Finding a better bank

Since the Cruickshank review on banking services in the UK was published in 2000, banking for small businesses has become more competitive. There is now a wider choice than just the four high street banks, as new names have entered the marketplace, including some former building societies. Both Abbey and the Alliance & Leicester have small business accounts, which are quite competitive. All these changes mean that small businesses should compare the services of at least three banks, and perhaps internet or telephone banking to find the best deal.Rather than just looking at the tariff, businesses should identify which services they will need to use and cost out a year’s service.

Things To Consider

• Payroll, whether through cheques or BACS
• Merchant services that enable the business to take credit cards
• Cost of cash handling
• nterest rates - Accounts can vary from 2-3% on credit balances to close to nothing.
For sole traders, some banks, such as Royal Bank of Scotland, allow funds held in business and business savings accounts to be used to ‘offset’ personal mortgages, reducing the total interest paid, which may be an option for owners with healthy cash flow. Most banks display a full tariff on their websites, but there are some useful online comparison services, which evaluate and compare the offerings of a number of different banks and enable you to narrow down the number of banks you approach. Many banks have good offers for start-up businesses, often offering 12 or 18 months free banking, but check what ‘free’ actually means. Some banks then offer a further six months at discounted rates. Alliance & Leicester’s Business Builder current account, for example, offers two years’ free banking for start ups, which is probably the longest free banking offer on the market at the moment.

Switching Your Bank

Free banking for start ups won’t help existing businesses, but some banks do offer benefits for ‘switchers’. However, they are not the same as those targeted at personal account ‘switchers’ – you won’t find tempting cash-back offers if you’re a business user. Even if nothing is advertised you may be able to strike a deal with the bank, particularly if it wants your business. Remember though to check for penalties if you want to switch again at some later date . Most ‘free banking’ offers also have limits on the numbers of transactions or amount of money handled. For instance, Abbey’s ‘free forever’ account only allows £3,000 total cash deposits a month, so it may not be suitable for everyone. The Co-Operative Bank offers a ‘cash tariff’ for businesses handling large amounts of cash. It claims that with one of the lowest cash depositing fees on the market, and the ability to use post offices as well as Co-Op branches, it can save customers £450-£620 a year compared to the ‘big four’ banks’ standard accounts.

Good Looking Tariffs

Smaller businesses should consider a bank’s stated tariff as a starting point rather than a final offer. Large companies always negotiate their charges, so if you find a tariff that looks good, but feel that one element is a little expensive, see if the bank is willing to change it. It has been known for businesses to be offered different terms by different branches of the same bank, which shows why tariff comparisons need to be done in detail. Selecting the right deal is crucial, as is checking that charges have been correctly applied. It has been known for the wrong interest rate to be used. Businesses that need financing usually take a loan from the bank where they keep their current account. However, since 2002, banks are no longer allowed to demand that customers open a current account in order to obtain a loan, which means you can shop around for financing as well as for your current account. It’s always best to finance with a loan, rather than an overdraft, because an overdraft is repayable on demand. But, as long as you’re paying the interest on the loan, banks can’t press for you to repay the money early. Alternatively, NatWest now offers what it calls a ‘committed overdraft’ facility for which it has to give notice if it wants repayment. Many businesses still aren’t getting the best deal with their banking, but if you’re prepared to put in some research and negotiate your terms, you can bank on your business not being one of them. Andrea Kirkby is a freelance business writer with many years' City experience.