Bank Account vs PayPal: Which is Best for Small Businesses?

Managing your business finances effectively is crucial, especially as a small business owner. One of the key decisions you'll face is how to handle payments and transactions. Should you open a traditional business bank account, or is PayPal a better alternative?

In this guide, we’ll walk you through the pros and cons of both options so you can make an informed decision that suits your business needs.

What is PayPal for Business?

PayPal is widely known as a digital wallet for personal payments, but it also offers a range of tools for small businesses. With a PayPal business account, you can:

• Accept online and in-person payments

• Send and receive invoices

• Access business loans and credit options

While PayPal offers flexibility and ease, it isn’t free. Every time you process a transaction, PayPal deducts a fee, typically a small fixed amount plus a percentage of the sale. You’ll also face extra charges for international transactions and micropayments. However, transferring funds to your own business bank account is usually free.

Is PayPal Right for Your Small Business?

The right choice depends on the structure and needs of your business.

If you run a limited company, you’re legally required to open a separate business bank account. Even if you use PayPal to collect payments, you’ll still need a bank account to withdraw your funds.

As a sole trader, there’s no legal obligation to open a business account, but it can make your finances easier to manage. PayPal can be convenient, but may lack features that the high street or digital banks offer.

When comparing your options, ask yourself:

1. Do you need a debit card for business purchases?

2. Will you need to deposit cash or cheques?

3. Do you want access to a dedicated support manager?

4. Are you looking for lower transaction fees?

If the answer to any of these is yes, a business bank account may be the better choice.

The Rise of Challenger Business Banks

The good news is that traditional banking isn’t your only option. Challenger banks allow you to open a business account online, often in minutes. These accounts tend to offer streamlined features, low fees and intuitive apps. They can rival PayPal on convenience while providing more robust banking services.

How to Compare Business Bank Accounts

To find the right business account, start by listing the features you value most, such as fee-free transactions, budgeting tools or integration with your accounting software. Then, compare offers from traditional banks and digital challengers.

Our comparison service allows you to compare business accounts based on your needs. Whether you want the lowest fees, the best online experience or specific features like multi-currency transfers, we can narrow your search in minutes.

What You Need to Open a Business Bank Account

The process is typically straightforward if you decide to open a business bank account. Like PayPal, most banks offer a smooth online application process. Many let you open a business account online without the need to visit a branch.

To move things along, have the following details ready:

• Your registered business address

• Your Company Registration Number (CRN)

• Estimated annual turnover

• Valid ID and proof of address

If you're switching from an existing bank account, the Current Account Switch Service guarantees a secure transition within seven working days, hassle-free.

Choosing Between PayPal and a Business Bank Account

Deciding between PayPal and a business account depends on your operating model and the services your company prioritises. While PayPal may suit startups and sole traders who primarily trade online, a traditional business account offers greater flexibility and legal compliance.