While you can use a personal bank account for your LLC, it’s not a great approach. An LLC has to have a dedicated business bank account to get most of the legal and financial benefits that the LLC designation offers. In this guide, we’ll explain the top 5 reasons why you need a separate bank account for your LLC.
1. Protect Yourself from Liability
The number one reason to establish a separate business bank account for your LLC is to protect your personal assets from business liabilities.
If your personal and business funds are mixed together in a single account it’s hard to distinguish which funds belong to you and which belong to your business. In fact, a court is very likely to declare that any bank account that’s used for business transactions belongs entirely to your business. This means that if your business were to face a hefty debt or even declare bankruptcy, any personal funds in the same account as your business funds could potentially be seized.
When your LLC’s funds are segregated in a business bank account, only that account is at risk. Any money you have stored in a personal bank account—including from salary lawfully paid to you by your business—should be safe from legal actions against your business.
2. Simplify Your Tax Preparation
Every business owner knows how difficult and time-consuming it can be to file taxes. However, the process is dramatically simplified if your business finances are managed in a separate account from your personal finances.
When you have a separate bank account for your LLC, you can track all of your business income and expenses through that account. There are no personal payments or non-business-related income streams to worry about. If you use accounting software, you may even be able to link your LLC’s bank account directly to the accounting software to make tax prep easier.
3. Make It Easier to Get a Business Loan
If your business needs a loan, the bank is going to want to take a close look at your business’s finances.
Handing the loan officer a bank statement that includes both personal and business transactions means they’re going to have a hard time determining how much your business makes—and they could decline your loan request. On the other hand, if you hand over a statement that neatly shows all your business’s income and expenses, the loan officer’s job is easy and they can grant your loan request faster.
In addition, many banks require that business loans be paid into business bank accounts. So—if you’re thinking about taking out a loan—your LLC may have to have its own bank account to complete the loan process.
4. Enhance Your Business’s Credibility
Another reason to have a business bank account for your LLC is that it boosts your business’s credibility. Sending payments from your personal checking account doesn’t look very professional by comparison—especially if you work with large companies.
Vendors can receive payments by bank transfer or check with your business’s name and address. You can also ask clients to make payments out to your business.
5. Accept More Payments Easily
Establishing a business bank account for your LLC can also enable you to accept a wider range of payments than just checks and bank transfers. Many business bank accounts accept debit and credit card payments, online payments, and mobile payments like Google Pay or Apple Pay.
The easier you make it for customers to pay, the more likely your business is to be paid on time for services and the more customers you can attract.
Conclusion
Having a separate business bank account for your LLC is important for getting all the benefits of your LLC designation. It protects your personal assets from liability, simplifies your business taxes, makes it easier to get a loan for your business, and more.
Ready to set up a business bank account for your business? Open an LLC bank account online today with Lili, Bluevine, or Novo to better manage your business’s finances.
