EYES are being cast over bank accounts as never before. When business owners are trying to find savings to survive the economic depression, the cost of money is bound to be a big item.
Often the charges are overlooked because the boss is too busy making a living to study the bank statements. Some banks take £55 a month to look after the account. It’s not uncommon to find, as in the case of First Trust, a 75p charge per transaction, 70p per £100 on bank notes deposited and £1.20 per £100 for coins paid in.
Yet a little research would find, for example, that the much-criticised Royal Bank of Scotland charges nothing for cash and cheques deposited, automatic debits, and automatic and non-automatic credits. Nor is there a standing charge. The charges are 53p for every non-automatic debit and 59p for every £100 of cash withdrawn.
As part of the Royal Bank of Scotland, NatWest operates business accounts in much the same way.
A cash-centred business can pay hundreds of pounds a month just for the convenience of having a bank account and may well feel a change is needed. The Royal Bank of Scotland group may look good for this purpose, and so may the Co-operative Bank. Its Clarity account allows £4,000 in cash to be deposited free every month, then charges 75p per extra £1,000. There is no charge for automatic and nonautomatic debits, non-automatic credits and cash withdrawals. There is, however, a monthly £15 standing charge.
Of the mainstream banks, Barclays is among those that give two years’ free banking on accounts while in credit.
Business owners who are used to popping into their local branch, but have to pay for the privilege, might consider ditching this ingrained habit for a more sedentary method. Fee-free internet and telephone banking is given by Alliance & Leicester, provided that every month £1,000 is paid in and no more than £3,000 is deposited in cash.
If less than £1,000 is paid in monthly there is a £5 fee, and monthly cash deposits of more than £3,000 cost 50p per £100. All transactions can be done through the Post Office – and remember the Post Office likes cash. Abbey has a similar account but accepts only 100 cheques issued per month without charging. Abbey emphasises that most large banks ask a monthly fee and charge for every transaction.
The non-household names should never be rejected in the search for a bank. The Moneyfacts group, which produces data for the business and personal customer, lists the Whiteaway Laidlaw Bank among the best buys. This bank, owned by the Manchester Building Society, offers banking without a standing charge, provided a £5,000 balance is kept, and cash withdrawals are fee-free. A smaller balance attracts a £17.50 monthly charge, and more than 100 transactions a month cost £17.50. Automatic and non-automatic credits and debits and cheques are 50p apiece.
John Grange, an adviser to one of the Business Links, the government-funded but independent organisations that give free business information, reminds us there is no easy way to obtain a business account with good terms. “Just shop around yourself,” he advises. “Don’t delegate it to the accountant as you need to build a relationship with the bank.”
A mixed bag
Business credit cards, which do not have to be linked to a current account, are a mixed bag. However, the swings and roundabouts principle seems to apply.
Some businesses could be attracted to the no-charge American Express Nectar and Capital One Platinum cards. The trained eye would spot that the former charges interest at 27.9% for cash and the latter 25.9%, whereas Barclaycard’s two offerings with annual fees of £78 and £32 charge interest at 15.2% for cash. A closer look shows that the American Express Nectar card charges 18.9% for purchases and Capital One Platinum 12.9%, while the two Barclaycard products charge interest on purchases at 19.9% and 26.9%.
The Lloyds TSB card appears better value with a £32 fee and interest of 14.15% for cash and 18.2% for purchases.
Again, shopping around with the Moneyfacts list is recommended. The other big issue for businesses today is funding for development. Credit is still available to businesses intent on growing – that’s the good news. The flipside is not necessarily bad news, but today lenders are doing more homework to be sure of lending wisely.
The finance-hungry businesses themselves must therefore be more precise and thorough in their planning to persuade their lenders. That’s the secret.
A poll by the British Chambers of Commerce suggests lenders are out of touch. Only 45% of the small enterprises polled thought their bank understood their needs. Other research, from the Federation of Small Businesses, showed that about a third of those interviewed find their bank less helpful than before the crisis.
In fact, the federation feels the banks are generally not assisting the businesses that need support and regrets the passing of the local bank manager.
The sharp end is now the relationship manager. The cynical-sounding comment from Janardan Sofat, chief operating officer of the London independent financial adviser Addidi, is that he has never met a good relationship manager! Oddly enough, in this money-conscious age there is plenty of free advice, says John Grange, the Business Link adviser. He recommends cashseekers to consult local chambers of commerce because they have networking potential and will usually wheel out somebody who can recommend a bank from personal experience. Such advice, based on local knowledge and often dispensed over a friendly drink, comes without a fee, like any help from a Business Link.
Other ports of call can be an independent financial adviser or a broker, says Lee Tillcock, who edits Business Moneyfacts magazine. But the best advice may well come from your own company accountant, believes Simon Webster, managing director of Facts & Figures Financial Planners, an independent adviser in Ashford, Kent. “He would have more knowledge of banks. You may find more contacts that way,” says Mr Webster.
On the subject of approaching banks, the advisers think slightly differently from one another but all reflect today’s cautious climate. Mr Webster, for example, says business owners must visit the bank armed with a list of specific requirements. They must decide whether they want conventional or online banking. Are credit cards needed? Is there a night safe if the business is cash-centred? The more precise the demands are, the more precise the response and the terms will be.
He warns, however, that the cheapest deals are not always the best. The applicants must choose what suits their business.
Lee Tillcock concentrates on the business plan, which these days must be “much firmer”. He advises: “Return to old-fashioned values, have a good plan, back it with facts and figures.”
He believes a business seeking funds or good terms should start with its existing provider but should always approach more than one bank. The applicant should “almost demand” to see a small business adviser. “You must talk to somebody who can make a decision,” he says, “and present evidence of a good plan, a clean record and a passion for a project to succeed.”
Meet the requirements
John Grange recommends that an enterprise, having gathered the available free advice, calls in all debts before walking into the bank with a request. In this way the amount of the required loan may be reduced. He is upbeat despite the credit crunch: one of his clients has just obtained £100,000 to consolidate other loans.
“See what you can do to meet the bank’s requirements. But if you are refused, ask the bank to tell you exactly why.”
Mr Grange emphasises, however, that the bank is not necessarily in the position of greatest strength. “Some banks are on the back foot,” he says. “They need the small business as much as the small business needs the banks.” Nor should you be afraid to switch. He says: “People feel there is something wrong if they go outside the comfort zone and approach another bank. But that bank will not view you with hostility or suspicion.”
The 215,000-member Federation of Small Businesses is lobbying banks to loosen up credit. It is making the case through the Small Business Finance Forum, which was set up by Lord Mandelson, the business minister, for an exchange of views on funding.
A final thought: when shopping around, businesses might like to find a specialist bank. For example, Clydesdale has a niche interest in waste and recycling, and the Unity Trust Bank concentrates on clubs and charities.
