What is business banking?
A comprehensive guide for small business owners, CFOs, and accountants.
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1 minute
July 11, 2024
Let’s say you operate an e-commerce startup selling prebiotic soda, and you have a record-breaking sales day thanks to a new TikTok promotion.
To support future growth, your business must safely store and diversify those funds for future inventory investment or marketing efforts. This is where business banking comes in.
What is business banking? Learn the answer to this question and more in our guide below.
Eliminate annoying banking fees, earn yield on your cash, and operate more efficiently with Rho.
Business banking refers to the financial services and products institutions provide specifically to companies – loans, credit lines, wire transfers, checking and savings deposit accounts, credit cards, and financial consulting are just a few examples.
If you’re reading this, you likely have a personal bank account that you use to store funds, send money, and receive income. Think retail banking brands like Chase, Bank of America, Wells Fargo, or SoFi. Commercial banks do the same to help support companies' business needs.
Business banks differentiate themselves by market focus. Some types of banks, like Silicon Valley Bank and First Republic Bank, serve startups while others focus on large corporations.
To open a business bank account, you must have a business entity, such as an LLC or corporation. Some banks and fintech brands differ in their requirements. You can read more about opening a Rho account here.
But having a business entity isn’t the only requirement. You will likely need to submit additional documentation for verification purposes.
For example, to open a Rho Account, all applicants are required to provide business information and key documents, including:
Note: Rho cannot provide services to sole proprietorships or unincorporated businesses.
Some financial products may ask for more documentation for verification and underwriting purposes (for companies applying for Rho credit, our underwriting team will require additional information).
What happens next depends on the specific services your business is seeking.
The business may need to make an initial deposit to meet the bank’s minimum balance limit.
The business may need to share its credit score, revenue, and detailed plans for how it intends to use the funds.
Every bank’s process differs.
It’s worth noting that the process and requirements for business banking differ from bank to bank. So you should research multiple options and talk to contacts in your network about what they like and don’t like about their business banking partner.
The ideal business banking partner is one that provides responsive customer service, products and services that your company needs to operate and a modern UX that is seamless to use.
In addition to interest charged on loans and deposit float, many banks charge fees for specific services like ACH transactions, wire transfers, credit card interest, asset management, business consulting, and more. Make sure fees are reasonable when evaluating partners.
Did you know? Rho doesn’t charge for ACH transactions or domestic wires. Learn why customers like Superfiliate moved from SVB to Rho for their banking and spend management needs.
“Commercial banking” or “corporate banking” are similar to business banking with some differences.
Most notably, business banking is often associated with small to mid-sized companies, whereas commercial banking is commonly tailored to larger enterprises with more complex financial needs (e.g., international operations).
Every bank is different in terms of brand, cost structure, industry or company size, and range of services offered, but there are several common services many of them provide.
A business checking account is a fund account that stores a company’s working capital.
These accounts are typically used by companies to deposit revenues, send and receive payments, and, in some cases, access cash from ATMs using a business checking debit card.
A business checking account is particularly useful for recurring payments—such as to suppliers or vendors—or for collecting payments from your payment service provider.
An important note is that most business checking accounts require the business to maintain a minimum balance and may charge fees in the event of an overdraft or for sending or receiving electronic transfers. Rho does not!
A business savings account provides businesses with a secure place to store excess capital and earn a small amount of interest. Businesses may transfer capital to and from their business checking account to their savings account as needed.
Most banks allow businesses to access this money as often as needed, although some banks limit the amount of withdrawals in a statement cycle.
During periods of high interest rates, it isn’t likely that businesses will store significant funds beyond their operating needs in a business savings account. They often use treasury management products to generate yield on excess cash reserves.
A business credit card is a financial product – usually in plastic, metal, or virtual form – that helps companies pay for business expenses using credit instead of working capital.
Businesses often use corporate credit cards to manage their working capital and earn bottom-line boosting cashback or points rewards on purchases like travel, digital ads, client entertainment, cloud computing, SaaS software subscriptions, and more.
Did you know? Rho Cards offer up to 1.25% cashback on purchases in addition to our platform’s built-in expense management, AP automation, accounting integrations, business banking, and treasury products.
