how to put together a business plan for a bank loan

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How to Write a Successful Business Plan for a Loan

Lisa A. Anthony is a lead writer on NerdWallet’s small-business team, primarily covering small-business lending. She has over 20 years of diverse experience in finance, lending and taxes. Prior to joining NerdWallet, Lisa worked as a writer for Intuit Turbo Tax, loan officer for Bank of America and a business analyst for Wells Fargo Home Mortgage. Over the years, she has had the opportunity to interact directly with consumers on lending products and tax preparation software. Her work has appeared in The Associated Press, Washington Post and Entrepreneur, among other publications.

Sally Lauckner is an editor on NerdWallet's small-business team. She has over 15 years of experience in print and online journalism. Before joining NerdWallet in 2020, Sally was the editorial director at Fundera, where she built and led a team focused on small-business content and specializing in business financing. Her prior experience includes two years as a senior editor at SmartAsset, where she edited a wide range of personal finance content, and five years at the AOL Huffington Post Media Group, where she held a variety of editorial roles. She is based in New York City.

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Table of Contents

What does a loan business plan include?

What lenders look for in a business plan, business plan for loan examples, resources for writing a business plan.

A comprehensive and well-written business plan can be used to persuade lenders that your business is worth investing in and hopefully, improve your chances of getting approved for a small-business loan . Many lenders will ask that you include a business plan along with other documents as part of your loan application.

When writing a business plan for a loan, you’ll want to highlight your abilities, justify your need for capital and prove your ability to repay the debt. 

Here’s everything you need to know to get started.

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

A successful business plan for a loan describes your financial goals and how you’ll achieve them. Although business plan components can vary from company to company, there are a few sections that are typically included in most plans.

These sections will help provide lenders with an overview of your business and explain why they should approve you for a loan.  

Executive summary

The executive summary is used to spark interest in your business. It may include high-level information about you, your products and services, your management team, employees, business location and financial details. Your mission statement can be added here as well.

To help build a lender’s confidence in your business, you can also include a concise overview of your growth plans in this section.

Company overview

The company overview is an area to describe the strengths of your business. If you didn’t explain what problems your business will solve in the executive summary, do it here. 

Highlight any experts on your team and what gives you a competitive advantage. You can also include specific details about your business such as when it was founded, your business entity type and history.

Products and services

Use this section to demonstrate the need for what you’re offering. Describe your products and services and explain how customers will benefit from having them. 

Detail any equipment or materials that you need to provide your goods and services — this may be particularly helpful if you’re looking for equipment or inventory financing . You’ll also want to disclose any patents or copyrights in this section.

Market analysis

Here you can demonstrate that you’ve done your homework and showcase your understanding of your industry, current outlook, trends, target market and competitors.

You can add details about your target market that include where you’ll find customers, ways you plan to market to them and how your products and services will be delivered to them.

» MORE: How to write a market analysis for a business plan

Marketing and sales plan

Your marketing and sales plan provides details on how you intend to attract your customers and build a client base. You can also explain the steps involved in the sale and delivery of your product or service.

At a high level, this section should identify your sales goals and how you plan to achieve them — showing a lender how you’re going to make money to repay potential debt.

Operational plan

The operational plan section covers the physical requirements of operating your business on a day-to-day basis. Depending on your type of business, this may include location, facility requirements, equipment, vehicles, inventory needs and supplies. Production goals, timelines, quality control and customer service details may also be included.

Management team

This section illustrates how your business will be organized. You can list the management team, owners, board of directors and consultants with details about their experience and the role they will play at your company. This is also a good place to include an organizational chart .

From this section, a lender should understand why you and your team are qualified to run a business and why they should feel confident lending you money — even if you’re a startup.

Funding request

In this section, you’ll explain the amount of money you’re requesting from the lender and why you need it. You’ll describe how the funds will be used and how you intend to repay the loan.

You may also discuss any funding requirements you anticipate over the next five years and your strategic financial plans for the future.

» Need help writing? Learn about the best business plan software .

Financial statements

When you’re writing a business plan for a loan, this is one of the most important sections. The goal is to use your financial statements to prove to a lender that your business is stable and will be able to repay any potential debt. 

