The startup bank account is the crucial step after securing a startup loan. A perfect bank account can save your new business in crisis. But selecting the wrong bank account can spoil your cash & could lead to long-term monetary debt.
Selecting a correct bank account is not easy; instead, it involves a holistic analysis of your startup & bank account. If you are a micropreneur, then hiring a financial advisor would be costly.
Are you looking for the best bank for your new small business? Which account is perfect for your startup? If your answer is yes, you are in the right blog post.
This article will teach you details about different bank accounts for startups & also guide you on which one suits your startup.
Let’s start with the following.
Key takeaways:
- A bank account is not mandatory until your startups gain growth momentum.
- Multiple bank accounts could save you financially, but pick one account that can give you double service with a lower charge.
- Regional banks could be good, but choose a bank for a startup account with FDIC insurance.
- There is no best bank account for startups; instead, it depends on startups’ growth potential & necessities.
- Estimate the cost of the bank accounts of different banks & select one that provides maximum features with lower fees.
Best bank account for startups?
The best bank account for startups could be Mercury, Wise Business & Starling Bank.
Starling Bank is best for free accounts, Mercury for international startup support, & Wise Business for high transaction volume.
However, there is only one best bank account for startups because it could vary depending on entrepreneurial needs. There are some factors that you have to check before choosing any account, such as transaction fees, accounting integrations, FDIC insurance to save deposits, etc.
Let’s understand it from a real-life startup’s scenario,
Ethan, an ex-biotechnologist of Cargill, established an aggrotech startup in Detroit, Michigan. His startup is six years old, with 25 transactions per month. Ethan is planning to gradually speed up & looking for a minimum deposit bank account due to cash shortage.
Ethan has two banks in front of him with the following details.
Fictitious bank-1:
- Monthly fee $15 (waived for $12,00 minimum balance).
- First 45 transaction free monthly & 0.50 charge afterward.
- Online banking and mobile app facilities.
- Integration with accounting software.
- FDIC insurance for deposit after exceeding transaction limit with a $0.10 charge for each.
Fictitious bank-2:
- Monthly fee $8 (waived for $600 minimum balance).
- First 25 transactions free per month & $0.70 charge for one transaction after that.
- Online banking and mobile app available.
- Accounting software integrates.
- No FDIC insurance
For the first 25 transactions,
The monthly cost for Fictitious bank-1= Monthly fees + Transaction fees + FDIC charges
=$0 + $0 + $0
=$0
The monthly cost for Fictitious bank-2= Monthly fees + Transaction fees
=$0 + $0
=$0
So, for the first month, it doesn’t make any sense to choose any bank over others, i.e., these two charge the same cost.
However, the scenario could be different if the transaction limit is crossed. Say the startup of Ethan has crossed 25 & reached 60 transactions.
The monthly cost for Fictitious bank-1= Monthly fees + Transaction fees + FDIC charges
=$0 + $15 (60- 45) × 0.45 + $15 (60- 45) × 0.10
=$0 + $7.5 + $1.5
=$9
The monthly cost for Fictitious bank-2= Monthly fees + Transaction fees
=$0 + $35 (60-25) ×0.70
=$0 + $24.5
= $24.5
So, 9< 24.5, & deposit 1200 > deposit 600.
If Ethan maintains a minimum balance, then bank-1 would be more logical for his startup. However, if the startup faces challenges & doesn’t get growth scope, then Ethan can consider bank-2.
Another important factor is FDIC insurance. Bank-1 provides financial protection for your deposit, i.e., if a bank collapses like Silicon Velly, then the US government will give you the deposit money.
You may have estimated the above factors & looking for detailed pros & cons of different startup bank accounts. Let’s see the following questions.
Bank account for startups?
Your startup stage defines which type of bank account is suitable for your small business. There are three stages: idea, growth & establishment.
I am assuming that you are in the idea stage. Let’s consider a startup scenario.