Other benefits of corporate credit cards include:
Businesses typically link a business checking account and transfer funds over to pay off credit owed on purchases.
Businesses often utilize banks to secure loans to facilitate business growth.
There are various types of loan products banks offer, such as term loans, real estate loans, equipment financing, lines of credit, SBA loans, invoice financing, and merchant cash advances, to name a few.
The specific terms of these loans, including the amount, interest rate (fixed or variable), and repayment schedule, are dictated by the needs and financial outlook of the business during the underwriting process.
A loan secured against a business’s assets will generally come with a lower interest rate, but the bank can seize the business’s assets in the event of default.
Defaulting a loan payment can also hurt a business’s creditworthiness, raise interest rates, and trigger legal proceedings against the business.
Note: Rho does not provide lender services, which is why many of our business clients work with a local or global bank brand for lending and Rho for our platform’s automation, expense, treasury, and zero-fee ACHs and domestic wires capabilities.
Another benefit of business checking and savings accounts is that deposits are FDIC-insured up to $250k. This means account holders’ funds will be protected up to $250k if their financial institution fails.
In light of the 2023 collapse of Silicon Valley Bank, some banks now offer a “networked” banking solution, in which deposits of greater than $250k are spread out across several banks, ensuring additional Member FDIC coverage.
For example, Rho offers Treasury Management Accounts, which is built on a network of over 400 FDIC-insured banks, allowing you to access up to $75M in FDIC deposit insurance per entity.
This coverage saves you the hassle of opening multiple bank accounts to insure your funds.
Some businesses utilize their bank’s treasury services to manage cash more effectively.
Treasury management encompasses various financial processes, including sequencing income and expenditures, processing transactions, identifying financial risk, fraud prevention, and liquidity management.
Treasury management aims to ensure a business’s liquidity position is stable by monitoring its cash flow and accounts receivables. For example, a business might leverage a T-Bill ladder to hedge against changes in interest rates while earning yield, instead of putting all non-operational cash in a business checking account.
Business banks often provide treasury services at a fixed cost, however many of these services are reserved for clients with significant revenues.
This is a big reason why Rho launched Rho Treasury, our treasury management service that invests your excess cash in short-dated government securities that are held in your business’ name. You don't have to be a cash management expert to generate significant yield thanks to our service.
Like treasury, payroll management is a service businesses sometimes outsource to their bank.
Many business banks offer software and services to help streamline the payroll process, including online paystubs, ACH deposit processing, payroll tax management, and flagging unusual payments. This service is also typically offered at a fixed cost.
Did you know? Rho integrates with more than 50 different HR platform providers.
Businesses are always at risk of fraud, so banks offer fraud protection services. With fraud protection, the bank will monitor a business’s checking account and report any unusual activity, such as suspicious checks or employee misuse of funds.
Most banks will offer some fraud protection services for free (e.g., check monitoring), but more comprehensive fraud protection can cost extra. Your best bet is to implement fraud protection best practices.
Most business banks can facilitate wire transfers and automated clearing house (ACH) payments—two types of electronic money transfers commonly used by businesses to send and receive payment.
Many businesses use ACH transfers to set up recurring payments to suppliers and vendors, but the costs of wires and ACH transfers can vary by bank. Check out Rho’s pricing to learn why companies use our platform.
A business bank can provide a more niche service is a letter of credit or LC. Letters of credit are typically used in international trade to ensure that if a buyer cannot make payment, the issuer of the LC will step in and send payment to the exporter on behalf of the buyer.
A bank typically charges a fee for a letter of credit based on the total amount of credit they’re guaranteeing.
Note: Rho does not offer letters of credit, which is why many clients have a relationship with their local bank and use Rho.
Business banks typically offer clients overdraft facilities if a business doesn’t have the cash to cover expenditures. Overdrafts are an alternative form of funding in which the bank covers the capital the business owes in return for interest on said cash.
An overdraft facility is typically a short-term loan and can be secured against the business’s assets. This type of financing is commonly utilized by seasonal businesses or businesses with fluctuating finance requirements.
If it wasn’t already apparent, business banking provides many benefits to businesses. Let’s delve into some of the specific benefits businesses enjoy:
A business bank account makes it easy for business owners to separate their personal finances from their business’s finances, which is important because commingling funds can put your personal funds at risk and cause accounting issues down the road.
