As a small business owner, banking is paramount; unfortunately, many small business owners lack the knowledge and expertise to navigate the banking s
As a small business owner, banking is paramount; unfortunately, many small business owners lack the knowledge and expertise to navigate the banking space. That means they are missing out on lines of credit and other funding opportunities. When it comes to small business banking, we have to move further than the best bank or who has the cheapest rate. Learning how to bank as a small business owner can provide a world of opportunities. Here are 5 essential tips for banking as a small business owner.
1. Open a Bank Account for Your Business
If you’re using your personal bank account for business transactions, this is your cue to stop. Commingling funds or having your personal and business money in the same place can seriously disadvantage your business.
When you commingle funds, there’s nothing distinguishing between what is specifically happening for your business regarding revenue and expenses versus your personal transactions.
Therefore, when you try to apply for funding, there is a higher chance of rejection. The financial institutions aren’t able to get an accurate picture of your business finances, so they’re unlikely to give you funding. In addition to loans and business lines of credit, grant applications usually require bank statements too.
Don’t worry; setting up a business bank account is very easy. It takes about 30 minutes, and all you need is your:
- Employer Identification Number (EIN)
- Articles of incorporation
- A valid ID such as your Driver’s License
There are even options available where you don’t have to open an account with any money.
The bottom line is that you need a business bank account to be taken seriously by financial institutions.
2. Link Your Virtual Wallets to Your Business Account
Yes, virtual wallets such as Cash App, PayPal, and Venmo are really convenient and okay for personal use. However, they’re not considered bank accounts by financial institutions. Financial institutions or entities offering contracts will want to see your bank statements. Unfortunately, these virtual wallets won’t be sufficient.
Therefore, having an account with these virtual wallets does not exempt you from needing a business savings or checking account.
However, if you use these virtual wallets, make sure you use the business version of these accounts. In addition to that, they are linked to your business account. Don’t hold money in these accounts; keep funneling them to your business account.
Besides being good practice, it’s actually safer not to leave your money in these virtual wallets. According to Business Insider, the money in your Cash App is not insured. Therefore, if the company got hacked, you could lose all your money. In addition to that, you won’t be earning interest on your money, and there are limits on their transactions.
3. Avoid Collecting Revenue in Multiple Accounts
While it’s okay to have multiple business accounts, you should avoid sending revenue into multiple accounts. When we say multiple business accounts, we’re referring to having the main account and secondary accounts for saving, paying taxes, bills, or other expenses.
However, let’s say you are applying for a loan and you need to be making $15,000, and you are. Technically, you meet the requirement, right? But all your funds go into five different accounts instead of one main account. The funders will look at a maximum of two accounts, if that many. They will not be looking at 5 different accounts.
That could also mean they’re not able to see that you actually do qualify because the revenue is split up in other accounts. You’d miss out on life-changing credit. To avoid this, collect revenue in one account.
4. Do Business With a Familiar Bank
If you’re looking for a bank to open a business account or two, start with the bank you already do business with. For example, you can approach the bank you have your personal account. Just make sure they offer the option to open a business account. If they do, that’s great. Having an established relationship with a bank can open up funding opportunities you didn’t have before.
Of course, you should only pick the bank you’re familiar with if you actually like them. Ask them about their features and benefits to determine whether they will be a good match.
We also recommend sticking with an established bank and avoiding new banks for business.
5. Let Your Bank Know About Big Deposits Beforehand
If your deposits are usually $100 or $5000, but you have an upcoming $20,000 deposit from the Small Business Association (SBA), your bank could flag it. Sometimes, the bank will send back the money to the funder and close your account.
If you’re going to be applying for funding and, therefore, could potentially have a large deposit, tell your bank. Let them know you will apply for loans, lines of credit, or grants. Then ask them if they can accommodate large transactions if your applications are successful.
If they say no, ask them what steps you need to take to have your account facilitate these large transactions.
Being bank savvy as a small business owner is extremely important. You can open up your business to many opportunities and avoid pitfalls that could set you back if you bank effectively. Even if you’re not ready for funding, it’s better to get your affairs in order beforehand. We recommend our step-by-step grant training if you are prepared to seek financing. In this training, we walk you through a grant application and tell you what we do to win grants. Remember, capital for small businesses can make the difference between unimaginable success and business closure. It’s time to get savvy about banking and funding.
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