What is a second chance business checking account?
The majority of financial institutions use the ChexSystems report to understand your banking history and determine how you’re likely to manage your money. A negative report could hurt your chances of opening a business bank account.
A second chance business checking account provides an alternative route for small businesses. This is where banks and financial institutions bypass the ChexSystems report and use more flexible criteria to open your business bank account.
The number of financial institutions that offer this account is limited, but there are several options available online.
Using a second chance business checking account can help you rebuild your ChexSystems score and later apply for a traditional business account elsewhere.
Who needs a second chance business checking account?
Business owners with a low ChexSystems score will benefit from a second chance business checking account. These accounts will offer various features such as debit cards and direct deposits, although accounts can have restrictions.
What are the pros and cons of a second chance business checking account?
There are many pros and cons of opening a second chance business checking account. Here are a few for you to consider before applying:
Pros
- Less strict criteria: There are fewer requirements for approval and the criteria are less strict in most cases.
- Separate finances: As a business owner it’s important to separate business finances and personal finances. If you are unable to qualify for a traditional business checking account, a second chance account can help you better manage your finances.
- Rebuild banking history: Responsible management of your finances can help you rebuild your banking history, where banks may consider you for financial products in the future.
Cons
- Service fees: There may be higher than normal monthly maintenance fees.
- Minimal balance: Many second chance business checking accounts require you to maintain a minimum balance on your account.
- Credit check: Some institutions may use a credit check as part of the account opening application instead of ChexSystems. If you have a bad credit history, this can hurt your chances of opening an account.
- Limited overdraft protection: Overdraft protection allows a transaction to go through when you do not have sufficient funds to pay the transaction. Transactions will likely be declined with a second chance account.
What are the fees for a second chance business checking account?
Second chance business checking accounts have higher fees than a normal account to mitigate the risk of a customer’s poor banking history. Here are a few fees for you to consider when looking into an account for your business:
- Monthly fees: While there are a few institutions that waive the monthly maintenance fees with balances over a certain amount, the majority will charge a fee in the region of $5 – $10 per month.
- Overdraft fees: Accounts that provide overdraft protection will charge you a fee for using overdraft facilities.
- Debit card replacement fees: If you lose your debit card, there may be a fee to replace the card.
- Account setup fees: To open your account, there may be a one-time setup fee charged by the institution.
- Paper statement fees: To avoid paying fees for statements, many institutions allow you to sign up for electronic statements for free.
Fees vary between financial institutions and can quickly add up. It’s a good idea to review the terms and conditions before you sign up for an account, so you are aware of all the possible fees that may be charged.
What are the alternatives to a second chance business checking account?
If you decide that a second chance business checking account is not for you or if you are denied an account, there are alternatives for you to consider.
Bank and credit union managers often have the authority to override negative ChexSystems reports. If you belong to a credit union, it’s worthwhile visiting your local branch to see if there is anything they can do.
Alternatively, you can look into improving your ChexSystems report. First, you’ll need to request your report and identify any errors. If there are mistakes, file a dispute straight away. Any debts, unpaid fees, overdrawn accounts should be paid off. Once you have paid off all your debts, you can ask creditors to update their records.
As your ChexSystems report improves, you can apply for a business checking account without worrying about your previous financial history blocking your application.
How to choose a second chance business checking account
When looking for the best second chance business checking account, here are some key factors to consider before you submit an application:
- Compare multiple providers: Fees and services will vary between financial institutions. Shop around and compare multiple providers to ensure you are getting the best services, reasonable limits, and the lowest fees available for your needs.
- Documentation: Depending on your business structure, you’ll need to provide documentation to support your application. Documentation can include articles of incorporation, partnership agreement, business license, personal identification, and registration of trade name.
- Build good financial habits: Improving your financial habits and management of money can give you better opportunities down the road to apply for a business checking account with better benefits. Avoid going over your limits, keep an eye on your transactions daily, and keep an emergency fund for your business in case of unexpected expenses.