In this section, you’ll want to include three to five years of income statements, cash flow statements and balance sheets. It can also be helpful to include an expense analysis, break-even analysis, capital expenditure budgets, projected income statements and projected cash flow statements. If you have collateral that you could put up to secure a loan, you should list it in this section as well.

If you’re a startup that doesn’t have much historical data to provide, you’ll want to include estimated costs, revenue and any other future projections you may have. Graphs and charts can be useful visual aids here.

In general, the more data you can use to show a lender your financial security, the better.

Finally, if necessary, supporting information and documents can be added in an appendix section. This may include credit histories, resumes, letters of reference, product pictures, licenses, permits, contracts and other legal documents.

Lenders will typically evaluate your loan application based on the five C’s — or characteristics — of credit : character, capacity, capital, conditions and collateral. Although your business plan won't contain everything a lender needs to complete its assessment, the document can highlight your strengths in each of these areas.

A lender will assess your character by reviewing your education, business experience and credit history. This assessment may also be extended to board members and your management team. Highlights of your strengths can be worked into the following sections of your business plan:

Executive summary.

Company overview.

Management team.

Capacity centers on your ability to repay the loan. Lenders will be looking at the revenue you plan to generate, your expenses, cash flow and your loan payment plan. This information can be included in the following sections:

Funding request.

Financial statements.

Capital is the amount of money you have invested in your business. Lenders can use it to judge your financial commitment to the business. You can use any of the following sections to highlight your financial commitment:

Operational plan.

Conditions refers to the purpose and market for your products and services. Lenders will be looking for information such as product demand, competition and industry trends. Information for this can be included in the following sections:

Market analysis.

Products and services.

Marketing and sales plan.

Collateral is an asset pledged to a lender to guarantee the repayment of a loan. This can be equipment, inventory, vehicles or something else of value. Use the following sections to include information on assets:

» MORE: How to get a business loan

Writing a business plan for a loan application can be intimidating, especially when you’re just getting started. It may be helpful to use a business plan template or refer to an existing sample as you’re going through the draft process.

Here are a few examples that you may find useful:

Business Plan Outline — Colorado Small Business Development Center

Business Plan Template — Iowa Small Business Development Center

Writing a Business Plan — Maine Small Business Development Center

Business Plan Workbook — Capital One

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See our overall favorites, or narrow it down by category to find the best options for you.

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U.S. Small Business Administration. The SBA offers a free self-paced course on writing a business plan. The course includes several videos, objectives for you to accomplish, as well as worksheets you can complete.

SCORE. SCORE, a nonprofit organization and resource partner of the SBA, offers free assistance that includes a step-by-step downloadable template to help startups create a business plan, and mentors who can review and refine your plan virtually or in person.

Small Business Development Centers. Similarly, your local SBDC can provide assistance with business planning and finding access to capital. These organizations also have virtual and in-person training courses, as well as opportunities to consult with business experts.

Business plan software. Although many business plan software platforms require a subscription, these tools can be useful if you want a templated approach that can break the process down for you step-by-step. Many of these services include a range of examples and templates, instruction videos and guides, and financial dashboards, among other features. You may also be able to use a free trial before committing to one of these software options.

A loan business plan outlines your business’s objectives, products or services, funding needs and finances. The goal of this document is to convince lenders that they should approve you for a business loan.

Not all lenders will require a business plan, but you’ll likely need one for bank and SBA loans. Even if it isn’t required, however, a lean business plan can be used to bolster your loan application.

Lenders ask for a business plan because they want to know that your business is and will continue to be financially stable. They want to know how you make money, spend money and plan to achieve your financial goals. All of this information allows them to assess whether you’ll be able to repay a loan and decide if they should approve your application.

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How To Write A Business Plan for A Bank Loan (3 Key Steps)

Wondering how to create a business plan that will wow your banker.

You're not alone.

Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.

Where do you start?

How do you calculate the financials?

How can you be sure you're not making a mistake?

And if you need a business plan for a bank loan, getting this document right is absolutely essential.

So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.

Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.

Step 1: Outline The Opportunity

This is the core of your business plan. It should give loan officers a clear understanding of:

• What problem you're solving
• How your product or service fits into the current market
• What sets your business apart from the competition

There are three key parts to this step:

The Problem & Solution

Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?

