These days it is virtually impossible for a small business to operate without a bank account. Therefore, choosing the right banking facilities, is a process that just about every small business will have to go through. Even existing businesses should periodically review their banking set-up as often banks can changes their policies on fees and so on. Business finance is big business for the mainstream banks and so is a very competitive area.
What will a business need to do to open a new account ? If the business is a limited company then it is highly probably that the bank will need to see a certificate of incorporation issued by Companies House. They are also likely to want to see a business plan and projection of income and expenditure even if only a brief overview. Also you will need to provide proof of identity of all the signatories. An initial deposit will need to be provided as well. Generally speaking opening a business account is easier than opening a personal account.
The business banking market is dominated by the big four banks (Royal Bank of Scotland, Barclays, Lloyds TSB and HSBC). Recently though, the governemt has forced the banks to be rather more generous with the terms they offer small businesses. The current situation is that they have to offer either interest on current accounts of 2.5% below base rate or transaction fee free banking. This gives the small business something to work with when choosing a bank as it is no longer a case of choosing the best interest or the least expensive transaction fees. It will really depend on the number of transactions and cash flow of a business. Obviously, if there are many transactions then the business does not want to be charged per transaction. Alternatively, if there are few transactions then it may be better to receive interest. It does depend on different circumstances, but the free banking option is possibly the safest. Banks will also try to tempt new business with other products like loans and insurance, but there is no obligation to sign up for anything other than the product you need.
There are other considerations as well, like the future plans of the business. It is possible that borrowing may be required in the future to fund expansion plans or to overcome short-term cash flow problems. Talk these through with the bank to get a feel for the products on offer.
Many businesses opt for internet bank accounts these days for good reason. Either the charges are smaller or the interest paid is greater as is the trend with internet banking.
Not only that, but there are savings to be had in administration costs and the added advantage of availability 24 hours a day, seven days a week. There are some security concerns both from within the business and outside. Businesses should take care to ensure that individuals are only allowed to do what is necessary and work within sensible transaction limits. Also, they should be made aware of all the latest fraud techniques such as phishing – where fake emails are sent purporting to from banks asking for sensitive information.
The DTI provides some helpful advice for small businesses at the Small Business Service website which includes pages on financial issues
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOAN SECURED ON IT.
The articles on this site are for general information purposes only and should not be construed as advice under the Financial Services and Markets Act 2000. We strongly advise that you take appropriate professional and legal advice before entering into any binding contracts.