As a startup founder, you may never have opened a business bank account before.

The process of opening a bank account for your startup requires specific information and documentation to ensure compliance with banking regulations (and to set up your account correctly). At Kruze Consulting, we’ve assisted hundreds of startups in opening new bank accounts, so we’re very familiar with the process and requirements. Every bank has slightly different requirements, but most are pretty similar since they are trying to comply with Know Your Customer requirements set up by the banking regulators.

The top banks startups typically choose are Silicon Valley Bank (SVB), JPMorgan Chase (JPM), and Mercury (although Mercury is not technically a bank). Additionally, many startups are now using Brex, which offers a checking account-like product. These institutions have a strong understanding of the unique needs of startups, particularly those backed by venture capital. You can read about the best banks for funded startups here.

In this comprehensive guide, we’ll explore the essential information and documents that startups need to open a bank account, with a focus on the unique needs of VC-backed startups and Delaware C-corps.

Essential information for opening a startup bank account

When opening a startup bank account, founders will need 1) information on the business as well as 2) personal information for the company’s major owners. Banks require this information not only to set up your account but also to comply with regulations, assess risk, establish accountability, implement security measures, and maintain communication.

Here’s the personal information you’ll typically need:

Personal Information (for all account owners and authorized signers):

  1. Government-issued photo ID: Usually a driver’s license or passport. Some banks may require two forms of ID.
  2. Home mailing address
  3. Personal phone number and email: For account communications and security measures.
  4. Date of birth: For identity verification.
  5. Social Security number (SSN): For tax reporting and identity verification.

For startups with multiple owners, be prepared to provide this information for each individual with 25% or more ownership in the business.

The fact that banks are asking for personal information can be a bit off putting to some founders. Banks are highly regulated, and need to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, assess a variety of risks associated with working with your business. While it may seem intrusive, providing this information is standard practice in banking and is designed to protect both the bank and account holders.

Business Information:

  1. Business registration documents: Articles of incorporation, business license, or certificate of formation.
  2. Employer Identification Number (EIN): Your company’s tax ID number issued by the IRS. (Some banks may allow sole proprietors or single-member LLCs to use their SSN instead.)
  3. Business name: As registered with the state.
  4. Trade name or DBA (Doing Business As) name: If applicable.
  5. Business address and phone number: Can be a home address if you don’t have a separate office.
  6. Business entity type: Specify whether you’re a sole proprietorship, partnership, LLC, or corporation (Delaware C-corp is most common for VC-backed startups).
  7. Date of business formation: When your startup was officially registered with the state.
  8. Business formation documents: Articles of incorporation and your Corporate bylaws
  9. Industry and type of business: Be aware that certain industries may face restrictions when opening business accounts.
  10. Names of account owners: Those who will be listed as owners on the account.

Many banks will let you apply online, although some may prefer that you go to a branch or talk to a banker. Kruze clients tend to prefer to do most of what they can online or via an app, but many of the biggest banks (like JP Morgan) will want to talk to you, at least on the phone.

Choosing the right bank for your startup

As a founder, you want to make sure your funds are safe and accessible.

When selecting a bank for your startup, especially if you’re VC-backed, consider the following key qualities:

  1. Safe and well-capitalized: Ensure the bank has a strong financial foundation to protect your funds. SVB reminded us of how important this is!
  2. Strong online banking with solid user interface: Founders really prefer efficient digital tools, so look for banks that have solid apps and online UX.
  3. Good customer service: Look for banks that offer dedicated support, ideally with representatives who understand the startup ecosystem. It’s incredibly important for the bank to “get” startups; most banks only deal with profitable companies, so cash burning startups can freak out some traditional banks.
  4. Low to no fee banking: Minimize unnecessary costs with banks that offer favorable fee structures for startups.
  5. Understands startup finances and the tech market: Choose a bank that demonstrates knowledge of the unique needs and challenges of tech startups.
  6. Integration with popular business software: Seamless integration with tools like QuickBooks can streamline your financial management.
  7. Protection for your operating funds: Look for options like insured sweep accounts that extend FDIC insurance beyond the standard limits.
  8. Cash management investment products: Access to short-term government mutual funds can help maximize returns on your cash reserves. Learn more about insured cash sweep accounts and how they can protect your startup’s funds.
  9. Additional financial products: Consider banks that offer a full range of startup-focused products, such as startup-specific credit cards, venture debt options, and VC relationship teams.

