How to find the right business bank
23 May 2013 -
The range of business-banking products can be baffling. But it need not be if you are clear about your needs, writes Iain Hollingshead
If you thought it was difficult trying to find a good personal bank account – one, say, that doesn’t charge you astronomical sums every time you go 50p overdrawn and doesn’t savagely cut the interest rate on your ISA – try finding an easy home for your business account. Faced with the baffling range of products on display, a newbie entrepreneur could be forgiven for throwing in the towel and returning, howling, to the safety of a regular pay cheque and a familiar office canteen.
Unlike personal accounts, business accounts tend to levy direct charges for most transactions; one household name boasts six different charging structures, ranging from 19p to 30p, depending on how you pay in a cheque. Many also charge a monthly fee. In total, business-banking transaction fees amount to an estimated £2.3bn a year.
In return, the customer is wooed with an equally confusing range of freebies: free legal and marketing advice; discounted accounting software and a limited period of free banking.
So where should a business in search of a bank start?
The short answer is that you can probably find a package that is as individual as your business. Although it might be tempting to stick with a bank that you know, avoiding additional, cumbersome ID checks, you’d probably do better to shop around. Perhaps you only need the basics – a secure place to hold excess cash, control payroll and process a handful of regular payments. Or maybe you need a sharia-compliant account, including foreign currency facilities, allowing you to expand overseas.
As you’d expect, the major banks cater for almost every whim. All offer extra help, including business plans and payment holidays for start-up companies. Many have experienced relationship managers targeting specific sectors, such as agriculture, charities, property, franchisees or even those looking to set up a free school. Some create distinct packages depending on the size of a business’s turnover. All offer a range of savings products, allowing a business – much like an individual – to sacrifice instant access in return for higher interest. And there is a wide range of debt options on offer, from credit cards (often offering discounts on certain suppliers) to overdrafts and loans of varying lengths.
Whether the bank will actually be willing to lend to your business is, of course, another matter. According to the Federation of Small Businesses, 41% of small firms were refused finance by the high street banks in the second quarter of 2012.
This has led some to seek alternative forms of lending. Last year it is thought that the peer-to-peer lending industry advanced more than £300m to individuals and small businesses. In December, business secretary Vince Cable pledged a further £55m towards small business finance. A doubling in the market is predicted in 2013. However, the industry still has a long way to go before it matches the US, where only a quarter of lending is carried out by the banks.
Perhaps the best advice, however, on finding the right bank for your business is not to overthink it. As Chris Guillebeau writes in his book The $100 Startup: “Many aspiring business owners make two common, related mistakes: thinking too much about where to get money to start their project and thinking too little about where the business income will come from.”
What do YOU need in a business bank?
These fictional examples show how different companies have different needs – and should seek different products
The start-up bonus
Egerty, which makes apps for teachers, is a new company and therefore in an excellent position to pick from the best introductory offers. It wants good overdraft facilities and flexible loan repayment offers until the first orders start coming in. It can also benefit from the free legal and marketing advice offered to many start-ups. However, it should also be careful to read the small print to check what happens after the free banking period expires. Will it be paying over the odds for relatively simple business banking?
The long-term partnership
Tom, a farmer from Devon, has been in the industry for 30 years. His 1,600-acre farm, which includes lambs and arable farming, is looking for a loan to invest in expensive new infrastructure. He’s fairly distrusting of the major banks, which he sees as too London-focused, but he has complete faith in his regional bank manager, an experienced agricultural man who visits the farm regularly. He often relies on him for advice – and he secures a good rate for the loan.
The international player
Techsave, a Cambridge company that makes software for the military, has exports that make up 10% of its £15m annual turnover. Looking to expand its offices overseas, it turns to its longstanding relationship manager to ask for help with contacts, insurance and export invoice finance. As it will now be trading in more currencies than before, it will also ask about foreign exchange risk management. It will need to rely more than ever on the bank’s accounting software.
Iain Hollingshead is a journalist and novelist, whose books include Twenty Something and Beta Male
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