You need it. And you need to find the right provider. A tax and legal services business will have different banking needs to a cake shop and picking the wrong one for your business can cost a fortune.
You’re far more likely to get charged for services than you are with a standard bank account. For example, on some accounts, you will pay a fee for every cheque paid in or out. That is no use if you’re a cake shop and your whole business is dependent on low cost transactions. After the fee-free period, Lloyds Business Account charges £0.65 per cheque, in or out. Some accounts also charge for ATM withdrawals, such as the Cashplus Business Account, which charges £2 for every ATM withdrawal. CashPlus also has a £69 yearly fee, and monthly outbound transfers cost £0.99 per transfer after the first three.
Equally, if you are likely to need the flexibility of an overdraft, check the rates you’ll pay. For example, Santander pays 0.1% interest on cash balances – handy if you tend to have big chunks set aside for tax – but charges 5.25% for overdrafts. RBS has a £500 fee-free overdraft, with a 15% yearly fee for unplanned overdrafts. HSBC charges a daily fee of £8 for unplanned overdrafts and £4 daily for breaching planned overdrafts, and usually charges 1.75% of the agreed limit for setting up an overdraft up to £30,000. Check out a useful comparison of which business bank account might best suit your needs here.
As with credit cards, you can often get special deals. You may be able to secure a fee-free introductory period of a year to 18 months. RBS offers 24 months free Business Banking, HSBC 18 months and Santander up to 18 months free. Lloyds offers 18 months of free business banking if your account operates in credit, or within agreed overdraft limit only. Make sure you read the Ts & Cs properly. Just don’t be too seduced – make sure you’ve considered the fees before opening the account. Changing your personal bank account is one thing, changing a business bank account is quite another, so make sure you’re not picking a rubbish option just for the upfront benefits.
You might need a helping hand. Banks have reined in the amount of funding they provide to small businesses and getting hold of funding can be painful. It is worth having an in-depth look at a bank’s lending rates and eligibility criteria before investing. Moneyfacts awards can be a useful guide to who is good and friendly. The 2016 award winners are listed here.
To borrow £10,000 from Lloyds, there is a £250 arrangement fee, but you borrow at a fixed interest rate, so repayments are the same amount each month. A £10,000 loan from Natwest carries an interest rate of 8.82%, and so you can end up paying back significantly more than was borrowed, depending on the time scale. HSBC offers a £10,000 loan with an arrangement fee of £100, and competitive interest rates.
Comparing rates isn’t easy, because most lenders vary their rates according to their assessment of the riskiness of an individual enterprise. However, you can get an idea from price comparison sites, see MoneySuperMarket.
Remember that the Government offers start-up loans to small businesses as well, ranging for £500-£25,000. They charge an interest rate of 6% fixed yearly, and are available from 1-5 years, with no application fee and no early repayment fee.
Lots of banks will offer bells and whistles to tempt you to their business banking service. These might be in-branch business specialists, online knowledge centres and even import/export advice. Lloyds offer dedicated support from their UK-based business management team, HSBC have tools and articles in an online Knowledge Centre and Santander have a team of Local Business Managers at your disposal.
That’s all well and good, but many people will have their own trusted advisers, and may not need to sell their goods abroad. If you don’t need it, make sure you’re not paying for it in higher account charges. Equally, many banks offer a business review service, but you can get these services elsewhere and you may be better off with an accountant you know and trust, rather than a bank that you don’t. However, if you are paying for these services, it may be worth investigating just how good they are, as you might find it useful and more cost-effective.
This is generally trickier than for personal bank accounts. First, if you’ve got a history of bad credit, do what you can to sort it. It is generally far more difficult to open a business account with bad credit. You will also need, in no particular order, a Certificate of Incorporation, VAT number and identity documents (passport, driving licence). You may also need a business plan and details about your company. Plan ahead. It can take a while…
Above all, your business banking should help not hinder your business. Like wallpaper, get it right the first time and it will last you a long time.