Never forget that you have the upper hand when it comes to your selection process: you can pit bank against bank when interviewing and comparing their services; you can use the internet to nail down the best current deals; and if you don't like what you're hearing, you can simply walk away.
The business banking market is now as competitive as retail banking, and there are plenty of good deals going. But first you need a clear sense of your own priorities. Does your business use a lot of cheques and cash transactions? Or will you be making many electronic transactions, possibly via the internet? Will your new bank offer a dedicated small business advice team that you can talk to at short notice, and if so will this be face-to-face or over the telephone?
It's also about the smaller stuff: are the staff friendly and interested in you and your enterprise? How ‘special' are the offers? Or will they only last - perhaps like free banking, for example - for a limited period of time?
On the market
One of the most competitive deals on the table for small businesses currently is from Abbey, which claims it is the only main bank to offer free banking for life. "All you have to do," says Paula Ickinger, head of business banking at Abbey, "is pay in no more than 100 cheques, £3,000 in cash and make no more than 100 ATM withdrawals a year and you won't be charged for the service at all. This offer is available to all small firms, but clearly it's very attractive to people who have limited transactions such as sole traders."
Ickinger says when Abbey was researching this service it rapidly became clear that banking fees were one of the biggest issues for small
‘With the right supporting information, you should be able to secure
realistic funding for your business and avoid the situation of having
to go back for additional funding, which implies poor planning'
You won't be surprised to hear that not all banks think that free banking is such a great idea, for example Barclays. "Business customers are smart when it comes to choosing the right bank and account for them," said John Davis, local business marketing director of Barclays. "It's less the ‘what does the account cost?', and more the ‘what else can my bank do for me?' which is exactly the right question. Barclays has 724,000 business customers and they come to us and, more importantly, stay with us because our extra services and advice help them succeed."
Bad vibrations
But not all small businesses are satisfied with the service they receive from their bank. James Sirrell runs electrical contracting business Spectrum ESM, which has a turnover of £700,000 a year. But when he needed an overdraft last year, his local bank turned him down flat. "I also just didn't really like the vibe generally from them," he says.
Sirrell's accountant suggested he call HSBC, which offered him an immediate £12,000 overdraft. "My bank manager is fantastic," he says. "I've had problems with a client and had to set up a £25,000 company voluntary arrangement for the debt to be paid back. But in the end I just decided to write this debt off. However HSBC has now set up credit insurance for me, which checks on the credit-worthiness of any future clients; if the client defaults in future, they take the debt on. This cost is £2,000 a year - a drop in the ocean really."
Doug Walmsley, head of commercial core products at HSBC, says its small business customers typically fall into two camps. One group tends to take advantage of support and guidance through the branch business management support network; the other, he says, is more transaction-focused. "They're more financially confident and interact with a bank on a basic provider basis in their own time. For those people we offer Business Direct, which is a free banking-based account within certain limits. Our internet banking also has the best ability on the market in terms of things like cross-border and same-day payments or being able to increase your overdraft of increase your credit card limit."
Nevertheless, away from the big four UK high street banks - HSBC, Lloyds TSB, Barclays and Royal Bank of Scotland - that dominate the small business banking market, smaller providers also offer good deals, often focusing on keeping your overheads down.
Last year it was estimated small businesses wasted more than a £1bn by keeping money in low-paying business accounts. HBOS
‘Away from the big four UK high street banks that dominate the small
business banking market, smaller providers also offer good deals, often
focusing on keeping your overheads down'
Personal information
Remember that when choosing a bank account, the bank will also want to find out more about you, and possibly will want to see a clear business plan which sets out all your businesses objectives and projected income, especially if you need to borrow.
A common error is to ask for too little financial support in the belief a more modest request has less chance of success, warns Steve Jennings, director of business banking at Alliance & Leicester Commercial Bank. "With the right supporting information, you should be able to secure realistic funding for your business and avoid the situation of having to go back for additional funding, which implies poor planning."
Which bank you plump for depends on your priorities, be they business support, the ability to borrow or simply the chance to trim costs to the bone. But remember that once you decide to commit to a banking partner, it can be a hugely time-consuming and protracted process to change.
So whether you're looking to set up a new account or switch from another provider, the trick is to do your homework, make sure you get the right deal and continually review the market to make sure your provider continues to offer you the right package for your business needs.
