 The Questions (click to find answer) UK Government Force Banks to Pay Interest or Provide Free Banking Big 4: Royal Bank of Scotland / Barclays / Lloyds TSB / HSBC The government has forced the top UK banks (above) to offer all small businesses interest accounts, at 2.5% below the bank base rate, or an account that offers free transaction charges. The cause of this major boost to the UK's 3.5m small business is the £750m profits made by the banks in the last financial year: cries of overcharging by the banks is nothing new and this move is more than the banks, or their customers, expected. The government hopes that the move will encourage competition outside of the 'big four', who currently have 86% of the small business banking market. On a note of caution: how will the banks react? It is possible that we see higher interest rates for small business lending, increased deposit and cheque cashing rates. It may also cause the banks to pick and choose who opens an account, and then deny loans to new, emerging and troubled businesses. The Office of Fair Trading will monitor the initial three-year period during which competitors are expected to come through. Is it all About Looking for the Highest Rate of Interest? With a small business it is probably more prudent to look at charges as opposed to interest rates. Whatever your balance is in your bank, small business accounts will always attract charges for one reason or another. It is also wise to remember that great interest rates usually mean high penalty interest on overdrafts etc. If you do want the best interest rates look at an on-line provider. The providers are trying to tempt volume customers to use on-line services. They are not only trying to establish themselves as Internet capable, but also have the benefit of having less costs for Net users: so more profits for the providers - but in the short-term the profit is being handed back in the form of higher interest rates. Why do I Need a Bank Account? Everything you do in business revolves around money. This money needs to be identifiable at every stage of the transaction and of course the money also needs to be identifiable from your own personal finances. Opening a business bank account is the simplest way to achieve accountability and provide a good degree of transparency in your business dealings to enable government departments, creditors and auditors to accurately assess your business. A business account will also give you credibility as your bank has, to a degree, assessed and accepted your business proposal. Is it Necessary to Open a Business Bank Account? No. If you are a sole trader or an informal partner (not as in partner in a formal partnership) and you have a personal cheque or deposit account, it is acceptable to have customers write their cheques to you personally and then for you to bank them in your personal account. Now this obviously is at odds with the above paragraph as there is no clear line or way to account for money attributable to your business: this is a major problem, but it can be done in circumstances where there is little choice. What Type of Account Can I Open? Resist the temptation, of your bank manager, and open a standard cheque book account (current account). At this stage your only interest should be to create a facility where you can pay in cheques and withdraw money. I doubt that you will want a savings account for ALL the excess money you will accumulate in the first few months of business, nor do you want to take out business insurance with the banks commercial insurance arm. If you are a sole trader you can open an account that will have your name and trading style i.e. John Smith T/A Smith A1 Business Services (T/A means ‘trading as’). This way gives you a more professional look by having a business name, and will also allow you to ask for cheques to be written in your business name only i.e. ‘Smith Business Systems’ (even if doing so will annoy your bank). If you intend, or have, created a limited company you will want to open an account in the name of say ‘Smith A1 Business Services Limited’. You will need to have your limited company set up before your visit to the bank. How do I Open a Bank Account? Your current bank is not necessarily the best bank to open your account with. There are a few reasons for this: banks offer a varying degree of business start up accounts: some have no charges for two years, Internet banking, an instant cash card, 24 hour availability etc, also keeping your business life away from your personal life will ensure that your bank is not in total control of your finances, and a bank that does not have you using all of its products is very keen to offer you the best deals.
Make an appointment with your chosen bank they will probably want to see most of the following: a business plan (at least a brief one), where your start up finance is coming from (if applicable), information about signatories and who, if any, are your partners, a general run through of the business, if you are a limited company the bank may well want to see the ‘Certificate of Incorporation’ (issued to you when you form a limited company).
Should I Have Monthly Bank Statements? In the initial free period you may get the choice of monthly statements, some may allow free weekly or fortnightly statements: whatever they offer for free if it is not weekly then its not enough for you. It is better to pay extra (£1 – 2 per month) than to estimate from monthly to monthly statement. If there is something wrong: a cheque bounced (returned unpaid), or a cheque stopped by the drawer, a slight overdrawn situation you need to know quickly or risk high penalty fees. No bank allows free periods for penalty payments and only experienced bookkeepers can survive with monthly statements - be warned! I Have a Bad Credit Record. What Can I do? Business bank accounts are not as difficult as personal accounts to open. There are numerous reasons for this but we only need to focus on one at this time: business accounts are profitable (for the banks of course). That is not to say that anyone can get a business account, but if you have a business plan and it is viable, with the bank not having to fund you or provide you with anything more than a business cheque book, acceptance should be a formality. Paying in an initial deposit can only help. Can I Bank Cheques in a Different Name to my Account? If you had a bank account in the name of ‘John Smith T/A Smith A1 Business Services’ and a cheque was written out in the name of ‘Smith A1 Business Services’ or ‘John Smith’ that should be OK. ‘A1 Business Services’ at a push should also be accepted However, if you have a cheque written out to ‘John Smith’ and you are a limited company the alarm bells will ring and you face having the cheque refused with the uphill battle of getting another bankable cheque. In circumstances where the cheque is written out to another name, for whatever reason, your bank manager can authorise the acceptance of such if you seek authorisation before accepting such a cheque. What About On-line Banks? If you are PC literate and you feel confident enough to use and understand on-line banking it has to be a solid choice: but do look at a few points: Find out if there is a set up fee, a minimum monthly fee, the charge for paying in cheques and withdrawals: these costs ‘should’ be less than a ‘standard’ bank account as the transactions cost less electronically than manual procedures, what support is available, and what is the cost, if any, what is the banks response time to e-mails: leave out this question at your peril, on-line banking is about ‘24/7’: twenty four hours a day, seven days a week.
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