We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.

Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.

Target Market

Who exactly are you selling to? And roughly how many of them are there?

This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”

For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.

Competition

Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.

Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?

Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.

For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.

Boost your chances of securing a loan

See how LivePlan can help you write a fundable business plan

Step 2: Show how you'll execute

This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.

The three main components of this step include:

Marketing & Sales Plan

There can be a lot of moving parts to this one, depending on your business model.

But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:

• Positioning strategy. What makes your business both unique and highly desirable to your target market?
• Marketing activities. Will you advertise with billboards, online ads or something else entirely?
• Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’

This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.

You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.

Any specialized software or equipment and tools should also be covered here.

Milestones & Metrics

Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.

These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.

Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.

Step 3: Detail your financial plan

This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.

But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:

Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:

• Revenue. List all your products, services and any other ways your business will generate income.
• Direct costs. Or in other words, what are the costs to make what you sell?
• Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
• Expenses. Things like rent, utilities, marketing costs and any other regular expenses.

Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.

Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.

Bankers will be giving this section a lot of attention. Here's what you'll need:

• Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
• Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
• Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.

Don't forget the Executive Summary

The Executive Summary is the first section of your business plan, but we recommend you tackle it last.

It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.

Think of it as a quick read designed to get the lender excited about your business.

If you need help writing your plan

Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.

And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:

• Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
• Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.

LivePlan makes it easy to write a winning business plan

No risk – includes our 35-day money back guarantee.

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How To Get A Business Line Of Credit In 5 Steps

Updated: Jan 5, 2024, 12:34am

A business line of credit is a handy way to access financing as needed rather than receiving a lump-sum payment such as with a small business loan. Business lines of credit can help you manage cash flow, buy inventory or pay for an unexpected expense. Better yet, you only pay interest on the amount you use, not the full approved credit line.

While the application process varies depending on the specific lender, you can follow these general steps to get a business line of credit.

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What Is a Business Line of Credit?

A business line of credit is a form of revolving credit that allows you to withdraw money as needed, as opposed to a typical loan that’s paid in a lump sum. A business line of credit can be best for managing cash flow and ongoing expenses, and you can draw on it up to a predetermined limit.

With this line of credit, you only pay interest on the cash you draw from the credit line and any unused credit doesn’t accrue interest. Like a business loan, a business line of credit can be unsecured or secured with collateral .

A typical business line of credit has a draw period that lasts for anywhere from one to five years, and during that time, you can withdraw money from your line of credit. Once the draw period ends, you enter repayment, during which you pay back both the principal and interest. Since many have variable interest rates, the cost of your debt can fluctuate.

How Does a Business Line of Credit Work?

Small business lenders may structure business lines of credit in slightly varying ways, but generally, there is a draw period and a repayment period. During the draw period—which typically lasts two to five years—you can borrow money from the line of credit up to the predetermined limit.

During the draw period, the money that you borrow accumulates interest. If you don’t borrow any money, you won’t pay any interest, but you may still need to pay a fee to keep the credit line open.

You can repay the money you borrowed during the draw period, but if you don’t, you’ll begin repayment once the draw period ends. At that point, repayment begins and you won’t be able to borrow any more money on this line of credit.

You’ll repay the loan in installments, similar to a business loan until you’ve repaid the borrowed amount in full. Since the interest rates on a business line of credit are often variable, they can change throughout the life of the line of credit.

5 Steps To Get A Business Line Of Credit

1. decide how much funding you need.

When you apply for a business line of credit, you’ll have to determine how much credit you need. Available loan amounts depend on the lender but typically range from $2,000 to $250,000. Because you don’t pay interest on the full amount and only on what you use, it’s acceptable to ask for a higher limit than you’ll likely need—as long as you don’t get greedy and spend more than you can afford.

If you need access to more funds after you receive your initial credit line, you can request a line of credit increase. Depending on your business’s revenue and credit history, the lender may approve this request or ask for collateral—something of value it can repossess if you fail to repay—to secure the line of credit.

