Small Business Banking UK
Introduction - following article
describes the practical and commercial issues and challenges all start up SME's
face when choosing, using or switching between small business banking accounts. It
looks at how accounts are normally opened, the types of banking services offered by the bank, the role of the
bankers business manager in day to day commerce,
small business online banking issues, the cost of banking charges and where to start...
Choosing a
Banking Provider - there are a range
of number of major high street banks offering small business banking in the UK. Most of
these provide very similar small business services and so it can appear difficult to choose the
most appropriate account for you to set up an account with. All limited
liability companies need to open a business bank account in order to
establish credibility and trade with suppliers and customers. Sole traders
will normally have to use their own personal bank accounts or more likely set up
an additional personal account, such as 'Fred Blogs trading as Acme Ltd'. All
businesses need to receive monies, pay bills, and borrow money, in order to process cash flows in and out
of the business. Banks charge for a range of services including overdrafts,
direct debits, standing orders, cheque books, and visa transactions.
Over time, these banking charges can add up to a significant business expense
and therefore choosing from a range of small business bank accounts during the
business formation stage is important. Most small business banking come with a special introductory offer of one year to 18 months, where charges
are discounted, in order to in sign up new business start-ups.
There are many online information portals that will
allow you to compare the costs, features and services of all the various
small business banking options in the UK market. The banks themselves have a range
of account information on their websites, regarding features of the accounts of
how to apply. It is tempting to apply to your own existing personal bank -
never assume they will necessarily have best offers. What they will
have though, is an intimate knowledge of your financial history, (which may be
of great benefit in deciding whether or not to approve your application).
Since the collapse of Northern Rock, the part
nationalisation of the RBS and recapitalisation
of the banking system, savers and businesses are now aware that banks can
actually collapse. Choosing a 'major' UK high street bank, should provide a safer bet than smaller, niche start-up banks, (that may be more
vulnerable to collapse due to the financial crisis).
Opening a Bank Account - once you have
decided which bank to choose, the process of opening one of the many types of
business bank accounts available is a relatively straightforward process.
The initial meeting with a small business bank manager will usually revolve
around discussing the nature of your planned or existing business, reviewing
your business plan
and discussing any issues that will impact financial banking requirements and business finance
needs in the future. For instance, most small businesses require capital in
order to finance a business plan, in the form of a small business loan
or overdraft facility. For new business start-ups, to comply with the
various money laundering regulations, banks will demand various forms of
identification and documents to establish the authenticity of a limited company
or a sole trader. These may include as a minimum, company headed notepaper,
details of any Share Certificates, a Memorandum and Articles of Association,
Certificate of Incorporation (applies to limited liability companies) and a
passport, driving licence and other utility bills (to undertake a credit check
and identity check). The process may take around a week to process
all the paperwork so that a new business bank account can be opened with a new
account number, cheque book, debit card, welcome pack etc.
Banking Facilities and Services - most small
business bank accounts offer telephone banking and online Internet banking as
standard. These services will enable you to:-
-
Move money between business accounts and personal
accounts
-
Pay bills to suppliers
-
Check whether invoices have been paid by customers
-
Apply for a small business loan
-
Apply for a business credit card
-
Set up direct debits and standing orders
-
Undertake international foreign currency exchange
-
Process large one off BACS transactions
-
Download paper based bank statements the
purposes of business and tax accounting.
Online services can be a vital business resource,
as most banking opening hours do not reflect the commercial working hours of
most small businesses and certainly not those of hard-working entrepreneurs.
However, beware of banks that use overseas call centres to provide 'telephone
support' for business. In some instances, theses services are simply
message taking services that will filter telephone calls through to the
appropriate department. This can waste valuable time, creating unnecessary
stress and hassle, as account holders are forced into repeating the nature of
the question or enquiry.
Types of Bank Charges - there are various
types of banking charges that will apply. Essentially the more individual
transactions that flow through the business, the higher charges are likely to
be. There maybe different account options to choose from, depending upon the most
frequently used transaction types. For instance, lower cost accounts tend
to be online based, as opposed to accounts where businesses using a large number
of regular cash transactions (such as retail based business). It is important
to go through the small print on the application form in order to understand
what the unauthorised overdraft charges would be, what are the regular fixed
monthly fees? is there an introductory rate for business start-ups? and what is
the cost of the each cheque written and each direct debit processed? Finding the
answer to these questions may appear dull, boring and relatively minor issues,
in the context of creating a successful business -yet the overall impact on
future cashflow and expense may prove more important than first appears.
The Importance of an Overdraft Facility
- many small businesses rely on overdraft
facilities as a critical way of alleviating cash flow issues in
their day-to-day business operations. Without such facilities or the
sudden withdrawal of an overdraft facility by the bank, many small businesses may
fail or be forced to use debt factoring, or
even enter
administration. The impact of the credit crunch is
the changing the behaviour of banks and their attitude towards extending credit
to potentially riskier small businesses. Therefore, it is vital that an
overdraft facility is put in place when the account is set up so that future
negotiations can be less painful. Remember banks are also commercial operations
that need to make a profit. The UK banking industry is only made up o a
few major players, (compared to the American market), and so they have immense
negotiating power. The liquidity crisis has forced bank charges upwards
for small businesses, as banks defend their own cash flow funding operations.
Types of Interest Rates - despite the
potentially large sums of money flowing in and out of some business bank
accounts, the interest rate offered for most current accounts for business bank
accounts is very small. The traditional use of the interbank rate is not
reflected in interest rates offered on cash balances remaining in business bank
accounts. The account is not designed as a savings mechanism - it is there to
help small businesses manage the movement of cash flow in and out of their
enterprises. Therefore, it is important to balance potentially high
banking charges with low interest rates
on savings, to establish whether a business bank account is appropriate to your
needs or not.
Advice and Guidance - most banks offer a
dedicated small business banking team with advisers in most local branches.
The option to use a dedicated named business manager is usually a chargeable
feature of business bank accounts. However, business managers can prove
invaluable in a range of practical situations; where large transactions need to
be chased through the system, bridging loans need approval, an overdraft
extended and so on. They will be incentivised to help you ensure banking
services are provided more smoothly. Without an adviser, entrepreneurs will be
left to negotiate and explain the situation to a stranger in a call centre, who
may not have first-hand knowledge of the company and its history. In these
remote call centre types situations, the evaluation criteria used will be solely
based around a 'tick box' of lending criteria and will not incorporate human
factors such as first hand local knowledge of the risk.
Switching Existing Bank Accounts - the main
reasons for switching business bank accounts is to obtain a a higher overdraft
limit at a lower rate, get a business loan, receive better customer service or
obtain additional business services. However, once a small business has
been established for a longer period of time, it becomes more and more difficult
and tedious to switch banks due to the volume of administration and
communications required to achieve it. For instance, it would be necessary
to speak with business suppliers and customers to make sure cash-flow is not
disrupted. They may already have electronic payment means set up with the
small business. In addition, business expenses paid by direct debits and
standing orders will have to be cancelled and re-instated in the new business
bank account. Lastly, the whole process of applying for a new small
business bank account will have to be undertaken all over again. The
banking industry has improved the administrative process through 'Business
Banking Code' which has clear guidelines as to what account holders can
expect during the switching process.
