It can be incredibly frustrating for business owners when they try to open a new business checking account and are denied. Banks and financial technology (fintech) companies have several reasons they may deny a business a new bank account. Knowing those reasons before applying for a new business bank account can increase your chances of avoiding the frustration of a rejected application.
Key takeaways
- Business bank accounts have several reasons they may deny a company a business bank account, ranging from the company being too new to potential financial or credit issues.
- One common issue is the inability of the bank to verify your company’s information. Ensure all the necessary documents before applying for a new account. See our guide on how to open a business bank account for a list.
- Keep a close eye on both your personal and business credit reports. A business account can be denied because one of the people on the account has poor credit or a history of checking account issues.
Listed below are the nine reasons you may be denied a business checking account and how to fix or avoid these potential issues.
1. Your Business Is Brand New
The first reason you may be rejected is your business has just started—so you have no financial history yet. However, in most cases, you aren’t being rejected for being new. This rejection will tie into the next reason: Your business is missing documentation.
In addition to missing documentation, some banks and online fintechs only deal with established companies. You will be unable to open accounts with them until you are more established.
In most cases, you should start with your local bank, where you have your personal accounts. Not only will it help your business open an account, but it may be able to connect you with an attorney to help you get the needed documentation.
2. Your Business Is Missing Documentation
This is one of the most common reasons the bank will deny your account, especially if you apply online. If you are missing critical documents, the bank might be unable to verify critical information about your business. Therefore, you will either be denied, or the bank will put your application on hold until you provide that documentation.
It is best to contact an attorney to help you during your business formation. In addition, consult our guide on how to start a business for more information.
3. The Bank Can’t Verify Your Information
For a reason that ties into the first two items above, a bank may deny your new account if it can’t verify the information you submitted. This can often be cleared up quickly, which will allow the bank to approve your account.
Here are two common examples of easily resolved verification issues:
- The business doesn’t own the business address: This happens frequently because people run businesses out of their homes.
- You don’t get your business mail at the business: Many small companies get business mail sent directly to their house rather than their place of business.
However, if there are more complicated issues that the bank can’t verify, it may deny your account. This happens more commonly in online applications than in-branch applications. If you open a business account at the bank where your personal account is held, there is a better chance the bank can verify your information easily and approve your account.
4. Your Business or Business Owners Have Credit Issues
When opening a new account for a business, banks will pull the company’s credit report to ensure there are no outstanding credit issues. In addition, the bank may pull personal credit reports on the business owners. This is especially true if the business is too new to have a credit score.
While the bank may approve a business with issues on one of those credit reports, you could be denied. It is important to keep a close eye on your personal and business credit reports and handle any issues to avoid being denied new accounts and potentially new lines of credit.
5. Your Business Shows Up in Check Verification Systems
Another sure way to have a bank deny a new account is for your business or one of your owners to show up in a check verification systems report. Services like ChexSystems, Early Warning Services (EWS), and TeleCheck maintain business and consumer deposit account activity lists. If your business or one of your owners shows up on those lists, a bank may deny your new account.
If this happens, you will need to resolve that issue before applying for a new account, as nearly every bank and fintech uses a check verification system.
See our article on how ChexSystems impacts your business to help get those issues resolved. In addition, see our buyer’s guide on the best checking providers that don’t use ChexSystems. You may be able to get an account with one of these providers while you work to clear up your ChexSystems issues.
6. Your Type of Business Is Not Supported
Some types of businesses cannot get a business bank account at most banks. These businesses may be involved in completely legal activities but carry a risk that banks are unwilling to take. Federally-backed banks are prohibited from opening accounts for some business types. In addition, businesses performing illegal activities cannot get an account.
While this is not a comprehensive list, here are several types of businesses that may be denied a business bank account:
- A business selling illegal products or performing illegal activities
- Drug-related businesses, including medical marijuana and cannabis
- The sale of tobacco, vaping products, or e-cigarettes
- The sale of weapons, firearms, or other items that might cause injury
- The sale of products and services that may be patently offensive
- Gambling-based businesses
- Multi-level marketing businesses and other get-rich-quick schemes
- Telemarketing companies
- Payday lenders
- Bail bonding services
- Political action committees
- Businesses that could do reputational damage to the bank
- Activities by entities located outside the United States
There are specialty banking providers that offer accounts to some of the business types listed above, but you should always investigate these providers to ensure they are reputable. Also, ensure they provide some insurance for your funds, as they likely won’t be backed by the Federal Deposit Insurance Corp.(FDIC).
7. Your Business Organization Type May Not Be Supported
While most banks support most business organization types, some online banks and fintechs may not support every type of business. Some fintechs won’t allow sole proprietors to open an account, while others may not allow multi-owner LLCs. Check the bank’s website to see which organization types are eligible for an account.
In addition, some traditional banks might not let you open an account online, depending on your organization type. In those cases, you may have to visit a branch location to open an account. Again, these banks will either include this information on their websites or contact you to let you know once you start the process.
8. Small Banks May Deny a Business Account if Your Personal Account Is Elsewhere
While this one likely won’t happen if you choose a bank from our list of the best small business checking accounts, this can happen at a small community bank.
Business bank accounts can pose a high risk to a small bank, so they want to know their customers well. So, they will be suspicious of someone who wants to open a business bank account at their location while their primary account is at another financial institution.
This can be a red flag to a small bank, making them think there is a reason they couldn’t open a business account at their regular bank. So don’t be surprised if a community bank denies you a business account if your personal banking is elsewhere.
9. Business Transactions May Be Suspicious
If your business has a history of suspicious activities, you may be denied opening a new business bank account. In addition, these activities may cause an existing account to be closed.
Banks are required by the Office of the Comptroller of the Currency to fill out suspicious activity reports (SAR) by the Bank Secrecy Act if they see transactions that might be suspicious. These rules were put into place to help detect and prevent money laundering.
A bank must file a SAR if it
- records a cash transaction exceeding $10,000
- sees a customer staging transactions in a way to intentionally avoid the $10,000 SAR reporting threshold
- sees suspicious activity that might signal criminal activity, such as money laundering or tax evasion
Frequently Asked Questions (FAQs)
The primary reasons businesses are denied a new business bank account include the business being too new, documentation being missing or unverifiable, or credit issues on either business or personal credit reports. In addition, businesses that operate prohibited businesses or run illegal activities will likely be denied.
Business accounts are a higher risk and require more work to open for a bank than personal accounts. These accounts often involve higher balances, which can reflect larger losses if there are issues. In addition, there are more federal regulations with business bank accounts thanks to compliance and anti-money laundering regulations.
In most cases, if your business is well established, is devoid of credit or check issues, and has all of its required paperwork, it is easy to get approved for a business bank account. You can open a business bank account with an online fintech in minutes. If documents are missing or there are credit issues with your business, it may be harder to get an account approved.
Bottom Line
If you can avoid the nine reasons listed above as to why you would be denied a business bank account, you should be able to open an account easily. If your account is denied, it may be as simple as verifying information with the bank or clearing up a minor issue to turn that denial into an approval. The bank should give you a clear reason for denial if you are turned down for an account, so once you resolve those issues, you should be able to get your account opened successfully.