Separating personal and business finances is also good financial hygiene, providing a clearer picture of each entity’s financial health.
Another reason why businesses use business bank accounts is to segment funds based on lines of business for clear accounting purposes.
For example, a CPG company may have separate bank accounts set up for their brick-and-mortar retail business, e-commerce business, and any international business.
Working with a business bank makes it easier to move funds from one account to another and pay vendors and suppliers using wire or ACH transfers.
Having all of a business’s income and expenses flow through a dedicated business bank account streamlines tax preparation.
Many tax preparation software link directly with a business bank account to further simplify the process.
In the event of an audit, a business bank account leaves a clean audit trail, reducing the potential for issues with the IRS.
Working with a business bank gives the business direct access to financing to capitalize on opportunities and support growth ambitions.
Businesses in a healthy financial position can often select from various financing options to find one that fits their needs.
A business bank account enables businesses to manage cash on hand, receivables, and payables more efficiently. A business bank account also leaves a paper trail of all activities to support expense tracking and tax prep.
A business bank account in good standing can help a business establish credit, which can help it access better financing opportunities.
Business banks aim to be a trustworthy steward of their clients’ cash and will notify clients in the event of suspicious transactions or other activities that could be deemed fraudulent.
Many business banks offer additional tools and services to clients that help them meet their needs, such as bookkeeping and invoicing software, payroll support, and advisory services.
Many business banks also offer rewards programs tailored to clients' specific needs, such as cost-saving promotions, cash back on business-related purchases, discounts on business products, and airline miles.
Lastly, a business bank account provides a business with a layer of professionalism.
Having a business bank account signifies to customers and vendors that the business won’t be irresponsible with their money and that it has the foundation in place to properly manage cash.
If it wasn’t already apparent, business banking provides many benefits to businesses. Let’s delve into some of the specific benefits businesses enjoy:
While there are many benefits to business banking, there are also a few drawbacks business owners should be aware of:
This is the big one. Depending on the services a business utilizes, high fees and interest rates can be associated with business banking, leading to unforeseen costs.
Business owners must talk to their bank about the costs associated with any type of service to avoid being caught unawares. Learn why clients love Rho’s pricing.
Business banks are typically open Monday through Friday and have limited or no weekend availability.
While this lack of availability is mitigated somewhat by online banking services, it’s still a consideration for business owners who need access to a local branch.
Like we’ve said before, you're in trouble if you have to tag the company's founder on social media just to get a response – or wait hours to connect with a service agent.
Since most business banks fulfill loans using client deposits, they typically require their clients to maintain a minimum balance on their accounts. Failure to do so can result in overdraft fees.
Some banks limit the number of monthly free client transactions, which can affect a business’s ability to manage its cash.
Surprisingly, we have received this question in various forms since launching Rho, so we wanted to provide some information.
Business banking serves corporate entities and tailors its services as such; personal banks serve the needs of you and me. As a result, they often market to end customers in very different ways.
Here are a handful of other ways that business and personal banking differ:
Rho is the finance operating system businesses use to manage all their business banking, spend management, and treasury needs in one place without the annoying fees and lackluster customer service you get from legacy banks.
Organize your company’s operating cash, earn yield on your reserve capital with Rho Prime Treasury, and enjoy fee-free Same-Day ACHs, domestic wires, and checks – all backed by customer support available 24H Mon-Fri, 10-7pm ET on weekends.
Commercial banking integrated with corporate cards, accounts payable, expense management, treasury, and the Rho mobile app – at no added cost.
Up to 1.25% cash back, automated workflows, fee-free deposits, no minimum balance, no overdraft fees, customer support available 24H Mon-Fri, 10-7pm ET on weekends, integrations with third-party accounting and HR software, and a sleek mobile app.
No physical locations, no ATM withdrawals.
Note: Many businesses avoid handling significant sums of cash for theft prevention purposes, but we typically see clients work with their local bank to cover their day-to-day cash withdrawals as needed.
If you run a high-performing startup or SMB that wants world-class banking and payments services built into a platform with a world-class user experience, Rho is worth checking out.