2. Check Your Eligibility

While there are several different factors that lenders consider , there are a few that are most vital, including:

• Credit history. Your credit history illustrates the likelihood of you defaulting. While most lenders require a personal credit score of around 680, some lenders accept scores as low as 580 to 600. However, the higher your score, the better chances you have at securing a lower interest rate or higher loan amount.
• Business revenue. Most lenders have a minimum annual or monthly business revenue requirement. This varies depending on the specific lender but can range anywhere from $10,000 per month to $250,000 per year. Online lenders typically have less stringent revenue requirements compared to traditional banks.
• Time in business. Most banks require that a business has been in operation for at least one to two years, but some online lenders may only require six months. The longer the business has been around, the more stable it looks to potential lenders—and the lower interest rate you may receive.

3. Research and Compare Lenders

Once you understand how much financing you need and your eligibility, it’s time to research lenders that match up with that information. Be sure to compare different lenders’ maximum credit limits, repayment terms, minimum requirements and APR ranges, too.

There are a few different types of institutions that you can apply through:

• Banks and credit unions. Traditional lenders, such as banks and credit unions, are typically best for business owners with high credit scores, lengthy business histories and substantial annual revenue. New businesses may not qualify for loans through these institutions.
• Online lenders . Online lenders are best for business owners who may have lower credit scores, shorter business histories and lower business revenue. Because online lenders typically approve riskier prospective borrowers, interest rates may be higher than banks and credit unions.

4. Gather Required Documentation

Once you find your preferred lender, it’s time to gather the necessary documents to prepare for the formal application process. This will usually include the following:

• Personal and business tax returns
• Business licenses
• Articles of incorporation
• Personal and business bank statements
• Profit and loss statements
• Financial statements
• Business plan
• Building lease

If you’re unsure what documents are needed, contact the lender before applying.

5. Submit Your Application

Lastly, submit your application online or in person. Turnaround times vary by lender, and it can take as little as five minutes or as long as several days to get a decision. Your lender may also require you to provide additional documentation after reviewing your application.

Common information your lender may ask for includes:

• Business name
• Social Security number (SSN)
• Desired loan amount
• Loan purpose
• Business Tax ID
• Annual revenue

If your loan is approved, a lender will send you a loan agreement to sign before issuing your line of credit you can draw from.

Find the Best Small Business Loans of 2024

Common business line of credit application mistakes.

Like with any other loan application, it pays to be accurate when you complete a business line of credit application. Make sure to double-check the numbers, contact information and other relevant details before submitting. If you include an error, it could delay the process or hurt your chances of being approved.

When listing your contact information, use an email address or phone number that is frequently checked. The lender may contact you with additional questions, so it’s essential that you don’t miss a phone call or email.

Business Line of Credit Rates and Fees

Lenders that  offer business lines of credit  charge a variety of fees and penalties. Before you finalize an application, compare fees and interest rates to ensure you’re getting the best deal.

Interest Rate

When you draw money from the business line of credit, you will pay interest on the withdrawn amount. The interest rate may be either variable or fixed: A fixed rate will stay the same throughout the life of the loan while a variable rate will fluctuate depending on the overall market interest rate. Rates typically range from 10% to 99%.

Some lenders may charge a draw fee, which is incurred any time you draw upon the line of credit. The draw fee varies based on the lender but is usually between 1% and 2% of the amount withdrawn at the time. For example, if your line of credit has a draw fee of 2% and you draw $10,000, the draw fee is $200.

Payment Processing Fee

Accessing your business line of credit will likely come with a payment processing fee if you choose to have the money sent via wire transfer. This fee is usually between $15 and $35. You can typically avoid this fee by choosing standard ACH processing, but you may have to wait an extra one or two business days to receive the funds.

The lender will usually charge a late fee if you miss the payment due date. This is typically a percentage of the payment amount and depends on the particular lender.

Termination Fee

A line of credit typically has a fixed end date. If you want to close out the line of credit before that date, you may have to pay a termination fee between 1% and 2% of your loan amount. However, not all lenders charge a termination fee.

Prepayment Penalty

If you repay the withdrawn amount ahead of schedule, some lenders may charge you a prepayment penalty, usually between 3% and 5% of the balance. Look for a lender that does not charge a prepayment penalty.

Best Business Line of Credit Lenders

Trying to find a line of credit for your company? Here are the top online business line of credit lenders.

