Business Banking Components
Frequently Asked Questions
What should you look for in a bank for your small business?
When determining which bank works best for your business, there are several factors to consider, including checking and savings account services, interest rates for deposit accounts, introductory and service fees, branch and ATM banking accessibility, transaction limits, minimum balance, and signup offers.
How do you open a business bank account?
Start by choosing where you want to bank. Some business owners choose to open a business account at the same bank they use for their personal bank accounts. When you open a business bank account, you will need to provide certified documentation to verify your business. If you’re a sole proprietor, for instance, a business license and a registration of your trade name might be required.
How do you establish business credit?
If you are just starting your business, then the business is essentially an extension of yourself. Your business and personal credit report will initially be linked. By establishing business credit, you separate your personal credit from your business credit. It takes time and effort, but begin by separating your business finances from your personal finances. Set up a business bank account, and keep your books separate.
How does remote deposit work?
Organizations see a large volume of checks, and they need to get funds available quickly for operations, payroll, and expansion. Remote deposit is a way to process payments without sending paper checks to your bank or credit union. By scanning an image (or taking a photo) of checks instead of moving physical documents around, you get faster deposits and fewer errors.
Commercial banks focus on products and services that are specifically designed for businesses, such as deposit accounts, lines of credit, merchant services, payment processing, commercial loans, global trade services, treasury services, and other business-oriented products.
Automated Clearing House (ACH) is a network that coordinates electronic payments and automated money transfers. ACH is a way to move money between banks without using paper checks, wire transfers, credit card networks, or cash. On statements or in your transaction history, ACH means that an electronic payment has been made to or from your account using your checking account information.
Retail banking is everyday banking that happens between consumers and their personal banks. A retail bank offers consumers basic banking services, including checking accounts, savings accounts, and loans. Even if you primarily bank online, you'll still interact with your retail bank on a regular basis.
A bank guarantee is a promise from a bank that if a party defaults on a debt or obligation, the bank will cover the other party’s loss. A bank guarantee can encourage startups and small businesses to take risks and explore business opportunities that they wouldn’t be able to otherwise.
Microfinance—also called microcredit—is a way to provide small business owners and entrepreneurs access to capital. Essentially, microfinance is providing loans, credit, and access to savings accounts—even insurance policies and money transfers—to the small business owner and entrepreneur.
Letter of Credit
A letter of credit is a payment method that smoothes the way for international trade and a variety of other transactions. With a letter of credit, buyers and sellers can reduce their risk, ensure timely payment, and be more confident about the reliable delivery of goods or services.
A chargeback is a reversal of charges after purchase. A payment gets returned to a buyer from the seller’s account. Chargebacks are probably most popular for credit card purchases, but they are increasingly used for other types of payment, including debit card purchases, payments made through payment platforms like PayPal and Square, and electronic bank drafts.
Lockbox payments are a way for companies to streamline the way they accept money from customers and get access to the cash. When a company uses a lockbox service, they typically set up a special P.O. box for their customers to send payments to; then, the bank collects those payments, deposits the cash, and updates the company on their transactions.
Irrevocable Letter of Credit
An irrevocable letter of credit is an agreement between a buyer (often an importer) and the buyer’s bank. The bank agrees to pay the seller (the exporter) as soon as certain conditions are met. Because it is irrevocable, the terms of the letter cannot be changed without the agreement of everyone involved.
Asset-backed lending refers to a business loan or line of credit secured by a business’s assets. Loans back by assets may make sense if your capital is tied up and you’re having trouble getting approved for other types of financing.
U.S. Small Business Administration. "Open a Business Bank Account."
U.S. Small Business Administration. "How to Establish Business Credit for the First Time."
State of Connecticut Department of Banking. "ABC's of Banking."
Bureau of the Fiscal Service. "Automated Clearing House."
Board of Governors of the Federal Reserve System. "Microfinance in the United States."
International Trade Administration. "Methods of Payment: Letter of Credit."
Cornell University Legal Information Institute. "48 CFR § 52.228-14 - Irrevocable Letter of Credit."
U.S. Small Business Administration. "Asset-Based Lending: What is the Upside and Downside?"