Sole Proprietorship Bank Account Requirements

s a sole proprietor, you want to keep track of your personal and business expenses carefully. Opening a bank account for your sole proprietorship can help you do that. When you have two bank accounts — one for personal and one for business use — you can easily track your earnings and business expenses for reporting and tax purposes. It also makes your business look more professional since you can write checks and create client invoices from your sole proprietorship business account.

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How sole proprietors are unique from other business entities

In a sole proprietorship, you're the only owner of the business. There are no other business partners. You make all business decisions, including how you'll market your services and manage your operations. You can hire employees or contractors to support you, but you may decide to go it alone until it comes time to scale.

Most states don't require sole proprietors to register their business or pay fees. That makes a sole proprietorship the easiest business entity to establish compared to other types, like corporations or LLCs. However, you'll still need to pay taxes on your business income and monitor your finances. Opening a sole proprietorship bank account can help you do so.

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Do sole proprietors need a business bank account?

There is no legal requirement for a sole proprietor to maintain a separate business bank account. However, some banks may place restrictions on using a personal bank account for business purposes, so it's essential to understand your bank's terms and conditions.

There are a few advantages to opening a sole proprietorship business bank account. Understanding the benefits can help you decide whether you need one.

Streamlines your bookkeeping and business taxes

When you have a business bank account, all your sales and business expenses are in one place. If you refrain from making personal transactions with your business account, you can easily track your revenue, spending, and monthly cash flow.  

Like other business entities, you will owe tax on your sole proprietorship income. However, since all your transactions are in one place, it will be much easier to define your yearly income and expenses for your returns. You won't need to pick through a mix of personal and business transactions like you would if you didn't keep separate bank accounts.

Get access to business funding options

At some point, you may need a business credit card, loan, or other financing. Maybe you'll want to buy new equipment for your company or hire a few employees. Whatever the reason, having an existing business bank account makes it easier to access the funds you need. Many lenders require businesses to have a separate bank account so they can verify revenue, expenses, and cash flow. Plus, some banks may have unique financing opportunities for business banking customers.

Benefit from special banking features

Some business bank accounts include unique features that can simplify your business processes. You may be able to create invoices directly within your business banking app or connect to the software you use for your operations. Such features usually aren't available for sole proprietors who use a personal bank account for their financial transactions.

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What you need to open a sole proprietorship bank account

Every bank has different requirements for setting up a business bank account. However, at minimum, you'll need to prove your identity and business address. Some of the documents you may need to provide include:

Government-issued ID card

Your driver's license, passport, or similar government-issued ID shows the bank you are who you say you are. Whether you open your business account online or in person, expect the bank to ask for your ID.

Business address

Your business address is the place your business operates from. It can be your home, an office, or any other location where your business activities occur. Some banks may ask you for a bill or document confirming your business address.

Proof of business registration

Most states don't require sole proprietors to register their business, so you may not have any documents that demonstrate an official registration. In place of a business registration, banks may accept your Social Security number, individual taxpayer identification number (ITIN), or employer identification number (EIN).  

You can obtain an ITIN or EIN from the IRS if you meet certain criteria. Generally,  ITINs are available for people who are ineligible for Social Security numbers but have U.S. tax filing requirements. You can request an EIN if you own a U.S.-based business and have a valid Social Security number or ITIN.

Minimum Deposit

Some banks require new account holders to provide a minimum deposit to finalize their application. The minimum deposit amount varies from bank to bank but usually ranges from $5 to $100.

You can make your minimum deposit using cash, a paper check, ACH transfer, credit or debit card payment, or similar means. Once the bank approves your application, the funds will be available to you. 

The bank may request additional information about your industry, entity type, and tax reporting location details. \

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Requirements for opening a Novo business bank account

Novo offers business banking services, and you can submit an account application online. The information you'll need includes:

• U.S. business address and phone number
• Social Security number
• Business entity type and registration documents
• Government ID

Novo doesn't require an initial minimum deposit when opening an account, and there are no monthly fees to worry about.

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How to choose the proper bank account for your business

Hundreds of banks offer business bank accounts, so deciding which one is right for you may take some research. Here are a few factors to consider as you review your options.

Bookkeeping needs

Most business owners use accounting software, like Xero or QuickBooks, to track their earnings and expenses. To make the most of your business account, look for one that integrates with your accounting program so you can easily monitor your finances and cash flow.

Other software integrations

Sole proprietors who make online or offline sales using apps like Shopify, Stripe, and Square may benefit from a business bank account that integrates with these services. Built-in integrations can streamline your receivables process and enhance the transparency of your transactions.

Invoicing

If you use invoices to bill clients for the products or services they purchase from you, a business bank account with built-in invoicing can save you time. Instead of creating manual invoices, you can send them directly from your business account. Some banks include the feature free of charge.

Account fees and minimum balance requirements

Some banks charge monthly fees in exchange for maintaining a business bank account. However, you may be able to avoid the monthly charge if you meet minimum balance requirements or other criteria. Review each bank's fee schedule to find one that keeps costs low while offering benefits.

Customer service

Many business owners find they can manage most of their banking activities online without stepping into a local branch too frequently, saving lots of time. Check your bank's website to learn about their customer service options and what online services they offer. You'll also want to consider their availability — some banks may keep traditional 9 AM to 5 PM business hours, while others are reachable at night and on the weekends.  

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Novo ticks all the boxes for a sole proprietorship bank account

Novo's business checking accounts are full of features — without the expense. Sole proprietors can open a Novo business checking account without monthly fees or minimum balance requirements. Plus, you'll gain access to powerful financial reporting tools and integrations with Stripe, Shopify, Square, and more. Start your bank account application online with Novo today!

Novo is a fintech, not a bank. Banking services provided by Middlesex Federal Savings, F.A.: Member FDIC.

Novo Platform Inc. strives to provide accurate information but cannot guarantee that this content is correct, complete, or up-to-date. This page is for informational purposes only and is not financial or legal advice nor an endorsement of any third-party products or services. All products and services are presented without warranty. Novo Platform Inc. does not provide any financial or legal advice, and you should consult your own financial, legal, or tax advisors.

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