The dynamic growth of SMEs and corporations in the UK has made business banking a vital aspect of running any business. Although it is not a legal requirement to have a bank account for your business in the UK, it becomes a basic necessity for any business that intends to maintain clean financial records. In addition to other benefits, having a business account ensures that personal finances are separate from business finances. Whether you are running a sole trader business, a business partnership, or a limited company, acquiring a business bank account will make your business operations swift and easy.
Fortunately, opening a bank account for a business in the UK is more straightforward than you could imagine; as long as you meet the essentials for bank account opening. Here, we will look at the process of opening a bank account for your business, how important that is, and what other options there are in business banking.
Why You Should Have a Bank Account for Your Business
A business bank account functions the same way as a personal bank account but under the name of your business. Before entities or companies can partner with you in business, most of them will ask for details of your bank account, especially for companies and business partnerships. Wondering what a business bank account can do for your business? The following are some of the benefits of business banking;
• Tracking Business Finances
Having a bank account for your business will help you track business profits, expenses, and any other form of cash flow in your business. With it, you can easily calculate and file tax returns for your business with accuracy.
• Accessing Business Funding
Acquiring funds to set up a business, or to boost an already existing business, is always a stressing phase for most business owners. However, with business banking, you can access short-term or long-term loans from your bank after proving that you are credit-worthy. Many banks lend money to their business clients who have active bank accounts with them.
• Access to Financial Advice
Businesses that have bank accounts with specific banks operate in the privilege of having financial advice from financial experts assigned by those banks. Whether it is getting an online advisor or having a personal financial advisor for your business, that always count to be a great deal for the growth of any business.
Is it Mandatory to Have a Business Bank Account?
A sole trader can run their business using their personal bank accounts. It is, however, advisable to have a bank account for the business, which most sole traders find worth applying for. However, for a limited company, it is mandatory to have a bank account for the business because a company is an entirely separate entity from the owners.
The following are other conditions under which it is mandatory to have a bank account for your business;
- When you want a credit card for your business.
- When you want to make business payments through cheques.
- When you want to use of cards by your clients to be an accepted mode of making payments.
- When trading partners demand proof of bank records for them to do business with you.
How to Open a Bank Account for Your Business in the UK
The process of opening bank accounts for businesses in the UK varies with different banks. However, the process is simple and straightforward. First, you will need to present some documents and give some personal information when making an application for your business account. Such documents include;
- Proof of Identity Documents such as a national identity card, a passport, or a driving license.
- Proof of Address Documents such as a bank statement, a utility bill, or tax statement.
- The name of your business and its nature.
- In rare cases, your business plan.
- Contacts, both mobile numbers and email addresses.
- The registered address of the business.
- The estimated annual turnover of the business.
For companies, you will need to provide details on proof of identity and proof of address for partners and directors.
In some cases, some banks will ask for your personal financial record to verify your credit history. Having a poor credit history might deny you from acquiring business banking services. However, some few banks are likely to bend their strict regulations on individuals with poor credit history if their business plan is convincing of high returns in the future.
For most banks, your initial account opening can only be done at your local bank branch and not online. You will be required to appear physically together with another company representative (for companies) so that you can sign a bank obligation before the official opening of the account. During the face-to-face meeting with the bank, your photographic details will be captured alongside your signatures.
What to Consider When Choosing a Good Business Bank Account
Business bank accounts are presented with enticing features by respective banks in their efforts to attract customers to sign up for their services. Here is a look at some of the features you should take into consideration when choosing a business bank account;
• Financial advisor
A personal financial advisor helps you in interpreting the available banking products that can meet your financial needs. You enjoy a personal relationship with them as they guide you on various financial aspects of your business. For example, a financial advisor recommends the various types of loan facilities that are best suited for your business. Get a business bank account that will give you the benefit of having a financial advisor who will give you banking advice for your business.
• International Accounts
If your business operates overseas, then you will need a bank that offers international accounts. Such accounts should be able to process various foreign currencies, convert them, and make them ready for use in Euros or any other favourable currency. Before you sign up for any business banking service provider, you must check out on this feature, which is a necessity for your overseas business.
• Overdraft Service
A reliable business banking service provider should have an overdraft facility where you can access money via your account even when your account runs zero. It is worth analysing every bank in the UK, to see which bank has this facility, how much interest they charge, and other related fees for the overdraft. An overdraft feature can act as an emergency loan for your business, should you need one.
• Reasonable Banking Charges
There are plenty of banking charges that you are likely to come across every month, which vary with different banks. You should expect to pay for costs such as cheque deposit fee, account maintenance fee, and charges for other banking transactions. You must analyse charges by various banks to ensure that you get value for your money.
Opening a Business Bank Account Online
It is difficult to open an account for your business online. This is because the presentation of essential documents such as proof of identity and address is mandatory for most banks. In most cases, you can only initiate the registration process through the bank’s website or app, after which you will be required to submit the necessary documents to have the process completed.
However, there are other banking options that offer online banking services for your business. Such include Cardone Banking and Cashplus Banking accounts which function the same way as other bank accounts and whose registration is done online in entirety. These, however, are limited in their servicing compared to the formal banking services.
Are Non-residents Eligible to Open a Business Account?