BlueVine offers business lines of credit between $6,000 and $250,000, and charges interest rates starting from 6.2%. Terms are either six or 12 months. To qualify for a BlueVine line of credit, you must have a minimum personal credit score of 625, $40,000 per month in revenue or $480,000 annually, and be in business for at least two years (on the Flex 6 plan).

OnDeck offers lines of credit between $6,000 and $100,000 with 12-month repayment terms that reset after each withdrawal—payments are due weekly. To be eligible for an OnDeck line of credit, you must have a minimum personal credit score of 625, business annual gross revenue of at least $100,000 and have been in operation for at least a year.

American Express Business Blueprint™

American Express Business Blueprint offers the American Express® Business Line of Credit with lines of credit from $2,000 to $250,000 with six-,12-,18- or 24-month terms. To be eligible for a business line of credit, applicants must have a minimum personal FICO credit score of at least 660 at the time of application, have been in business for at least one year, have a valid business checking account and have an average monthly revenue of at least $3,000. The required FICO score may be higher based on your relationship with American Express, credit history, and other factors. Total monthly fees incurred over the loan term range from: 3% to 9% for 6-month loans, 6% to 18% for 12-month loans, 9% to 27% for 18-month loans and 12% to 18% for 24-month loans. All businesses are unique and are subject to approval and review.

Frequently Asked Questions (FAQs)

Is it hard to get a business line of credit.

If you have a good credit score and have been in business for at least two years, getting a business line of credit can be straightforward. Business owners operating a startup with fair or poor personal credit scores may face more difficulties in getting approved for a business line of credit with affordable rates.

What credit score is needed for a business line of credit?

You’re most likely to qualify for a low interest business line of credit if your FICO credit score is at least 670. If your credit score is fair or poor (580 or less), it may be harder for you to find a loan with low rates, or get approved at all. There are alternative lenders that may offer business lines of credit no matter your credit score, but be sure you can afford the payments before taking on any debt.

How long does it take to get a business line of credit?

The timeline for obtaining a business line of credit varies between lenders. Traditional lenders, such as banks, may require a lengthy and rigorous process. Some online lenders are able to issue lending decisions much quicker, sometimes within a few minutes.

What’s the difference between a secured and unsecured business line of credit?

Secured lines of credit require collateral—something of value that the lender can repossess if you fail to repay your debt. Unsecured lines of credit, on the other hand, require no collateral. However, because lenders take on more risk through unsecured lines of credit, they often come with higher interest rates.

Why is a line of credit better than a business loan?

A business line of credit offers more flexibility than a business loan . When you take out a loan, you receive the amount all at once, repay it over time and owe interest on the full amount. With a business line of credit, you can choose to access it at any time. Plus, you only have to pay interest on the amount you withdraw, regardless of the total line of credit amount.

Can I get a business line of credit for a new business?

It’s possible to find lenders willing to issue lines of credit to new businesses. These options may be more expensive and may require collateral to secure the funding.

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How to Open a Bank Account for a Business

Dana George has a BA in Management and Organization Development from Spring Arbor University. For more than 25 years, she has written and reported on business and finance, and she's still passionate about her work. Dana and her husband recently moved to Champaign, Illinois, home of the Fighting Illini. And though she finds the color orange unflattering on most people, she thinks they'll enjoy Champaign tremendously.

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Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.

Whether you own a boutique, operate an online shop, or own any kind of business, a business bank account can help. A business bank account ensures that company funds are not intertwined with your personal funds and offers perks unavailable to the average account holder.

Here, we'll outline how to open a business account for a business and how a business bank account can benefit you.

What is a business bank account?

A business bank account is opened in the name of a business. It's a way to differentiate business funds from personal funds and is one of the best ways to keep an eye on your business's finances.

Common business account types can include:

• Checking accounts
• Savings accounts
• Credit cards
• Merchant services accounts

If you're not familiar with a merchant services account, here's how it works: Let's say a customer pays you $500 for goods or services. They pay using a credit or debit card. You run the card through merchant services, and merchant services fronts you the money, minus fees.

You must have a business bank account and merchant services account if you want to accept any type of electronic payment.

