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Business bank accounts

sebastian-anthony
Written by Sebastian Anthony

Whether you’re running a large or small enterprise, you probably need a business bank account.

All business accounts are different, and getting the right one can be the difference between improving the efficiency of your business and incurring costly overheads. So how can you ensure you get the best account for your business needs?

What is a business bank account?

Business bank accounts are bank accounts designed for use by businesses. There are numerous types of bank accounts available to businesses, including merchant, savings, and foreign currency, but usually when people talk about business bank accounts they are referring to business current accounts.

Is there a difference between business and personal bank accounts?

Business current accounts are much like personal current accounts and offer broadly similar functionality. They can be used to make and receive payments on behalf of your business, and you can manage your account online. Where they differ most noticeably is in availability and cost.

Most personal current accounts in the UK are free to use, but business accounts traditionally levy some significant charges and fees. Some offer “free banking” to startups or switchers for a limited period of time, but afterwards a lot of business accounts will charge you a monthly fee and individual fees for most functions you’re likely to use. Increasingly, however, providers are offering fee-free business accounts to customers.

Account costs

The fact that business bank accounts charge for banking functions is not surprising, since banks incur costs themselves to complete these tasks. The charges can vary dramatically from bank to bank, however – so getting the best business banking deal means minimising the charges incurred for the functions your business uses most frequently.

Here are some common business banking features that may incur a fee:

  • Making electronic payments, including direct debits, standing orders, CHAPS and BACS

  • Withdrawing cash, including in-branch and via any ATM

  • Receiving card payments

  • Paying cash into your account, both at your own branch or another bank

  • Paying cheques into your account, both at your own branch or another bank

  • Business credit card transactions

  • Cash exchange for checkout floats

  • Using any of the above banking functions abroad

Aside from costs directly as a result of use, many banks also charge an ongoing monthly fee for maintaining your business account with them.

How to find the best business bank account

There are a number of considerations you will need to balance in order to get the best account for your business. As we have seen, business bank accounts incur a charge for almost every banking transaction, therefore it makes sense to consider how your business will use the account on a day-to-day basis – whether you mostly make and receive payments electronically, or whether physical cash is your main method of making and receiving payments. The associated costs for your most-used functions should be a major factor in choosing a business bank account. The other things to consider are the ongoing (often monthly) costs of maintaining the account, and any other benefits the account offers.

Compare business bank accounts

The exact functionality available from business accounts varies depending on provider and account type, but most accounts will offer some combination of the following elements, so look out for these features when choosing your provider:

Online banking

Online banking is good for checking your account balance, downloading statements, setting up and authorising payments (including scheduling, debit debits and standing orders, and one-off electronic payments).

Mobile banking

Most traditional business bank accounts offer a mobile app, which carries mostly the same functionality as online banking.

Branch-based banking

You can visit a bank branch to pay in cheques received by your business, deposit cash received by your business, and get change for your checkouts’ floats.

Debit cards, credit cards, and cheques

These enable you to pay for goods and services on behalf of your business when instant payment is required.

Overdraft

Having an overdraft facility with your bank account can be a useful tool for managing short-term business cash flow, but you should look out for the fees and charges associated with them, as they vary greatly from account to account. In order to be successful in any overdraft application, you will need to provide evidence of a good, financially sound trading history.

Additional business account benefits

Alongside the standard features you might expect from a business bank account, many also offer additional benefits which can be very useful. These benefits vary from account to account, but can include:

In-credit interest

Some business bank accounts offer in-credit interest, though these interest rates vary from account to account and are often tiered, depending on the amount of money you keep in your account. The rates are not game-changing, but if your business is likely to hold an in-credit balance, it would be worth seeking out a business account that offers some sort of return on your hard-earned cash.

Mentoring

Banks can make a lot of money from well-run businesses and lose money on failing ventures. It is in their interests to help their business customers succeed – which is why many banks offer startup mentoring to new businesses. This can be invaluable, given their experience helping other local businesses succeed.

Skills workshops

There is already a great deal of untapped support available to businesses from government agencies and business support networks. However, even veterans can learn new tricks, especially in the fast-paced world of modern business, so some banks also offer skills workshops – for example, digital skills – to help support their customers.

How to find the best online business bank account

If you do the majority of your banking from your laptop or smartphone, a digital bank business account may offer all of the features that you’re looking for and often, at a lower cost than traditional high street banks. Make a note of the key features that you require from your business account - for example, many accounts now offer integrated links to accounting software. Carry out a comparison and find the option that best suits your business needs.

Business bank accounts FAQ

Do I need a business bank account?

If you run your business as a limited company, you will need a separate bank account for the business as it is a legal entity of its own. However, if you’re a sole trader or freelancer, you aren’t required to open a business account. That being said, it can be helpful to have a business account to separate out your personal and business income and expenses.

What types of business can apply for a business bank account?