Rho’s business checking account charges no fees for monthly maintenance, automated clearing house (ACH), domestic wires, and checks.
We also help you eliminate a bloated finance stack by integrating business banking, treasury, corporate cards, accounts payable (A/P) automation, and more in one unified platform. Plus, our the Rho app (available on iOS and Android devices) helps you manage all mobile banking needs with ease.
Note: To be eligible for Rho, your business must be incorporated in the United States. We do not offer services to sole proprietorships or unincorporated businesses.
Check out our pricing page. Rho does not charge fees for ACH, domestic wires, or international SWIFT wires.
Axos Bank is a full-service online bank that offers business banking products.
Checking and savings accounts, CDs, merchant services, treasury, commercial loans.
No minimum deposit, fee-free transactions, ATM refunds.
No third-party integrations, $25 fee for insufficient funds.
SMBs who require ATM access.
Axos Basic Business Checking is free, while Axos Interest Business Checking comes with a $10 monthly fee, which is waived if the account holder maintains a daily balance of at least $5k.
Axos is a bank, not a technology company. Businesses that want a name-brand bank but aren’t concerned about technology integrations and how it might impact processes like month-end close and expense management.
Chase is a nationally recognized bank that offers business banking services for SMBs and enterprise customers.
Checking and savings accounts, debit cards, 15k+ ATM network, commercial loans, lines of credit, business credit cards.
No minimum opening deposit, fee-free transactions, signup bonus, no overdraft fees.
$15 monthly fee, out-of-network ATM fee, and monthly transaction limits. Chase clients are
Chase is a bank, not a technology company. Businesses that want a name-brand bank but aren’t concerned about technology integrations and how it might impact processes like month-end close and expense management.
$15 per month.
Mercury is a financial technology company providing basic banking products and services tailored to VC-backed startups.
Mercury is a great option for VC-backed startups who are looking for foundational banking services to get started.
FDIC-insured checking and savings accounts, employee debit and credit cards with custom limits, global FX payments, and a Quickbooks integration.
No monthly or minimum deposit amounts, no overdraft fees, free domestic and international wire transfers, venture debt options, and Mercury Vault product offers up to $5M in FDIC insurance through partner banks and sweep networks.
No phone support is offered, and chat support is not available on weekends, and reviews indicate customers struggle with customer support responsiveness.
Lacks multi-entity support and additional finance capabilities companies may want to integrate with banking, including AP automation and expense management.
Companies may also prefer to invest directly in T-bill vs. the potential risks of investing in money market funds.
Startup businesses that are just getting started and want access to business banking services built into a technology platform with a good user experience.
As growth-stage startups scale, they may need additional capabilities like multi-entity support, AP automation, and other important financial operations features. In those scenarios, Rho can provide a great alternative option.
Like Rho, Mercury offers fee-free banking services except for currency exchanges.
We hope this guide has provided you with the necessary context to begin engaging with business banking. Partnering with the right bank for your business can help a business elevate its financial management, capitalize on new opportunities, and achieve scale.
Learn how Rho’s fee-free platform for business banking and finance, business credit cards, and more compare with different startup solutions, including:
Interested in opening a Rho account? Get in touch today.
Anyone who is a signatory on the business bank account can access it and perform transactions.
For most businesses, this includes directors or officers of the company, a company’s attorney or accountant, or another approved party who works in a finance-related role in the business for which access is needed.
A business bank can reject any business if it deems it too risky to work with.
This could be because the business has low creditworthiness, can’t meet the initial deposit requirements, is engaged in a type of business that the bank is prohibited from engaging with (e.g., gambling, cannabis, etc.), or any number of other reasons.
Investment banks typically make money by selling securities, while business banks provide services to businesses.
However, many large businesses also use investment banks to assist with asset management, IPOs, mergers, and more.
Oftentimes, business banks and investment banks are one in the same.
This is due to 1999 legislation that repealed parts of the Glass-Steagall Act, which required investment and commercial banks to operate as separate business entities.
Matthew Speiser is a finance content writer who specializes on topics including startups, venture capital, corporate finance, and business banking.
Competitive data was collected as of October 23, 2023, and is subject to change or update.