Opening a business account will require a few important steps, including:

• Two forms of identification
• Employer identification number (EIN)
• Proof of business formation
• DBA document (Doing Business As), if applicable
• Deposit amount

The bottom line

Having a business checking account when you’re applying for a business loan will likely make the loan process easier. Though not required by every lender, most will want to review your business checking account so they can review revenue, expenses and confirm you can repay the loan. It’s also a best practice to separate your business from personal expenses, including for tax purposes. Additionally, a business checking account may include features that support running a business, such as employee debit cards or payroll processing, which a personal checking account does not provide.

Frequently asked questions

• Can sole proprietors get a business checking account?
  

  Yes, sole proprietors can open business checking accounts. Keeping business expenses separate from personal accounts can help sole proprietors keep track of revenue and expenses, organize their business finances and maintain records for their tax files. A lender may also require it when applying for a business loan.

• Do business checking accounts require more than personal checking accounts to open and maintain? 
  

  Many business accounts require a minimum amount to either keep the account open or avoid a monthly maintenance fee. The amounts can range anywhere from $500 to $50,000 or more. You can find more personal checking account options without monthly fees or minimum balances than business checking accounts.

• What are the basic requirements to get a small business loan?
  

  Each lender has its own requirements for small business loans, so you will need to verify specific requirements for a lender. In general, most lenders will evaluate the business revenue, business credit history, time in business and industry. Lenders will also review any business debts and personal finances (such as credit history).