Small business owners sometimes mistakenly believe that they were turned down for a business checking account because of bad credit. However, most of the time it’s not because of bad credit, but having past personal banking problems that were reported on their Chexsystems file. Each report that is submitted to ChexSystems by a bank or credit union will remain on their files for five years, unless ChexSystems becomes obligated to remove it under applicable law.
We have a few solutions for those seeking a bad credit business checking account because the new or current business owner has recently tried opening a business checking account but was turned down because of past banking problems that were reported to the Chexsystems.
The first solution – If the business owner wants to open up a business account as a sole proprietor or independent contractor (using their own social security number), they should view our extensive list of banks that offer second chance checking accounts HERE. This comprehensive list of banks that offer second chance checking account programs, fresh start checking account programs, and opportunity checking account programs, are specialty accounts for those listed on the Chexsystem. Most of the accounts listed come with checks and atm/debit cards.
The second solution – The entrepreneur should contact their local credit union and explain the situation they are facing. Most credit unions will open up a account for their business, but some may not offer check writing privileges and/or atm/debit cards.
The third solution – File the appropriate paperwork and obtain a Employment Identification Number. This will allow the entity to open up a checking account under a business name using a EIN instead of the owner’s own social security number.
There is a EIN application for businesses to apply on the internet. Once the business owner completes the application, the information entered on the form is then validated instantly by the IRS, and an EIN is issued immediately. This information is available at the IRS website located HERE.
If a business owner changes the legal structure of their business and/or if they choose to name their new or established company as anything other than their own personal name then the business name will need to be registered with the appropriate authorities. The process to accomplish this is known as registering a “Doing Business As” (DBA) name. Depending on the business location, registering a DBA is done either with the state government or county clerk’s office. There are a few states that do not require the registering of fictitious business names. The legal name of your business is required on all government applications and forms, including your application for licenses, employer tax IDs, and permits. Business owners can learn where to register a business name in their state at the Small Business Administration (SBA).
A business owner should always consult the advice of a accountant and attorney to find out the possible legal obligations and tax consequences of changing the structure of their company.
Business Tip: When a small business starts up, many entrepreneurs will use their personal finances and credit to get their business going. But they should prepare for the future by establishing a business credit history by putting expenses (such as business utility bills, cell phone contracts, and leases) in their business name and using a business bank account to pay their expenses. If you don’t have a established business credit file, a business can apply for a D-U-N-S® number. Small businesses should submit a application for a D-U-N-S® number (Unique Business Identification Number) as soon as they begin their small business so they may begin the process of establishing a business credit file. More information on establishing a D-U-N-S® number can be found HERE.