The importance of separating personal and business finances

Opening a dedicated business bank account for your startup is crucial for several reasons:

  1. Legal compliance: Maintaining separate personal and business finances is often a legal requirement, especially for corporations and LLCs.
  2. Simplified accounting: Separate accounts make it easier to track business expenses, manage cash flow, and prepare financial statements.
  3. Professional image: A business bank account lends credibility to your startup when dealing with clients, vendors, and investors.
  4. Tax preparation: Separate accounts simplify the process of preparing your business tax returns and claiming deductions.
  5. Liability protection: For incorporated entities, keeping business and personal finances separate helps maintain the corporate veil, protecting personal assets from business liabilities.
  6. Easier audits: In the event of an IRS audit, having separate accounts makes it much easier to provide the necessary documentation.
  7. Access to business banking features: Business accounts often come with features tailored to company needs, such as multiple user access, higher transaction limits, and merchant services.

When to open a bank account for your startup

The timing of opening a business bank account is crucial. Here are some guidelines:

  1. Pre-funding stage: If you’re using personal savings or credit cards to fund initial expenses, keep detailed records of all business-related spending.
  2. Incorporation: Once you’ve legally formed your business entity (especially if you’re a Delaware C-corp), it’s time to open a business bank account.
  3. Before receiving funding: If you’re about to receive angel or VC funding, you must have a business bank account in place. Never wire investor funds into a personal account.
  4. Before hiring: If you’re planning to hire employees or contractors, you’ll need a business account to manage payroll and expenses.

Moving your startup’s bank account: Key steps

So, many founders decide to change the bank that they use, or even add an new one. Trust us, this is a lot more work than you’d think - not the steps to open an new startup bank account, but the process to update where all of your money flows out of and into. However, proper planning makes it manageable. Key steps include:

  1. Choosing a startup-friendly bank
  2. Setting up the new account
  3. Safely transferring funds
  4. Updating payroll and vendor information
  5. Connecting to accounting systems

For a comprehensive guide, check out our startup bank account moving checklist. This resource ensures a smooth transition while maintaining financial transparency and avoiding common pitfalls.

Additional considerations for VC-backed startups

VC-backed startups often have unique banking needs due to their rapid growth and funding structure. Here are some additional factors to consider:

  1. Scalability: Choose a bank that can handle your startup’s growth, from seed stage through multiple funding rounds.
  2. Venture debt: Some banks offer venture debt products, which can be a valuable funding option for startups between equity rounds.
  3. Foreign currency accounts: If your startup operates internationally, look for banks that offer multi-currency accounts and favorable foreign exchange rates.
  4. Cash management: As your startup raises significant funding, consider banks that offer cash management solutions to maximize interest earnings while maintaining liquidity.
  5. Investment banking relationships: Some banks have investment banking divisions that can assist with future fundraising or M&A activities.
  6. FDIC insurance: Understand the limits of FDIC insurance and explore options for extending FDIC coverage for your startup's funds.

How missing bank accounts can impact your startup’s bookkeeping

As your startup grows, you might open additional bank accounts, such as high-yield money market accounts, to manage your funds more effectively. However, it’s crucial to keep your bookkeeping team informed about all your accounts.

Kruze Consulting’s Scott Orn highlights a common issue:

“Sometimes we see a large transfer, like five or ten million dollars, leaving a known account. This can cause panic until we realize it’s often just a transfer to a new account we weren’t aware of. Always inform your bookkeeper when you open new accounts to avoid unnecessary stress and ensure accurate financial records.”

Conclusion

Opening a bank account is a crucial step for any startup, particularly those backed by venture capital. By understanding the information and documentation required, choosing the right bank, and following best practices for financial management, you’ll set your startup on a solid financial footing.