• Best Business Checking Accounts
• Best Free Business Checking Accounts
• Best Banks for Small Businesses

Benefits of a business bank account

According to the Small Business Administration (SBA), business bank accounts offer perks you won't typically find with a personal checking account , such as the following examples.

Greater protection

A business account keeps your business funds separate from your personal money, helping to protect your personal account from liability. If you also have a merchant services account to accept electronic payments, merchant services offer another layer of protection.

Air of professionalism

The fact that a customer can pay with a credit card or make a check out directly to your business offers an air of professionalism, a sign you own a business and it isn't a hobby.

A chance to prepare for what the future may bring

Most business bank accounts come with an option to take out a line of credit. You don't have to use the line of credit right away, but it might be nice to know it's available in the event of an emergency.

Greater purchasing power

Having a business bank account in place means you can also apply for a credit card in your business's name. Say you're a house painter and land a huge job painting the exterior of an apartment complex. A credit card will not only allow you to purchase the supplies you need to complete the job, but paying the credit card back as agreed helps establish a credit history for your business.

Streamlines tax preparation

When all your business deposits and outlays are in one place, it's faster and easier to file your taxes each year.

How to open a bank account for a business

Opening a business bank account is slightly more complex than opening a personal bank account . Still, with a bit of pre-planning, the entire process should not take much time. Here's what you'll need to provide to open an account for a business.

Employer Identification Number

Unless you're a sole proprietorship with no employees, you'll need to provide your IRS-generated Employer Identification Number (EIN). This may also be referred to as a Federal Employer Identification Number (FEIN). It's the EIN you use when you file taxes each year, and it's the EIN the bank will use to keep track of your business account.

As mentioned, you won't need an EIN if you're a sole proprietor, but you will need to provide your Social Security number.

If you don't have an EIN yet, you can request one online from the IRS. Once you fill out the application , the IRS system does a quick check and immediately provides you with a number.

Word of caution: If you type "IRS EIN" into a search engine, you will find for-profit companies that have designed their websites to make it appear as though they're the IRS. It's not until you scroll to the bottom of the page that you learn these sites are actually businesses hoping to make money off you. They ask for personal information, transfer that information to the free IRS site, and pass along your EIN when it arrives. It is free to get an EIN through the IRS. If any site asks for money, you know you're being scammed. Your best bet is to work directly with the IRS.

Personal ID

Be prepared to present a driver's license or passport as proof of identity.

Business ID

If you're a sole proprietor, you'll need to provide your Social Security number. If your business operates under a DBA (doing business as) name, be prepared to provide a certificate showing the name you use for the company.

If your business is an LLC, you'll need to present your EIN and business registration. And if your business is a limited liability partnership, you may be asked to provide the agreement that shows the names of all partners (along with the name of the business).

Business license

If you have a business license, bring it along too.

Initial deposit

You'll likely need to make an initial deposit to get the account up and running. If you're not starting with much money, make sure the bank you work with has a low (or no) minimum balance requirement.

What to look for in a business bank account

Some business owners open a business account with the same financial institution they use for personal banking services. While there's certainly nothing wrong with doing so, it could pay to shop around for a bank that better meets the needs of your business. Ideally, the bank in which you open a business account offers:

• Attractive introductory offers
• Higher-than-average interest rates for savings and checking
• Low APY for lines of credit
• Low transaction fees
• Low or no minimum account balance or checking account fees
• No early termination fees
• Convenient hours
• A robust online presence that allows you to bank 24 hours a day
• Customer service that makes you feel like a valued customer

When it's time to open an account, speak with a business banker about which types of accounts you need to open now and which you may want to open in the future.

The type of business you own and specific bank requirements determine the documents you'll need to open an account. For example, your Social Security number is required if you're a sole proprietor with no employees. If your business is an LLC, you'll need an Employer Identification Number (EIN). You should also be prepared to provide a copy of your business license (if you have one), partnership agreement, and if you're operating as a DBA, a document with the DBA name on it.

There's no cost to open a business bank account, but you should pay special attention to minimum deposits and balance requirements.

That depends on the type of business you own and the bank you decide to work with. Once you settle on a bank, it will provide you with a list of required documents based on your business type.

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