How to Set Up a Business Bank Account for a Sole Proprietorship

Do sole proprietorships need to have a business bank account?

A sole proprietor can use a personal bank account for business purposes, but it doesn’t offer the same benefits as a business bank account. Opening a business account for your sole proprietorship can help keep your personal and business finances separate, making accounting and bookkeeping much easier.

For example, preparing business taxes can be much more efficient when you don’t have to slog through a year’s worth of mixed transactions to determine which income and expenses belong to your business.

A business account can also help your business run more smoothly and appear more professional. 

For instance, a merchant services account enables you to accept credit card payments from customers. Your business name is linked to the transactions, which can help build trust in your company.  

How to set up a sole proprietorship bank account

Follow these five steps to set up a business bank account for your sole proprietorship. 

Step 1. Apply for a business license

Some banks may ask you to provide a business license for verification purposes when you open a business bank account. A business license can be issued at the local, state, or federal level and authorizes businesses to operate in certain locations or industries. 

Whether you are legally required to get a business license depends on your location and business activities. 

Step 2. Get an EIN

An employer identification number (EIN) is a federal tax identification number issued by the IRS. The IRS requires certain businesses—including corporations and partnerships, businesses that have employees, and businesses that need to pay employment, excise, or alcohol, tobacco, and firearms taxes to have an EIN. 

If you are legally required to have an EIN, you will likely need to provide the EIN when you open a business bank account. 

You can apply for an EIN for free on the IRS website or use an online EIN service.  

Step 3. Decide what kind of bank you want

Next, it’s time to decide what type of banking experience best suits your needs. If you want to manage your banking online, many banks offer fully digital banking services. On the other hand, if you plan on depositing a lot of cash or want in-person support, a bank with brick-and-mortar locations may be a better bet.  

You should also consider what kinds of banking services you need. While a business checking account is a popular choice, your business may benefit from other business financial products. The right bank for you will offer banking services that support your business’ unique needs. 

Common business financial products include the following:

• Business checking account. Business checking accounts typically come with a debit card and check-writing capabilities and can include high deposit limits, no-fee transactions, fraud monitoring, and the ability to accept customer payments from your mobile device.
• Business savings account. These accounts enable you to earn interest while establishing an emergency fund to cover unexpected business expenses. 
• Business line of credit. Qualifying businesses can take advantage of a business line of credit to handle expenses such as purchasing inventory or paying employees if there is a temporary cash flow disruption. 
• Business certificates of deposit (CDs). Businesses can invest profits in interest-bearing business CDs. Some banks offer customizable terms or better interest rates for businesses with higher balances or longer CD terms. 
• Merchant services account. A merchant services account enables businesses to accept card payments online or via portable payment terminals. 
• Money market account (MMA). Money market accounts often offer a higher interest rate than traditional savings accounts in exchange for higher deposit and minimum balance requirements. 
• Business credit card. You can use a business credit card to finance large purchases and help establish your business’ credit history. 

Step 4. Gather required documents and information

While requirements depend on the individual bank, you may need the following documents and information to open a business bank account:

• Government-issued ID card(s) (such as a driver’s license or a passport)
• Business license
• Business name, address, phone number, and locations
• EIN or your Social Security number
• Business industry and activities
• Number of employees 
• Business’ annual revenue
• Types of transactions you want to process through the bank account
• Date your business was established
• State and country where your business operates
• Your birthday
• Your citizenship status
• Information about the owners of your business

If your sole proprietorship is doing business under a name other than your legal name, you may need proof of your “doing business as” (DBA) registration.

Check with your bank to find out the specific documentation and information you will need to open a sole proprietorship bank account. 

Step 5. Set up your account

Once you open your business bank account and deposit money, you can sign in through the bank’s mobile app or online banking portal to manage your funds. If your bank supports it, you can link accounting or payroll software to your account. 

If you want other individuals to have access to your business funds, you can add authorized users. 

In addition, most business bank accounts will allow you to set up automatic payments for recurring business expenses. 

What are the benefits of opening a business bank account for a sole proprietorship?

Business bank accounts for sole proprietorships can provide the following benefits:

• Separation of personal and business finances 
• Automatic payments
• Integration with accounting software
• Higher deposit limits compared to personal accounts
• Ability to accept more payment methods
• Enhanced credibility

In addition, many banks offer perks such as welcome bonuses or business checking accounts with no monthly fees. Some banks may also offer business credit card options with low introductory annual percentage rates (APRs) that enable businesses to make large purchases and pay them off over time. 

Can you open a bank account with a DBA? 

You can open a bank account with a DBA as long as you provide supporting documentation. A DBA is a way for a business to operate under a name other than its legal name. 

For instance, a sole proprietor named Joe Smith, who offers website design services, may want to operate under a name that tells customers something about his business. He could apply for a DBA to change the name of his sole proprietorship from “Joe Smith” to “Smith Website Design.”

If you want to operate your business under a DBA, you typically need to register your DBA with your state. 

If you have a DBA, your bank may request any of the following documents for verification purposes:

• Fictitious name certificate
• Certificate of trade name
• Assumed name certificate

How much does it cost to open a business bank account?

The cost of setting up a business bank account depends on your bank and the type of account(s) you open.

The potential expenses associated with opening a business bank account can include the following:

• Monthly maintenance fees
• Transaction fees
• ATM fees
• Overdraft fees
• Wire transfer fees
• Early withdrawal penalties (for CDs)

For instance, a Chase Performance Business Checking account has a $30 monthly service fee for businesses with a minimum average beginning day balance below $35,000, while Bank of America’s Business Advantage Savings account has a $10 monthly fee for businesses that don’t meet its fee waiver criteria each statement cycle.  

FAQs about sole proprietorship bank accounts

Wondering if there are differences between bank accounts for sole proprietorships vs. limited liability companies (LLCs)? What happens to your bank account if you decide to transition your sole proprietorship to an LLC? Here are answers to some of the biggest questions entrepreneurs have about sole proprietorship bank accounts. 

Are there differences between an LLC vs. a sole proprietorship bank account? 

Banks require different documentation from sole proprietorships and LLCs when opening a business bank account, but many banks offer the same business banking features to both types of business structures. 

How does the need for a separate bank account change as a sole proprietorship grows and potentially transitions to an LLC?

An LLC is a legal entity that is formed at the state level and has one or more owners (referred to as “members”). Many businesses choose to operate as an LLC to take advantage of the personal liability protection and tax options the structure provides. 

One of the main differences between an LLC and a sole proprietorship is that a sole proprietorship isn’t considered a separate entity from the owner. An LLC is treated as a separate legal entity, which means that the members typically aren’t liable for the company’s debts if the business is sued. 

While not legally required, having a separate bank account makes it easier for both sole proprietorships and LLCs to track and manage business finances. 

However, if you want to transition from a sole proprietorship to an LLC, it’s strongly recommended that you have a separate business bank account, as it can help provide personal liability protection by supporting the LLC’s legal entity status. If you don’t keep your personal and business finances separate, you run the risk of being held personally responsible for your LLC’s debt. 

Can you transition bank accounts from a sole proprietorship to an LLC?

If you transition from a sole proprietorship to an LLC, you will need to update your bank accounts to reflect the change. You will need to file organizing documents with your state, and you may need to get a new EIN before opening a new LLC business bank account. 

Ready to transition to an LLC? Start your LLC with LegalZoom in minutes, with plans starting at $0 plus state filing fees.