Overcoming Bad Credit To Secure a Business Bank Account

8 min
Feb 15, 2023

If you’ve recently started your own business, or your business has grown to the point of needing a separate account, you may be wondering about the application process.

Perhaps you’re worried about some previous late payments on a loan affecting your chances of opening a business account. 

Or maybe you had a credit card to collections when you were younger and you’re not sure if it still shows up on your credit report.

Whatever your concern, you’ll be happy to know that you can open a business account with bad credit. Simply follow the steps listed below for your best chance at getting approved for a business bank account today.

Do They Check Your Credit When Opening a Business Bank Account?

Banks often check the personal credit of business owners or key personnel as part of their due diligence and risk management process. This helps them determine the business's creditworthiness and assess the risk of lending money or providing other financial services.

However, the specific credit check requirements may vary from bank to bank and depend on the:

  • Type of account being opened 
  • Size of the business.

Can I Open a Business Bank Account With Bad Credit?

Yes, it is possible to open a business bank account with bad credit, but it may be more challenging. Poor credit history may indicate a higher risk to the bank, and as a result, some banks may be more hesitant to open an account for you. 

You may be required to provide additional information or documentation, such as:

  • A business plan
  • Financial projections
  • Proof of revenue

You may also need to demonstrate that the business is financially stable and has sufficient funds to cover any potential losses.

Some banks may be more lenient when it comes to bad credit, so it might be helpful to shop around and compare. 

More importantly, you should take steps to improve your credit before opening a business account by:

  • Paying down debt
  • Disputing errors on your credit report
  • Establishing a positive payment history

Can You Be Denied a Business Bank Account?

You can be denied a business bank account. Banks are under no obligation to open an account for any business, and they may decline an application for various reasons. 

In the case of denial, the bank is usually required to provide a reason for declining the applications.

These reasons may include:

  • Insufficient information or documentation: Banks typically required a range of information and documentation to open a business account, including:
  • Proof of business ownership
  • Articles of incorporation
  • Tax identification number
  • Other relevant information
  • Poor credit history: As mentioned earlier, banks may check the credit of the business owners or key personnel to assess the risk of providing financial services. Poor credit history can be a factor in declining a business bank account application.
  • High-risk business: Some businesses are considered higher risk, such as those in industries with a high rate of fraud, money laundering, or other illegal activities.

If you believe that the decision was made in error, you may be able to dispute it and provide additional information or documentation. You can also consider other banks and financial institutions that may be more willing to open an account for your business.

2 Factors That Influence Your Ability To Open a Business Bank Account 

#1: Your Personal Credit

A business owner’s personal credit score may be considered as part of the bank’s decision-making process in evaluating the risk of opening an account for the business.

Banks may consider the creditworthiness of the owner to assess: 

  • The financial stability of the business 
  • Potential for default on obligations such as loans or bounced checks
  • Payment history
  • Credit utilization
  • Presences of negative items such as bankruptcies or foreclosures

Some banks may also consider other factors, such as:

  • Financial history of the business
  • Projected income
  • Owner’s experience in the industry

#2: ChexSystems 

ChexSystems is a consumer reporting agency that maintains records of individuals’ checking account history, including information about:

  • Bounced checks
  • Overdrafts 
  • Fraudulent activity

When you apply to open a business bank account, the bank may run a ChexSystems report to assess the financial history of the business owner and/or authorized signers on the account.

A negative history in ChexSystems can affect an individual’s ability to open a business bank account, suggesting a higher risk of financial mismanagement and potential future issues.

Some banks may choose to deny an application for a business bank account or approve it with certain restrictions, such as a limit on the number of checks that can be written or a requirement for a higher deposit balance.

You should regularly check your ChexSystems report for accuracy and to address any inaccuracies with the reporting agency.

8 Ways To Improve Your Chances of Opening a Business Bank Account With Bad Credit

#1: Build a Relationship With a Personal Banker 

By establishing a relationship with a banker, you have the opportunity to demonstrate your business’s financial stability and credibility. You can also provide additional information that may not be reflected in your credit report or ChexSystems report.

A banker can also provide insight into their institution's specific requirements and underwriting process and offer guidance on how to improve your chances of approval. 

Additionally, having a personal relationship with a banker can make it easier to resolve any issues that may arise with your account in the future. 

Approach the relationship professionally and always be transparent about your business’s financial history and goals. Building trust and demonstrating financial responsibility can increase your chances of successfully opening a business bank account.