All banks differ in their eligibility criteria, so it’s best to check before you apply. In general, business accounts can be opened by any type of business, including sole traders, partnerships, limited liability partnerships, limited companies, public limited companies, trusts or charities. While any business can apply for a bank account, certain banks will have further eligibility criteria, including a minimum and maximum annual turnover, and a minimum amount of directors, owners or partners, etc.

What is the best business bank account available?

The best business bank account for you will depend on your specific business requirements and how you manage your finances within the business. There are many features and benefits to consider when applying for a business account, such as whether you need to pay in cash or whether you have an entirely online business. Think about whether you want to give your accountant access to your bank account too, as more and more business bank accounts now allow you to integrate accounting software to streamline your financial operations.

Is it easy to switch business accounts?

Business accounts operate in the same way as personal current accounts in regard to switching, in that if the bank offers a switching guarantee, then an account can be switched within seven days.

Can I apply for and open a business bank account on the same day?

Many banks accept online applications for new accounts which means that provided you have all of the relevant information available, it’s possible to apply for and open your business bank account on the same day.

What fees are payable with business accounts?

Increasingly, fee-free business bank accounts are becoming available through digital banks, however, ‘free’ banking doesn’t always include everything. Often things like CHAPS payments, foreign currency transactions, or change-giving will incur a charge. 

Is interest paid on in-credit balances?

Some business bank accounts do offer in-credit interest, though it is unlikely to be at a game-changing rate. If you are likely to have an in-credit balance which you will not need immediate access to, it may be financially prudent to investigate a proper business savings account.

Can I get a business overdraft?

You can certainly apply for a business overdraft. In order to be successful in your application, your business will need to undergo (and pass) a credit check. Many business accounts clearly advertise their overdraft fees (which are often tiered, depending on the amount you are overdrawn), while others state that the fees are ‘negotiable’ or ‘upon request’.

Is my money safe in a business bank account?

Small-and-medium business balances up to £85,000 are covered under the FSCS (Financial Services Compensation Scheme), which means if your bank goes into liquidation, you will be reimbursed up to this amount. Larger businesses are not protected by the FSCS or any other such scheme.

Are there alternatives to a business bank account?

If you have been turned down for a business bank account because you did not pass the credit check, or for any other reason, there are alternatives available in the form of prepaid business accounts. These accounts charge a monthly fee, and you do not have to undergo a credit check to get one. The big difference with a prepaid account is that there is no overdraft facility, so you can only spend what you have in the account.

Business bank accounts FAQ

If you run your business as a limited company, you will need a separate bank account for the business as it is a legal entity of its own. However, if you’re a sole trader or freelancer, you aren’t required to open a business account. That being said, it can be helpful to have a business account to separate out your personal and business income and expenses.

All banks differ in their eligibility criteria, so it’s best to check before you apply. In general, business accounts can be opened by any type of business, including sole traders, partnerships, limited liability partnerships, limited companies, public limited companies, trusts or charities. While any business can apply for a bank account, certain banks will have further eligibility criteria, including a minimum and maximum annual turnover, and a minimum amount of directors, owners or partners, etc.

The best business bank account for you will depend on your specific business requirements and how you manage your finances within the business. There are many features and benefits to consider when applying for a business account, such as whether you need to pay in cash or whether you have an entirely online business. Think about whether you want to give your accountant access to your bank account too, as more and more business bank accounts now allow you to integrate accounting software to streamline your financial operations.

Business accounts operate in the same way as personal current accounts in regard to switching, in that if the bank offers a switching guarantee, then an account can be switched within seven days.

Many banks accept online applications for new accounts which means that provided you have all of the relevant information available, it’s possible to apply for and open your business bank account on the same day.

Increasingly, fee-free business bank accounts are becoming available through digital banks, however, ‘free’ banking doesn’t always include everything. Often things like CHAPS payments, foreign currency transactions, or change-giving will incur a charge.

Some business bank accounts do offer in-credit interest, though it is unlikely to be at a game-changing rate. If you are likely to have an in-credit balance which you will not need immediate access to, it may be financially prudent to investigate a proper business savings account.

You can certainly apply for a business overdraft. In order to be successful in your application, your business will need to undergo (and pass) a credit check. Many business accounts clearly advertise their overdraft fees (which are often tiered, depending on the amount you are overdrawn), while others state that the fees are ‘negotiable’ or ‘upon request’.

Small-and-medium business balances up to £85,000 are covered under the FSCS (Financial Services Compensation Scheme), which means if your bank goes into liquidation, you will be reimbursed up to this amount. Larger businesses are not protected by the FSCS or any other such scheme.

If you have been turned down for a business bank account because you did not pass the credit check, or for any other reason, there are alternatives available in the form of prepaid business accounts. These accounts charge a monthly fee, and you do not have to undergo a credit check to get one. The big difference with a prepaid account is that there is no overdraft facility, so you can only spend what you have in the account.

How to find the best current account

27 November 2020