Opening a bank account for business in the UK is not restricted to the natives only; it is not a legal requirement to be a UK resident to be an account holder in business banking. However, most banks are cautious of exposure to possible risks of fraud likely to occur through accounts from non-residents. For this reason, UK residents are more likely to be considered by business banking service providers than non-residents in opening a business account.
Having a business representative who is a UK resident, then it will be easy for any bank to work with you. If that is not the case, then applying for an international bank account could work best for you.
Opening a Business Bank Account from Abroad
Most banks in the UK have international accounts which are usually tailor-made for UK non-residents, although they can be used by UK residents too. It is, therefore, possible to have an account with your UK local bank for your overseas business. However, this might not be an appealing choice for you, considering that you require large amounts of money as initial deposit alongside monthly deposits. Such accounts might be difficult to run, especially for start-ups and SMEs. International accounts also restrict account holders from closing or switching accounts until after completion of specified timelines.
Fortunately, the growth of the banking industry in the UK has attracted many business banking service providers who ensure that you get business banking services from abroad with ease. With platforms such as TransferWise, you can create an international account for free, convert currencies, and send money for payments at cheaper rates.
Time Taken to Open a Bank Account for Your Business in the UK
With frequent meetings and the detailed process of approval undertaken to consent to the client’s application for a business bank account, it might take up to three weeks to three months to have an active account. This is typical to high street banks such as Barclays, HSBC, and Lloyds.
However, for online banking systems such as TransferWise, it might take only 2 to 5 days to have a business account verified and consented to start operating officially. Opening a business account in the UK is not instant. You might, therefore, want to factor in this period in your planning process.
Which Bank should you Consider Opening a Business Bank Account With?
When it comes to choosing the best bank for a business account, the ‘big four’ UK street banks tend to be what most business owners go for. These include Lloyds Banking Group, HSBC Bank, Barclays Bank and the Royal Bank of Scotland. Although there are several others such as Santander and NatWest Banks, there are reasons why the ‘big four’ banks dominate the banking industry in the UK.
Here is an outline of different offers to expect in these banks and some of the benefits behind why most businesses have become loyal account holders in these banks;
1. Barclays Bank
Barclays Bank is a global financial institution with over 1400 branches in the UK. The bank offers start-ups with a fee-free banking privilege for one year under specified conditions. This comes with a variety of financial options.
Barclays has two payment plans, including the mixed-payment and the e-payment plans. The mixed-payment plan is a plan for companies that use both paper and electronic payment methods, which rates at £6 per month. The e-payment plan, on the other hand, is for businesses that use electronic payment methods in entirety, which rates at £6.50 per month.
2. HSBC Bank
HSBC has over 1100 branches across Wales and England with active branches across the world. HSBC has a free banking period of one and a half years, after which account holder pay £5.50 per month. For clients who bank with HSBC Bank overseas, the bank can set up an account for them on request even before the client gets to the UK.
3. Lloyds Banking Group
Lloyds Banking Group has approximately 1300 branches across the UK. With so many branches around the UK, it is easier for business account holders to access a branch, should they have any issues with their account, or should they need financial advice for their businesses. Lloyds offers new customers a free banking period of 18 months. After the fee-free banking period, customers are charged £6.50 per month. Lloyds partners with limited companies, charities, sole traders, and partnerships with an annual turnover of £1million.
4. Royal Bank of Scotland (RBS)
With over 500 branches operating in the UK, RBS has the most extended fee-free banking period for new customers of 2 years, compared to the other three high-street banks. They also have a one-year fee-free use of business credit card. After the fee-free period, Royal Bank of Scotland charges £6.50 per month. They aim at partnering with sole traders, limited companies, charities, and partnerships.
There might be a better business banking service provider other than the ‘big four’ banks. It is therefore essential to browse through each available service provider to see which ones best suit your financial needs.
How to Close a Business Account
To ensure that you get the best out of your bank, you must always scrutinize business banking services that your business is receiving. You can always switch to another bank whenever you discover more competitive services and offerings compared to your current bank.
The process of closing an old business account might take several days. However, it should be simple and straightforward as the process for opening the account.
• Communicate with your Service Provider
Different banks have different procedures for closing bank accounts. However, communication from the customer with adequate proof of identity is a requirement. You must communicate to your bank on your interest in having your business account closed. You can notify them by phone, email, or by visiting any local branch near you. You can discuss the procedures for closing down your business account with your bank. They will notify you of any charges you will incur, if any, and the time required for your business account to be closed.
• Get your Statements
Your bank should be in a position to process your bank statements whenever you demand them. With the statements, you will be able to see how much bank overdraft you will need to clear before the account is closed.
• Submit your Banking Documents
You will need to return debit cards and cheque books for the business account you intend to close if you had any. Some banks will require you to fill in an account closure form and submit to the local branch together with proof of identity documents. This way, they can verify your request and before approving it.
• Account Closure
Based on the bank’s policies and regulations, your account might take some time to close. However, after all the relevant signatories have approved the closure of the account, and the closure process has been duly followed, your business account will be closed and an official statement sent to you on the same.
You should communicate to your customers as early as possible on account switching so that they can adjust to the changes swiftly. Account closure and switching to a new account affects cash flow for the period that these changes happen. Therefore, you should be aware of these inconveniences to your business before making the move to close your business bank account.