Elisa, an ex-Amazon Chief technology officer, is thinking of establishing an e-commerce startup in Florida. She is expecting an average of 100 transactions monthly. Elisa is looking for international banking facilities with mobile banking, accounting integrations & business loans.
What type of bank account could be effective for Elisa? Let’s see,
| Banking features | Capital One Spark Business | Chase Ink Business Unlimited | Wise Business | Mercury |
| Type of Accounts | Traditional Bank | Traditional Bank | Neobank | Neobank |
| Monthly Fee | Up to $99 | Up to $15 | Free | Free |
| Balance requirement | No | No | No | No |
| Monthly transactions limits | Unlimited Free | Unlimited Free | Unlimited Free | Unlimited Free |
| International Banking services | Limited | Limited | Wide-ranging | Limited |
| Mobile Banking | Yes | Yes | Yes | Yes |
| Accounting Integrations | Xero, QuickBooks, FreshBooks | Intuit QuickBooks Online, QuickBooks Desktop | Xero, QuickBooks | Xero, QuickBooks |
| Loans facilities | Capital One Business Lines of Credit | Chase Business Banking | Partner with lenders | Partner with Kabbage |
| Transaction target | N0 | No | No | No |
| Onboarding Ease | Moderate | Moderate | Easy | Easy |
| Branch Network | Large | Large in Florida | No | No |
| ATM Network | Capital One ATMs | Chase ATMs | Mastercard & Visa | All Point limited |
| Bonus | $200 for $3,000 first 3 months spending | $300 for $3,000 first 3 months spending | No | No |
Based on the above bank accounts, Chase Ink Business Unlimited is a good choice for Elisa because it provides good branch network facilities in startup locations & many accounting integration options.
Open bank account for small business?
Below are the steps that you need to follow to open a business bank account.
- Step-1: Select a bank
Choose a bank according to your startup needs that meets long-term & short-term requirements. Also, check what type of banking features they offer, such as line of credit, 24/7 customer service, accounting integrations, etc. Usually, you will find three types of banks: traditional, Neo & online.
Let’s see what offers individual banks.
| Bank names | Pros | Cons |
| Traditional | Wide services, physical branch | Higher fees, complex requirements. |
| Neo | Online service, low fees | Few features |
| Online bank | As like Neo | As like neo |
- Step-2: Gather documents
Documents could vary depending on the bank, but usually, the following are the common documents that will be required to open a bank account for a startup in America.
- ID: Any government-issued ID such as a passport or driving license with a photo.
2. EIN: You will need an employer identification number (EIN), which is available free on IRS websites. Usually, an SSN is required for sole proprietorship businesses.
3. Startup formation documents: Depending on your startup structure, you will need Articles of incorporation, articles of organization, business license, etc.
4. Address verifications: The Bank will ask you for some papers to prove your address, such as a utility bill, bank statement, etc.
5. Initial deposit: Some banks will waive you, but others could ask you to deposit a minimum balance of up to $1200.
- Step-3: Compare Accounts
Compare different banks, even regional & estimate your startup needs. Also, visit a bank branch to check fees & associated features. In a word, pick an account which will fulfill your current needs as well as future needs.
- Step-4: Apply for your account
Now you have to fill out the account details for a bank account. You can do this both offline & online.
- Step-5: Activate your Account
The bank will check your details with the provided documents. If they find it accurate, then the bank will approve your account & give you a debit card. Then, you can set up necessary features such as mobile banking, online banking, etc.
Free start up business bank account?
A free bank account for a startup can save you financially. A new business doesn’t grow overnight. Therefore, choosing a free bank account is one of the best decisions before launching a new business.
