Need information on business banking? Our guide covers all you need to know about choosing, opening and managing a business current account.
What is a business current account?
A business current account provides services to meet the day-to-day banking needs for your business, such as your regular and ad hoc payments in and out. The accounts work in much the same way as personal current accounts, but offer additional services specifically of use to businesses. There are different charging models too.
Business current accounts are offered through banks, building societies and specialist providers. They are generally designed for start-up and small businesses, as opposed to mid-sized companies and corporates.
What do business current accounts offer?
Business current accounts offer all the same features as personal current accounts, as well as some additional services specifically designed for businesses. As well as the use of debit card facilities, overdrafts, transfers, foreign exchange and regular payment orders, business current account offerings can include:
- Electronic payment processing
- Payroll management up to a certain number of employees
- Best practice guides, seminars and courses across a range of business practices
- Access to professional legal and accounting advice
- Localised market knowledge, both domestic and overseas
- Business planning and accounting software provision, with trials and introductory offers
- Personal and dedicated relationship management
- Cash-back and other reward schemes
- Access to meeting facilities and travel benefits
- Cloud based data hosting and back up
- Supplier credit checking facilities
The specific services offered through business current accounts varies from provider to provider and can be dependent on costs and the business's circumstances.
Is a business current account mandatory?
Small business owners are not required by law or regulation to have a 'business current account', as defined by the bank or building society. If you do not need the extra facilities that a business current account provides, a normal current account or even an open access savings account which you dedicate to your business may suffice for keeping your business funds and affairs separate from your personal ones.
However, banks may stipulate in their terms and conditions that personal accounts cannot be operated for business use.
What different types of business bank accounts are there?
Banks break up their business banking offerings in different ways. Most categorise business customers by size, and they offer their different types of account accordingly. There are usually three main distinctions:
- Business current accounts: for 'microenterprises' - sometimes classed as those with up to ten employees and up to £1m in annual turnover, although the specific levels differ by provider
- Commercial bank accounts: for 'small and medium sized enterprises' (SMEs) - generally those with a turnover of up to around £25m or 250 employees
- Corporate banking: For larger business and private and publicly listed companies
Who offers business current accounts?
Business current accounts are offered by all of the major banks and building societies, usually through the retail banking arms of those companies, as opposed to their corporate or investment arms. Some serve their business customers through specialist or dedicated subsidiaries.
There are also specialist business current account providers such as smaller market challengers, local organisations and credit unions.
How do I access my business current account?
You can usually access your business current account in branches, on the web, through mobile apps and over the telephone.
Some banks offer special branch services for business customers, such as separate queuing lanes, fast drop boxes and changing facilities. However, some banks don't provide counter service for entry-level business account holders.
How much does business banking cost?
The costs you pay for your business banking can be dependent on the size of your organisation, the facilities you need, and the volume of transactions you make.
You'll usually have to pay a small subscription fee for your account, starting from a few pounds per month. There may also be further individual fees for the day-to day services you use.
The prices vary significantly from bank to bank. You'll therefore need to assess which services you are going to need most frequently and find an account that best fits your circumstances. Chargeable services, with a typical cost in brackets, include: paying in and withdrawing cash over the counter (40p - £2 per £100); cashing cheques (40p - 70p each, after an allowance); sourcing change (£1.50 per £100); bankers drafts (£10 - £20); stopping cheques (£10), copies of statements (£2.50 - £5), CHAPS transfers (£25); and audit letters (£25). Some banks may also charge for withdrawing money using your business debit card.
You will also have to pay interest if your account has a debit balance, usually calculated on a daily basis. You may also have to pay an additional fee for using the overdraft, along with significant penalty charges if you exceed your overdraft limit.
How can I avoid business banking fees?
Banks sometimes offer introductory offers for start ups and businesses that switch from another provider. This can often include a fee-free period of around six months to two years, during which time all or some operational charges will be waived.
Can I switch my business current account from one provider to another?
Businesses can switch current accounts from one bank to another at any time, provided they are able to neutralise any debit balance. The switch will be penalty-free, as long as no fixed term is in place.
