Business banking

Providers

Most high street banks offer either business bank accounts or have a commercial/corporate banking division. The majority of business bank accounts will offer a chequebook, cash card, overdraft facilities, direct debits, standing orders and interest on credit balances.

Here are some of the things to consider when choosing an account:

• Does the bank have a business banking team?
• Will you have a designated business manager to deal with?
• Are call centre staff or business managers based in the UK or overseas?
• Is telephone and/or internet banking available?
• What rate of interest will it pay on credit balances?
• How much will you be charged for business loans/overdrafts?

Charges

Unlike personal accounts, some business accounts charge for day-to-day transactions such as issuing and depositing cheques, standing orders and direct debit payments. Others may charge a monthly or quarterly fee for the account. Some offer free banking to new customers – account switchers and for start-up businesses – for an introductory period or only charge after a certain number of ‘free’ transactions.

Although a bank will publish its standard tariffs for businesses, it is always worth negotiating with the manager to get a better deal.

Generally, banks charge more for heavy cheque usage so try to make payments via the BACS system.

Questions to ask include:

• What fixed charges does the bank levy on the account?
• Are there per item transaction charges?
• Is there a fee-free period for new customers?
• What else comes with the account (credit cards, charge cards, free statements)?
• What other charges are there? e.g. for returned direct debits, bounced cheques, etc?
• Can I get a business overdraft facility straightaway and at what rate?
• What rate of interest will I get when in credit?
• What rate of interest will apply to overdrafts?
• What how much will I be charged if I exceed my overdraft limit?

Opening an account

Anti-money laundering regulations will require you to provide various documents in order to open an account. Depending on whether you are starting up your company (or if you are transferring from another bank), you may also need to provide a business plan and details of your business operations.

• Documents you may need to open an account include:
• Certificate of Incorporation for Limited Companies
• Proof of identity and home address (passport, driver’s licence, utilities bills, etc)
• A list of signatories who can sign company cheques
• Mandate to open the account (provided by the bank).

Borrowing

If you need to borrow money to get your business off the ground, there are several options open to you. The main ones are:

• Overdrafts
• Bank loans
• Government grants
• Venture capital investment
• Business angels.

Bank loans – Business loans can be negotiated with your bank manager, just like any other borrowing facility, and the terms will reflect your creditworthiness and negotiating skills.

New businesses may benefit from the Small Firms Loan Guarantee Scheme, whereby the Government acts as guarantor in the event that the business defaults on a loan repayment.

Overdrafts – As with personal bank accounts, overdrafts can be either authorised or unauthorised. Charges and interest rates vary from bank to bank, but charges for an unauthorised overdraft item can be as high as £30 per day, and banks have the right to demand that overdrafts are repaid at short notice.

Venture capital – Another way of financing a business is through venture capital, which involves selling a stake in the business to an investor in return for an upfront cash sum.

The investor has a direct interest in the future of the business, taking a slice of the profits, and selling their stake (hopefully for profit) at a later date.

You will need to consider how much equity you are willing to part with, bearing in mind that the investors will have some say in the future direction of your business. The return to the investor may also be more than purely financial as it could include the part ownership of a product or intellectual property.

For these reasons, venture capital as a method of financing is not necessarily suitable for all businesses and you will require professional advice.

Business angels – Business angels are high-net-worth individuals who invest on their own, or as part of a syndicate, in high growth businesses. In addition to money, business angels often make their own skills, experience and contacts available to the company.

For more information and to see if your business would be suitable please refer to www.bbaa.org.uk/