Below, the table details free bank accounts for startups that will help you to understand the better one (these banks are selected based on our survey).
| Banking features | Bank of America | Axos | Found | Kabbage | Novo |
| Type of Accounts | Traditional Bank | Neobank | Neobank | Neobank | Neobank |
| Monthly Fee | Ranges from $0 to $195, with the option for waivers based on minimum deposits. | Free | Free | Free | Free |
| Balance requirement | $3,000 | No | No | No | |
| Monthly transactions limits | Unlimited Free | Unlimited Free | 100 per month | Unlimited Free | Unlimited Free |
| International Banking services | Limited | Limited | Limited | Limited | Limited |
| Mobile Banking | Yes | Yes | Yes | Yes | Yes |
| Accounting Integrations | Yes | Yes | Yes | Yes | Yes |
| Loans facilities | Yes | No | Partner with lenders | Line of credit | No |
| Interest | Yes | No | No | No | No |
| Rewards | No | No | No | No | Yes |
| ATM Fees | Out-of-network | Low | Out-of-network | Out-of-network | Out-of-network |
| Physical Branches | Yes | No | No | No | No |
| Best for | Ongoing rewards and minimal cash deposit charges | Low ATM charges | Early-stage, bet for self-employed startups among digital-only providers | Credit access | Digital bank for swift access to funds and expedited payments |
Best bank for startups?
No bank is best for startups because it varies depending on startups’ requirements.
If you are still looking for a better one from the above table, consider the following banks for your new business.
1. Chase: Chase could be a good choice if you are looking for a Comprehensive banking service for startups.
2. Mercury: Mercury is suitable for digital banking solutions tailored for larger-scale incorporated startups
3. Bluevine: Bluevine is the best match for early-stage startups or if you are looking to earn interest on modest balances and secure the finest business line of credit.
4. U.S. Bank: U.S. Bank is one of the best choices for a free-of-charge business checking account with a traditional bank.
5. Brex: Brex is suitable for business accounts and effective for startups and scaled companies.
6. Grasshopper: If you are looking for accruing interest on substantial checking balances, Grasshopper could be your startup’s top choice.
7. Lili: Do your startups need digital tax preparation assistance? If yes, then you can choose Lili.
8. North One: North One is the top choice for budgeting expenses and projects. If your startup needs a budget or provides a project-based service, North One could be the best option.
If you need details, visit their websites. I mention their best part.
Concluding Thought
A perfect bank account depends on your startup stage. If you have some payment options from your family or friends, you can use that one until your startup gets growth trends. Divide your startup necessities into three parts: short, mid & long-term.
Does your startup fall into the long-term? If yes, then go for a bank account. If you start & don’t see the potential to rise, use family accounts.
Why? Because a limited number of startups become successful. However, it entirely depends on your startup goals, so I can’t be bullish on a bank account for a startup.
Frequently Asked Questions (FAQ)
Best bank for tech startups?
The best bank for tech startups could be any bank. I have mentioned details of different banks for startups that apply to tech startups.
However, below are some banks that are also good for tech startups.
| Bank names | Features |
| Live Oak | Good return on Savings for tech Startups |
| Relay | updates financial management system for tech startups |
| Wells Fargo | Experience team for tech startups |
| First Republic Bank | Good for international operations for tech startups |
What is a micropreneur?
Micropreneur is a professional who manages a small business of 1 to 5 employees. They use their skills & resources to manage their own business. Usually, they provide their professional services by hiring small staff.
For example, Lucas is an ex-management consultant of McKinsey who hired three junior employees to support his consulting business. Lucas can employ them on an hourly basis, part-time, or permanently.
Let’s see a mathematical scenario,
Lucas pays $500 weekly to his 3 employees & he charges $1000 for weekly projects. Lucas gets, on average, 20 clients monthly.
Salary expense= $5,00 × Number of employees × number of weeks
=$5,00× 3 × 4
=$6,000
Monthly earning= (Weekly Rate ×Weekly clients) ×Number of Weeks – Salary expense
= ($1,000 × 20) × 4 – $6,000
=$20,000 ×4 – $6,000
=$80,000 -$6,000
=$74,000
Micropreneurs are good career options for those who are looking for work-life balance.
Disclaimer
The information provided in this article is author’s view & only for educational purposes. This is not a startups advice. This is not a sponsor post & not an investment advice. Do your research before making any important financial decision. Therefore, FinanceIdeas.org will not be liable for your financial loss.
