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Business bank accounts: what to consider

What to consider when choosing where to bank

If you’re running a business, you will need a business bank account. You simply can’t survive without one. It’s the focal point of your finances, the point through which money flows in and out of your business.

A business bank account is where you deposit payments, pay suppliers and staff, draw out petty cash and complete all of the other fundamental financial transactions involved in running a business.

If you’re a sole trader, it will keep your personal finances separate from the business accounts and, whatever type of business you run, it will be essential for calculating tax. A business bank account can also give your business credibility and, in some cases, it can open up access to finance, support and advice.

So the question isn’t whether you need a business bank account, but who should provide it? On the surface, it may seem that there isn’t really a lot of choice, with the top four banks holding over 80% of small-business bank accounts in the UK. But the choice is actually wider than many people think. As former building societies start to enter the market and internet banking grows ever more popular, it may be time to reassess your options. We take a look at the full picture.

What they offer

Before you start comparing different business bank accounts, it’s worth knowing what products and services they may offer.

Bank facilities

Deposits: Paying in cash and cheques.

Withdrawals: Taking out cash through an ATM or at a branch.

Payment by cheque: Use of a business chequebook, which can sometimes be personalised with your company logo.

Automatic money transfers: Direct debits and direct credits.

Night safe: For depositing money when the bank is closed.

Balance enquiry and statements: For keeping track of your finances. Payment cards.

Company debit card: This will debit an amount immediately from your business account. In most cases the transactions are free and there is no annual fee.

Company credit card: A charge card (such as Barclaycard or Mastercard) that can be issued to key members of staff. Repayment made monthly from your business current account (usually interest free credit). There is usually a fee per transactions, an annual fee or both.

Borrowing

Overdraft and loan facilities: Short-term financing, subject to an application procedure. May also provide access to the Government-backed Small Firm Loan Guarantee scheme.

Asset finance: Leasing and hire purchase facilities to enable you to buy equipment.

Factoring and invoice discounting: Short-term borrowing against the value of unpaid invoices

Commercial mortgage: Funding to help buy a business. Often up to 80% of the purchase can be financed by the bank.

Other features 

Deposit accounts: A lot of banks have business deposit accounts with higher interest than a current account for any reserve funds your business may have.

Merchant services: If you want to accept credit and debit card payments from customers, you will need a merchant account. This is provided by a bank but to get one you will often need two years’ trading history and audited accounts. Once set-up, you will be charged an annual fee plus a percentage of every transaction.

Insurance: The larger banks will often offer their customers insurance cover for business interruption, health, loan repayment and more.

Support: Most of the larger banks offer resources and support to help you run your business. For example, you may be assigned a relationship manager who will offer business advice. The bank may also provide seminars, educational literature or bookkeeping software.

Introductory offers: The four main banks offer special introductory offers to startups. This is usually a period of free banking from 12-24 months.

For an independent rundown by the British Bankers’ Association on what various banks offer small businesses, click here

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