#2: Form an LLC

Forming an LLC (Limited Liability Company) can improve your chances of opening a business bank account, as it provides a legal structure and separate identity for your business.

By forming an LLC, you are creating a distinct entity that is separate from its owners, known as members. This separation helps to protect personal assets from any debts or liabilities incurred by the business.

Banks may view an LLC as a more established and credible business compared to a sole proprietorship or partnership. Having an LLC can also make it easier to demonstrate the profitability and stability of your business, as it is required to keep accurate financial records and file annual tax returns.

#3: Ensure Your ChexSystems Report Is  Accurate

Having an accurate ChexSystems report may improve your chances of opening a bank account, especially if it does not show any negative history.

If you’ve been denied a business account and your ChexSystems was used in the decision process, the information on the report will help you understand what contributed to that decision.

Inaccuracies on your ChexSystems reports can and should be cleared up to avoid future issues.

ChexSystems provides all consumer disclosure reports free of charge. You can request your ChexSystems report here

#4: Try Second Chance Banking

Second chance banking may improve your chances of opening a business bank account, especially if you have a history of negative activity in your personal banking history that is reported in ChexSystems. 

Second chance banking refers to financial institutions that offer checking and savings accounts to people with a negative ChexSystems report or those who have been denied a traditional account by other banks.

By offering second chance banking options, these institutions can help you rebuild your financial history and increase your chances of being approved for a business bank account in the future.

Second chance banking often comes with higher fees and restrictions compared to traditional banking options. Consider your options carefully before choosing a second chance bank.

#5: Apply With an Institution That Doesn’t Use ChexSystems 

Not all banks use ChexSystems when evaluating applications, so applying to one of these banks may better your chances of being approved.

Some local banks, as well as BBVA USA and Chime Bank, won’t run a ChexSystems report upon application for a business account.

#6: Consider a Credit Union

Credit unions are not-for-profit financial institutions owned and controlled by their members. 

As a result, they often have more flexible lending and account opening criteria compared to traditional banks, which may improve your chances of being approved for a business account.

It’s important to remember that credit unions may have specific requirements for business members, such as being located in a specific geographic area or being part of a particular industry.

Before applying for a business bank account at a credit union, it’s a good idea to research the specific requirements to ensure you are eligible to join.

#7: Offer a Larger Deposit

A large deposit can show a bank that your business is financially sound and less likely to pose a risk to the bank. 

However, a large deposit is not a guarantee of approval. Other factors, such as the financial stability and credit history of your business may also be considered in the application process.

Before making a large deposit, consider researching the specific requirements and criteria of the bank. You’ll want to ensure that your deposit will be used to its full potential in improving your chances of being approved for a business bank account.

#8: Improve Your Credit Score

A good credit score makes you a more attractive candidate for a business bank account to banks. It may also help you secure a lower interest rate or better terms, which can ultimately benefit your business in the long term.

If you have been declined for a business account based on poor credit, there are ways you can improve your credit score, such as:

  • Review your credit report: Obtain a copy of your credit report and check it for errors or inaccuracies. Dispute any errors with the credit bureaus.
  • Pay bills on time: Late payments can have a significant impact on your credit score, so make sure to pay your bills before the due date.
  • Reduce credit card balances: High credit card balances can negatively impact your credit utilization ratio, so work to pay down your balances to below 30% of your credit limit.
  • Limit new credit applications: Every time you apply for credit, it creates a new hard inquiry on your credit report, which can lower your score. Try to limit new credit applications to only what is necessary.
  • Keep old credit accounts open: The length of your credit history is an important factor in your credit score, so try to keep old credit accounts open, even if you’re not using them.
  • Make payments in full: Try to pay your credit card balance in full every month to avoid interest charges and to show that you’re using your credit responsibly.

Improving your credit score takes time and requires consistent effort. For the best results, follow these steps for several months or even years.

Opening a Business Bank Account With Bad Credit May be Challenging — But It's Not Impossible

In a nutshell, opening a business bank account may come with a few challenges, but even with bad credit, it’s not impossible.

The single most important step you can start taking today is to start improving your credit. This may take time, so opting for second chance banking, a credit union, or perhaps offering a larger deposit may help in the interim.

Take the time to do a little research into the various financial institutions, their requirements, and how you can go about ensuring you have everything you need to make you a good candidate for business banking.