Consumer Protections for Business Bank Accounts
If you’re considering opening a business bank account, good for you — it’s wise to keep your business and personal finances separate. Before heading to your local bank, though, gather your business-related paperwork and identifying documents.
How to open a business bank account
The type of paperwork you’ll need will vary depending on the structure of your business. For example, sole proprietorships will need to provide a Social Security number, whereas other types of businesses — such as limited liability corporations, limited liability partnerships and general partnerships — will need an Employer Identification Number. In most cases, you’ll need to present your business formation documents, your Social Security number or EIN, ownership agreements, an I.D. and business license.
You might also need to bring the operating agreement to identify parties authorized to use the account, said Paul Bullock, a business advisor at Lane Community College Small Business Development Center in Eugene, Ore.
Here are some other things to keep in mind if you’re considering opening a business bank account:
Search for business bank account benefits. Find a bank that will best fit your small business needs. Compare banks’ interest rates, balance fees and introductory offers that work best for your business. Both banks and credit unions offer various benefits, and several banks, such as Cathay Bank, Azlo and BB&T, offer free business checking accounts.
Call your bank. Keep in mind that some banks require different documents, so before visiting one to open a business account, call your local branch to make sure you have all the required documents.
Open an account online. Don’t have time to make a trip to the bank? Many businesses are eligible to open an account online, such as sole proprietorships, LLCs, LLPs and partnerships, but there are some restrictions based on the type of financial services your business offers. You’ll need your identifying documents, an EIN, business organizing documents and business- name filing documents that show all business owners’ names.
Select the type of account you’d like to open. Merchant services accounts — which enable customers use debit and credit cards at your business — checking, savings and credit card accounts are standard for most businesses. In addition, you will likely get an offer for a line of credit when you open a business banking account.
Looking for business funding? Learn more about small business loans here.
Is your business bank account protected?
Opening a business bank account enables you to separate your personal funds from your business funds and create a limited protection between your personal and business finances.
The FDIC insures all business checking, savings and deposit accounts for up to $250,0000 should the financial institution fail. If you have several business accounts at the same financial institution totaling more than $250,000, funds that exceed that amount are not insured. The FDIC does not insure stocks, bonds, mutual funds or safe deposit boxes.
The FDIC does not insure against theft or robberies, either. Banks have separate policies that cover customers in the event of a catastrophic event or robbery. In the event of unauthorized activity on your business account, it’s important to contact your bank immediately.
Every business must take cyber security protection measures. In 2016, hackers breached roughly 14 million small businesses, according to the 2016 State of SMB Cybersecurity Report. In 2017, the same report found that cyber attacks increased from 55 percent to 61 percent. Many small businesses use online banking to access their accounts. Passwords for business banking accounts can be vulnerable to cyber hacking, so to ensure better security, sign up for a password management account. According to the National Federation of Independent Businesses, password management systems — such as LastPass, Roboform and 1Pass — cost as little as a few dollars per month.
You should also invest in crime insurance. When doing business offsite, handling transactions might put you at risk of internal and external fraud or theft. According to Nationwide.com, crime insurance can cover employee dishonesty, forgery and onsite robberies. Although your funds in your bank account might be protected, consider the steps that take place between handling transactions and depositing those funds in your business bank account.
Insurance coverage on deposits
The FDIC provides insurance coverage for all deposit accounts including savings, checking, money market deposit accounts and certificates of deposits. The FDIC was established in 1933 to address the banking crisis during the Great Depression. Before the financial crisis of 2008, the FDIC insured deposit accounts for a maximum of $100,000. President Obama raised the maximum in 2010 to $250,000. This insurance coverage protects business accounts at banking and savings institutions.
Protections extended to LLCs
LLCs are structured to keep business and personal assets separate. In the event that an LLC files for bankruptcy, the business owner’s personal property is protected in most instances. Setting up an LLC bank account ensures that business and personal accounts remain separate, which protects you if creditors sue you. An LLC is designed to protect its members from being liable for company debts and liabilities.
Does the Dodd-Frank Act protect my business account?
After the financial crisis of 2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — sponsored by then Rep. Barney Frank [D-Mass] and then Sen. Christopher Dodd [D., Conn.] — made sweeping banking reforms to prevent future financial crises. The Dodd-Frank Act established the Financial Stability Oversight Council, the first regulatory body to oversee the entire U.S. financial system. Some Dodd-Frank Act regulations apply to businesses accounts. Banks must get permission from business bank account holders to link their savings accounts for overdraft protection. In 2011, Regulation Q of the Dodd-Frank Act was repealed, allowing business accounts to earn interest.
Does the CARD Act protect business credit cards?
The Credit Card Accountability Responsibility and Disclosure Act of 2009, designed to protect consumers, stipulated that credit card companies must be fair and transparent. The Consumer Protection Financial Bureau monitors the CARD Act, which also stipulates that credit card companies must give consumers 45 days notice if issuer is raising interest rates. In addition, the Act restricts fees within one year of a consumer opening a new account. But the CARD Act does not apply to small business credit cards.
The U.S. Small Business Administration
Established in 1953, the U.S. Small Business Administration provides guidance and support for small businesses. Small Business Development Centers are headquartered at dozens of community colleges across the country — they offer workshops and courses on small businesses, according to Bullock.
“Small businesses can come in and talk to an adviser,” Bullock said. “The whole system is set up to nurture small business growth and provide as much expertise as they need. State and federal governments pay for our services, and there is no charge to the community.”
What is the NFIB?
The National Federation of Independent Businesses is a nonpartisan, nonprofit organization designed to support and advocate for small business owners. This membership-based organization offers independent businesses commercial and personal insurance, financial products, and services and benefits for small business employees. The minimum annual membership fee for NFIB business members is $195 — the organization lists a suggested donation amount based on the size of your small business. The NFIB protects small businesses by helping them address legal issues, and it has lobbyists in all 50 states that weigh in on supreme court and federal court cases.
Disclosure requirements for business deposit accounts
Disclosure requirements for business deposit accounts depend on state law and vary from state to state, according Grant Stephenson, an attorney and partner at Porter Wright law firm in Columbus, Ohio. Stephenson focuses on banking and finance law and authored an article about the Dodd-Frank Act’s disclosure requirements for deposit accounts.
“Most of federal regulation in this area is really aimed at protecting consumers,” Stephenson said. Businesses are not defined as consumers, which are “natural persons,” so disclosure requirements like “descriptions of minimum balance requirements, rates of interest payable on and fees assessable against deposit accounts,” are not required for business deposit accounts.