When Hayley Chalmers tried to open a business bank account for her fledgling online clothing venture, she quickly discovered that all bank accounts are not created equal.
Lured by the promise of a period of free banking and other enticements, she approached Alliance & Leicester, now part of Santander. After completing its application process she was told it would take up to 14 days for her account to be opened. NatWest, in contrast, opened an account within two hours of her going in.
Chalmers, 48, who runs Shortcouture.com — selling clothes for petite women — from her home in Marsworth, Hertfordshire, said she would do things differently next time: “Don’t just shop around for which bank is advertising the best deal, find out what people are saying about them. The level of complaints is more important than free banking because the most important thing you need is the service.”
If you thought one business bank account was much like another, think again. There are big differences and the wrong choice could end up costing you dear.
The high street banks try to entice new start-up customers with an initial period of free banking. Royal Bank of Scotland and NatWest offer two years’ free general banking, for example, while HSBC offers 18 months for businesses with a turnover of less than £100,000 and Barclays offers 12 months.
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It is what happens after the free period ends that you need to consider when selecting a bank. If you will regularly pay cash and cheques into your account, you need one that is not going to hit you with a fee each time you do. Barclays and Lloyds charge 28p for each cheque paid in, for example, plus a handling fee for cash paid in, whereas Co-operative Bank’s Business Directplus account allows up to 100 cheques and £4,000 cash to be paid in without charge each month.
If, however, your start-up is an online business and customers will mainly pay by credit or debit cards through your website, you need an account that offers free automated transactions.
Watch out, too, for the monthly service charge that some banks levy. It is £5.50 at Barclays, £5 at Lloyds and £3 at the Co-op, whereas HSBC does not charge a monthly fee for its Business Direct account.
Many banks try to tempt start-ups by offering software packages or trial offers. NatWest customers, for example, can get free online business advice videos from the likes of Deborah Meaden from Dragons’ Den, while RBS offers access to Regus business lounges. Lloyds customers can take a 90-day trial of Sage software, which they can then buy at half-price. Barclays offers My Business Works, costing £12.50 a month, which includes consultations with an accountant and solicitor, a credit check service, online data back-up and business management software.
While some banks offer the option of applying for an account online or by phone, there is no substitute for having a face-to-face chat. It will give an idea of how helpful the bank’s staff are — and whether they are more interested in selling you financial products. Ask if you will have a dedicated relationship manager or simply a team responding to your queries. Then go online and find out what other small business customers are saying about the bank.
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Another factor is how quickly you will be able to start using your account, as Chalmers discovered when seeking a bank in March. HSBC will have your account up and running at the end of a 90-minute meeting provided there are no problems with your application. At Lloyds, you will have to wait 7 to 10 working days.
Phil McCabe of the Forum of Private Business said: “There are lots of differences between the accounts on offer, and going through the pros and cons of each is time-consuming. However, it’s well worth doing your homework. What may seem like small differences can quickly add up as the years go by.”
Asad Husain, 36, launched Base Classics last year to sell furniture online and through a showroom in Perivale, west London. It was difficult to find a bank willing to provide a business account, mainly because he needed credit card payment facilities for online customers.
After he had been turned down by NatWest and Barclays, HSBC said yes and gave Husain an account. He is pleased with the service, which has included three visits by the bank’s relationship manager.
“HSBC has looked at my cashflow, advised on foreign currency transactions and been helpful in all regards,” he said.
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Andrew Cave of the Federation of Small Businesses said: “Work out where you are going to have the best relationship. While initially you may be dipping your toes in and just having a bank account, you should think about what your business might need in two to three years.”
What you need to ask
Do you have an experience, good or bad, to share about opening a business bank account? If so, email us at smallbusiness@sunday-times.co.uk