How to open a business checking account with bad credit

  • Your credit score and banking history determine whether you are approved for a business checking account.
  • ChexSystems is a reporting agency that evaluates consumers on how they manage their checking and deposit accounts.
  • Business owners with poor credit have options for opening a business checking account.
  • This article is for business owners who don’t have good credit but want to open a business checking account.

If you are starting a new business and need to open a bank account, you might be wondering how a bad credit rating will affect the process or if you are even able to open an account. Here’s what you need to know before trying to open a business account when you have bad credit.

How does your credit affect opening a business bank account?

Banks want to know how you handle your finances before they open an account. They want to see the payment history on your credit cards and loans. Paying late or missing payments interferes with your ability to secure a business bank account. You may not be applying for a loan from the bank, but in their eyes you are still a potential risk.

When a bank considers you for a business bank account, it goes through the following subscription steps:

The bank will check your business credit.

Banks doing their due diligence can confirm your banking and credit history in several ways.

“Opening a small business account is not really different from opening a checking account,” said Tevis Verrett of Councilors of the triumvirate.

If you had issues with another bank, you will need to resolve those issues before opening a new bank account.

“The banking institution will probably be subscribed to ChexSystems”Said Verrett. If the account applicants” have run into another bank, they won’t be able to open an account until they get their ChexSystems rating cleared up. ”

He will assess your personal credit.

While you can choose to open a business bank account as a sole proprietor, it may not be a good decision if you have credit issues.

“You can open a bank account as a sole proprietor, but that bank account will be linked to your personal financial situation,” said Tiffany Wright, president of The resourceful CEO, a finance consulting firm for small and medium-sized businesses.

If you have any judgments or liens against you personally, your business bank account can be seized, Wright said.

“I know most small businesses operate like sole proprietorships, but that’s another good reason to form a separate legal entity for your business,” she said.

This may impose restrictions on your account.

If your personal credit is poor and you’re trying to open a business account as a sole proprietor, you might not get very far.

“The biggest risk is that the bank checks your credit score before opening the account, and if the bank deems the score too low, [it] may not allow you to open the account, ”Wright explained.

A bad credit rating could limit other business banking activities, Wright added.

“You may not be eligible for some of the credit-based services, such as overdraft protection, an overdraft line of credit, or business credit cards,” she said.

Although it is quite easy to open a basic business bank account With poor credit, it’s hard to apply for business lines of credit based on a bad personal credit history, Verrett said.

As Verrett learned help businesses obtain financing, a variety of personal credit factors come into play. These factors include credit score, credit history and credit card usage, Verrett said.

“It is based on a minimum of 720 FICO [score], 10 years of credit history seasoning and 20% credit card usage, ”he said.

To remember: Your personal credit score and your checking account history have an impact on your ability to open a business checking account.

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What is ChexSystems?

ChexSystems provides banks with information on how consumers manage their checking and bank accounts. The agency evaluates all current and past accounts and looks for overdraft accounts, unpaid bank charges, and bad or fraudulently written checks. It assigns consumers a score, which ranges from 100 to 899, based on those activities. The higher your score, the less the banks consider you to be a risk.

If your score is low, the bank will consider you to be a higher risk and reject your request.

To remember: ChexSystems tracks consumer banking behavior, scores consumers and reports it to banks. Scores range from 100 to 899; the higher your score, the less risk you put on the banks.

How to get a business bank account when you have bad credit

Having a low or bad ChexSystems score doesn’t entirely prevent you from getting a business checking account. There are five steps you can take to improve your odds:

1. Establish a relationship with the bank.

Wondering how to build a strong business relationship with your bank when your credit is tarnished? Holly Signorelli, financial expert and owner of Holli Signorelli CPA, advisable to work with a specific person.

“Make sure you have someone you deal with,” Signorelli said. Having only one contact is important when cash flow problems arise.

“Personal bankers will help solve these types of issues that can snowball,” Signorelli said. “It’s easier to communicate with someone who knows you than to run to the bank in a panic if you think a check is going to bounce.”

2. Clean up your ChexSystems report.

First, ask for your ChexSystems free report, to which you are entitled each year. You will be able to see why you were refused, which will allow you to identify areas for improvement.

Read your ChexSystems report to see if any errors exist. If you find an error, dispute it with ChexSystems. This process can take up to 30 days, but it may result in the item being deleted and your score improving.

It’s also important to pay off any unpaid bank charges or debts that are hurting your ChexSystems score. It will also increase your score. Once you’ve settled the outstanding debts, ask the financial institutions that reported you to update their reports – this will speed up the process.

3. Forming an LLC might help.

Wright has a simple tip for future small business owners with bad credit: “If you have bad personal credit, form an LLC, company or similar separate legal entity, ”she said.

It’s also important, Wright added, that you get a Tax Identification Number. This number identifies your business as a separate tax entity from you as an individual. The next step? Use the new business entity to open a bank account.

“The professional bank account is the first step create credit for your business separated from you, “said Wright.” Even if you have great credit, you will protect your personal credit by keeping your business credit inquiries off your personal credit report. ”

4. Think of a credit union.

Rather than applying to a big bank, find a local credit union. Personalized service and attention to individual business situations can make your business life easier.

“When you’re new, and especially if your credit isn’t exceptional, the big banks are more likely to hold deposits and charge you higher fees,” Signorelli said.

This is bad news for new cash-strapped businesses. “Holding deposits on a small business, even for just two days, can lead to serious cash flow problems,” she said. Signorelli noted that some large banks hold deposits for up to 10 days.

Before your appointment, ask the representative if a personal credit check is required to open the account, as some credit unions do this as part of the process for opening a business account.

5. Apply to a bank that does not use ChexSystems.

There are a handful of banks, of which Chime Bank and BBVA United States, this will not run a ChexSystems report when you plan to create a business checking account. There are also local banks which may not consult ChexSystems.

To remember: There are several ways to get a business checking account when you have bad credit. Build a relationship with your local bank, get your free ChexSystems report, and work to resolve report issues, and as a last resort, work with a bank that won’t use ChexSystems to check your score.

Additional reporting from Sarita Harbor. Interviews with sources were conducted for a previous version of this article.

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