Furthermore, small businesses are covered by the Current Account Switching Guarantee. This ensures that the switch will be completed within seven working days, and that all direct debits and standing orders will be automatically transferred across to the new account with no gap, no missed payments, and no resulting charges. The customer can also nominate a specific day for the switchover to be completed on.
The Current Account Switching Guarantee covers businesses with 'a balance sheet total that does not exceed €2 million (or sterling equivalent) and less than ten employees'.
Switching business bank accounts won't affect your credit rating (as with repeated balance transfers on credit cards), provided everything's in order with your account. However, the customer may lose the advantage of the mature existing relationship with their previous provider and therefore find it more difficult to access finance through that bank should they require it.
How do I choose a business current account?
The facilities and levels of service offered through business current accounts vary greatly from provider to provider. It is important to carefully assess the banking needs of your business and choose a current account and provider that best align with your circumstances. Your biggest considerations should be:
- Cost: How much you will have to pay for the services you use, factoring in any increases as you grow your business, including individual transaction fees, service charges, and interest rates
- Ease of access: The flexibility and speed with which you can administer your account, complete transactions and manage your affairs
- Credit: The level of overdraft facility you have in place and the flexibility for renegotiating the terms, as well as any ties to further business credit facilities such as credit cards or loans
The additional features aimed at helping you operate more efficiently or growing your business are useful, but they should be a secondary point of comparison to the three above.
Should I keep my business current account and my personal current account with the same bank?
There is no problem with holding your personal and business current accounts with the same provider. However, there may be advantages in choosing different institutions. Having a pre-existing relationship with two different banks could broaden your options and increase your chance of being able to quickly access credit facilities in the future, such as business credit cards and loans.
How do I apply for a business current account?
To set up a business current account, you'll require:
- Proof of identity
- Evidence that you are a sole trader, or are a partner or director of the business
- Personal details of any other business partners and directors
- Business details, including annual turnover, employee numbers, registered name and company registration number
Most banks allow you to apply for a business account both online and in branch. Your application will be subject to a credit rating test on both you and your business.
Can I get a business overdraft?
As with personal current accounts, businesses can often put an arranged overdraft facility in place, allowing them to flexibly borrow money by running their account with a debit balance, within a set limit. Businesses can usually negotiate a significantly higher overdraft limit than is offered through personal accounts.
Businesses may incur arrangement and renewal fees in setting the overdraft facility up, and some business accounts will also carry a separate service charge for holding or using the overdraft facility. You will also additionally pay debit interest on what you borrow, usually calculated on a daily basis.
Is my business overdraft guaranteed?
Business overdrafts are usually agreed to remain in place for a set term such as one or two years. At the end of that term, a new arrangement may need to be agreed. At that point, the bank, having given notice, can remove or reduce the overdraft facility. This could have serious consequences for your cash flow and you may face charges if you are unable to reduce your borrowing level accordingly in time.
You should therefore look to put arrangements in place with long terms, and with a commitment that any reductions to your overdraft limit will be a preceded by a lengthy notice period. You should also book a time to meet with your account manager well in advance of the term end in order to discuss your circumstances and eligibility for credit.
Will a business current account help me get a loan?
The relationship you hold with your bank can be critical when you seek financing for your business, whether that's for overdraft extensions, credit cards, commercial loans and mortgages, or more advanced business financing facilities such as factoring or asset lending.
The banks will usually require visibility over your accounts for an extended period of time in order to qualify your eligibility for finance. Therefore, an existing relationship with the bank can be vital in getting funds cleared quickly in an emergency.
If you think that you are going to need commercial funding at some stage it might be a good idea to research which banks have the best record in lending money to businesses of your size and in your industry. Similarly, check which banks are currently lending the most through government funding programmes.
Can I hold a joint business current account?
It is possible to hold a business current account with multiple different stakeholders, usually with no restrictions on who those third parties are except for the usual eligibility criteria such as credit profile and residency checks.It is also possible to have multiple debit cards issued on the account which can be used by any employee of the business, rather than just the account holder.