What to Look for in your New Business Current Account

Whilst it’s tempting to stay with your own bank when starting up in business, changing your account to an alternative institution can prove extremely advantageous to your organization. With the advent of telephone and internet banking, competition between rival banks vying to attract small business customers has seldom been more heated, so now is the perfect time to take advantage of the range of alluring packages available or, if you have already been in business for some time, consider making a switch.

Aside from improved interest rates, moving your money could benefit your business in a wide variety of ways. If your current provider does not offer internet banking, for example, switching to a bank that does could help you minimise transaction charges- and if you shop around before taking the plunge, you’ll find that a number of institutions offer attractive introductory offers, too; some banks will even offer cashback when you switch to their services. Even if you’re comfortable with your current provider, shopping around and then presenting your bank with the offers you’ve found may convince your institution to renegotiate their terms in your favour.

Prior to comparing the accounts on offer, you’ll need to carefully assess your own requirements. If you feel you’d benefit from the option of consulting with a small business advisor, for instance, many banks, like Santander, offer this service. Or, if you’re looking to minimise the fees some banks impose when you deposit a cheque or exceed your overdraft limit, you’d be well-advised to look into opening an account with one of the many institutions who offer a long-term or indefinite charge-free period. If you’re relatively new in business and could do with some sound strategic advice, some account providers, such as Natwest, offer a start-up course and telephone helpline, along with twelve months’ free access to your closest Regus business lounge (1).

You’ll need to consider the condition of your account as honestly and objectively as you can; if you’re often in the red, it may be wise to opt for a bank with a favourable overdraft rate. Many institutions will take your personal circumstances into account when calculating your future overdraft fees, so be sure to negotiate before signing the dotted line. If, on the other hand, you are usually in credit, it’s worth seeking an account with a decent gross interest rate; the Co-operative Bank and Barclays currently lead the pack on this front, with rates of 0.12% and 0.10% respectively (2).

It would also be sensible to scrutinize your own forecasted growth thoroughly before setting up shop with a new provider, since many banks offer less favourable terms depending on your annual turnover. And while some institutions, like Natwest, require a minimum deposit of only £1 to open an account, others insist on larger deposits. To open a High Interest Cheque Account with AMC Bank, for example, you will need a minimum deposit of £5,000, whilst the Butterfield Private Bank’s Business Bank Account requires a whopping £50,000 initial deposit (3).

Having compared the accounts on offer, you’d do well to remember that, with increased competition in the business banking market, many institutions are prepared to negotiate improved terms for you and your company. Give yourself a fighting chance by making your business as attractive as possible and selling yourself as a long-term, potentially lucrative investment. Be aware that the bank you approach is likely to know precious little about your company’s past, so your proposition will almost certainly be considered on a similar basis to any other aspiring entrepreneur; this is your chance to make yourself shine.

Emit a strong sense of your company’s strategic intentions and organizational prowess by presenting the bank with your company’s full and up-to-date financial records. Show that you are worth investing in by displaying your profit and loss records for the past few years, emphasising your past successes and justifying your low points with solid reasons for your failure to meet targets. A cashflow forecast for the future should also be presented, but do bear in mind that this should be submitted in as level-headed a manner as possible; the bank is likely to offer less favourable terms if they catch a whiff of overly optimistic naiveté. Remember, if it’s likely that you will need funding from the bank at some point in the future, now would be a good time to negotiate the terms – with the Bank of England base rate at an all-time low, a long-term fixed interest rate will suit you fine.

Do bear in mind that some banks will carry out comprehensive credit checks before agreeing to establish a relationship with you, so if you’ve a chequered past, it might be best to go with a less well-known institution. CashPlus, for example, will set up their Deluxe Business Account without prying into your past. As a bonus, this account also comes with free online banking and deposits – but with an initial £9.95 purchase fee and £9.95 monthly feesiv from there on, you will need to balance matters carefully to decide whether the benefits on offer are compensation enough to undertake the charges at hand.

If you’ve nothing to fear from an initial credit check, you’d be well-informed to look into Barclays’ Business Start-up Account. With no monthly fees and 24-hour telephone support from the Barclays Business Team, the account has much to offer the ambitious young entrepreneur, though at 0.0% (4), the in-credit interest rate leaves something to be desired. Be sure, also, to check out the small print before contracting with an account offering indefinite charge-free banking, as these sometimes limit your monthly deposits- not ideal at all for those with an inconsistent monthly income.

Institutions offering free business banking for a set period of time should also be approached with caution; what initially seems like a good deal might prove less suitable for your needs in the future. HSBC’s Business Direct Account, for instance, offers free business banking for 24 months, but the account is limited to businesses whose estimated annual turnover is below £500,000 (5) – and the fees will revert to your chosen tariff once the introductory period has ended. It really is of pivotal importance to be aware of how your account will affect business not only in the present but years down the line, too. Are the initial advantages significant enough to outweigh any drawbacks that might come into play once the introduction phase is over and your account is in full swing?

If you’re having difficulty in finding or negotiating a package tailored to your own specific needs, there’s always the option of using different banks for different services. It may be beneficial, for example, to use a low-interest institute for your loans and another, with low transaction charges, as a point of deposit. Building a rapport with different banks will also prove useful if your relationship with one of them deteriorates over time.

Ultimately, the thing to remember when starting with a new provider is that your prospective bank stands to profit immensely from your custom. The least they can do is offer considerable support while you get up and running. And never forget: if you’re not happy with how your new business bank account pans out, you’re free to switch again at any time or, at worst, when any fixed-term agreement you’ve made comes to an end.

George Dixon

References:

(1) Source: Bytestart:
http://www.bytestart.co.uk/content/banking/banking-guides/business-bank-accounts.shtml

(2) Source: Best Buy- Business Current Accounts-
http://moneyfacts.co.uk/compare/business/cheque-accounts/

(3) Source: Best Buy- Business Current Accounts-
http://moneyfacts.co.uk/compare/business/cheque-accounts/

(4) Source: “Selected business current accounts available at moneysupermarket.com”- http://www.moneysupermarket.com/current-accounts/business-bank-accounts/?p=0&source=OVRT-005E1567&keywords=best+business+bank+acount&ef_id=TE3n3wqoEEQAAHmOkw4AAQZe:20110610184148

(5) Source: “HSBC UK Business Summer Offers”- Terms and Conditions – http://www.business.hsbc.co.uk/1/2/business-summer-offers/terms-and-conditions;jsessionid=0000vvKFEn0UERsJX2siiSK1DJa:12c5n7nsr