Keeping your business banking separate from your personal banking can make it much easier for you to manage cash flow, and to work out your tax liability at the end of the year. Business bank accounts work differently to normal bank accounts and come with extra services like tax advice and business funding. The key to finding the right business bank account is to work out what you actually need. While most high street banks offer business banking, their packages can vary a lot. Banks charge for pretty much everything on a business account, from paying in and paying out cheques, to withdrawing cash, to simply talking to you. Read on to find out all that you need to know about business banking.
In This Guide:
- Who can apply for a business current account?
- Rates and deals
- Extra charges
- Online banking
- Ancillary services
Who can apply for a business current account?
If you are part of a limited company or partnership, then you're required to have a business bank account. If you're a sole trader, then you can choose to either use your own personal account or open a separate business bank account.
Keeping your personal account comes with a couple of benefits - you don't have to pay any fees to set it up, and you avoid the extra charges that come with business bank accounts, which can quickly mount up. But a business account might help you apply for and gain finance more easily, because your business transactions are clearly separated from your personal ones.
Other organisations that can open a business current account include charities, clubs and pension funds.
Rates and deals
All banks have their own rates and criteria for lending. Just like with credit cards, you can quite often get special deals. For example, you might be able to secure a fee-free introductory period of between a year to eighteen months. However, it's always wise to read the terms and conditions in full and consider all the fees before you open an account. Changing a business bank account is a lot more difficult that changing a personal bank account, so it's important to make sure you're not getting yourself into a bad deal, just to pick up a couple of upfront benefits.
You also need to make sure you're getting a good interest rate. At worst, business savings accounts tend to offer 1% interest. It's worth looking out for rates on deposit accounts, because these can be used to keep tax liabilities safe.
As well as checking out extra charges, you should look up the notice period of a business bank account - this is the number of days' notice that you need to give before withdrawing money. As a general rule, the more notice you need to give, the better the interest rate tends to be. As of January 2017, if you have a savings account you are entitled to £85,000 guaranteed savings protection as a small business - this is covered by the Financial Services Compensation Scheme.
So, we've established that business bank accounts come with multiple added charges, but what exactly do they apply to? And which should you try and avoid?
If you own, for example, a corner shop which is dependent on low cost transactions, having an account which charges you for every cheque you pay in or pay out will lose you a significant amount of money.
If you know you're likely to need the flexibility of an overdraft, then you should check the rates that you'll be paying.
Banks have restricted the amount of funding that they offer to small businesses, making it pretty difficult to secure funds. Before investing, checking out a bank's lending rates and eligibility criteria is vital.
Online banking is absolutely essential for any business in this day and age. The quality of online banking services varies significantly between different banks. You may want to check whether you are being offered the following features:
- Fast set-up of standing orders, direct debits, bill payments and more
- PINsentry protection
- Online cloud storage for your documents
- Text alerts
- Mobile app
- Mobile cheque deposits
- Instant loan applications
- Insight technology - this can allow you to track customer behaviour and demographics, as well as competitor performance
- Notifications which can protect you from fraud - for example, denied transactions, account details being changed, and failed login attempts
Many banks will offer you attractive extras so that they can tempt you into using their business banking service. These might come in the form of in-branch business specialists, online knowledge centres or import/export advice.
- Lloyds' business management team are on hand to offer you dedicated support.
- HSBC's online Knowledge Centre provides a wealth of tools and articles.
- Santander's team of Local Business Managers are on hand to assist you.
However, it may well be that you already have your own trusted financial advisor, and that you don't need to sell your goods abroad either. If you don't need these services, make sure that you aren't paying for them via high account charges. Many banks also offer a business review service, but you can receive these services elsewhere, so you may be better off simply using a trusted accountant. But if you're already paying for these services, then you should look into just how good they actually are - they could turn out to be useful and cost-effective.
Business bank account administration is generally more difficult than it is for personal bank accounts. First of all, if you've got poor credit history, you should do as much as you can to rectify this. It's normally much more difficult to open a business bank account when you have poor credit. You may also need the following documents when opening a business bank account:
- A Certificate of Incorporation
- Your current bank account details
- Your company number and company registered address (business tax identification number).
- Identity documents e.g. your passport or driving license.
- A business plan, including your business' start date.
- Other details about your company.
Your bank will also check out your credit history and turnover details. Some banks will offer you a loan to support your business when you open an account with them, and the conditions surrounding this may even be part of your criteria for opening the account. But you shouldn't be lured into a loan just because it appears enticing, or because the conditions sound appealing. The loan should be right for you as well as for the borrower.