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Banking for business – Hobson’s choice?

by
01 October 2016, at 1:00am

Adam Bernstein looks at the various considerations for businesses to take into account when shopping around for banking services – an important process.

A SYMPATHETIC BANK AND BRANCH MANAGER can go a long way to easing you through any business turbulence you may encounter. Indeed, with much upset about how some of the banks behaved during the last down turn, choosing a bank can be critical to your success and your survival. 

So how do you make the choice? What is a “good” bank? The answer depends on your priorities.

Some might consider proximity to a branch on the way home important because they have cash to deposit – a key consider for retailers even with card transactions rising. For them, convenience is matched up with a reduction in risk.

Others may want a bank with a UK base. Dealing with call centres can be bad enough and highly impersonal, but add into the mix a thick overseas accent or someone who doesn’t understand the nuances of UK life and the relationship is bound to become strained. And let’s not forget that some may have to dial non-standard, chargeable numbers such as 0845, 0870 and 0844. For them, alternative number website saynoto0870.com is a Godsend.

But there are other considerations to bear in mind – online security, banking facilities and of course cost. Let’s look at the options in detail.

First principles

Depending on the complexity of your business it’s entirely possible that you can use a personal bank account. You’ll get away with this if you’re unincorporated, say a microbusiness or a sole trader.

However, it’s not recommended for a number of reasons. Firstly, you’ll have no separation of personal and business monies; in other words, you’ll not be able to easily tell how well the business is performing. Secondly, and this has a serious unintended consequence, HMRC does not like the practice and if it decides to investigate your affairs (by random selection or following a breach) it can then latch on to your use of a personal bank account as an excuse to widen the investigation into other aspects of your (personal) finances.

Ideally seek a business account that offers a debit, credit or charge card in addition to cheques. Having a business card has the added bene t of insulating a user from any personal liabilities for the business transaction.

Filtering the accounts

Taking a stroll down the high street is the most obvious way of finding a bank. But as a process it is very time- consuming. An alternative is a bank comparison tool offered by the British Bankers Association (https://www.bba. org.uk/customers/business-banking/ business-accounts/business-account- finder-tool/).

In simple terms, it allows a search to be conducted based on entity (sole trader, partnership, company, club/society, or charity) and then on facilities required (branch, debit card, overdraft, and credit interest). Upon making the appropriate choices the matching range of bank accounts is presented – the range can be bewilderingly long.

At the time of writing (September 2016) a limited company can apply for accounts with a wide array of charges. Cheques written can cost anywhere from nothing (Santander Business current account – four levels of at rate monthly fee apply based on levels of cash deposited) to £1.50 (Danske Bank Small Business Digital). Exactly the same charges apply for cash deposited. On a positive note, Santander will, from November, pay 0.1% interest on  credit balances while Allied Irish Bank (Business Current) will pay 0.05%. The majority pay nothing.

Remember that it’s also worth looking at the individual bank websites as the BBA website can lag on changes the banks make to tariffs.

Apart from the BBA, from the end of July (2016), a second online comparison tool became available to SMEs. Operated by British Banking Insight, it’s a collaboration between HM Treasury, the British Chambers of Commerce and the Federation of Small Businesses. It’s independent of any bank but has an advisory group consisting of a number of banks and the government.

To be found at http://www.businessbankinginsight.co.uk/current- accounts/, it offers suggestions based on ratings on charges and fees, ease of contact, understanding of business, fair treatment, and having concern for the client.

Visitors search for recommended banks using criteria based on turnover, business sector (there’s a dropdown for wholesale and retail), level of international activity, age of business, number of employees, and location.

Each option has a subset of categories to refine the search. The returned results list only the organisation and “user” reviews – no product options are detailed – but there are direct links to the institutions. The site is new and the number of reviews needs to grow, but nevertheless it is an interesting way of searching for a new bank.

As an example, an SME searching for a bank in the “other services sector” would see 32 institutions returned. Again, at the time of writing, in prime position based on a rating of 100% is Norwich & Peterborough Building Society, second is the FSB, also with a 100% rating, and third is Cashplus, also with a 100% rating. Last is Barclays with a rating of just 26%.

Not featured on either site is detail on loan accounts or foreign currency accounts. Nor is there detail on merchant accounts that allow for the processing of credit and debit card transactions – but that is another subject entirely for which help can be found on the UK Cards Association site at http://bit.ly/JnCcMc.

One thing you should do is look for any introductory rates that may be available. These are presently few and far between and are invariably targeted to the new business with offers of time-limited free banking. At the time of writing, Santander offers a 12-month deal, TSB gives 18 months, while Yorkshire offers 25 months of free banking. But rms should look at the charges beyond the initial period.

Cost isn’t king

While it’s entirely logical that businesses will, to an extent, focus on the cost of the banking arrangement, it shouldn’t be the tail that wags the dog – it’s only one part of the calculation.

Consider if you want a branch or if banking facilities via a Post Office or post box will suffice. Also, do you want face-to-face contact with a manager or small business adviser (not that they are always real experts in business)?

Consider if you need an overdraft or other borrowing facilities. How good is your credit rating, both personally and for the business? It’s naturally going to be harder to open a new account with an overdraft or if you have financial issues with your old bank – by definition this will restrict the institutions open to you. While you may get a lower cost deal elsewhere, your present bank may be the most likely to extend borrowing as you’ll have a track record.

Do you want the convenience of being able to view your personal account and cards and business account and cards in the same place? That’s something the NatWest online and mobile apps offer.

And what of security? With the likes of HSBC and First Direct moving towards voice recognition security, the topic is undergoing much change. HSBC still uses a fob-type device to log on, which just adds bulk to a pocket. On the convenience front, RBS and NatWest use a text message process for first time authentication on smartphone, but after that use a PIN and finger print (on iPhone) for security when logging on (both still rely on a calculator-style device and card for new transactions). 

There is no perfect solution, but you need to nd a bank and process that won’t irritate you.

With an eye to working with your accounts software – and accountant – ensure that the formats in which the banks allow you to download reports are compatible with any software you use. And apart from incompatibility it’ll be the simple things such as debits and credits columns being in the wrong order that will cause stress and eye-strain.

Unlike personal accounts, as noted earlier, very few business accounts pay interest. There’s no quid pro quo here, so leaving large balances in a current account is futile; rms should plan to sweep excess cash into some form of savings account.

Obviously rates can change and the higher the rate the longer the notice period, so when chasing the higher rates ensure that it’s with cash that isn’t needed as working capital.

For example, at the time of writing, Nationwide offers 0.9% on a one-year fixed notice account. Those wanting instant notice access should consider Nationwide’s Business Instant Saver which pays 0.80%. Neither are great, but it’s better than nothing.

Splitting your banking requirements up between different providers may work with other elements of borrowing including commercial mortgages and credit cards. There are a number of websites that may offer assistance, including:

To conclude

Just because you’re running a business doesn’t mean you shouldn’t shop around for the best deal. For the best chance of success, you need to invest time and keep a weather eye out on the market. If your circumstances change or the bank changes its tariffs, you need to be prepared to move.