Five-minute money masterclass: picking the right bank for your business

Given the importance of securing the services of a bank to handle your daily monetary needs, how can you ensure you pick the right one?

Five-minute money masterclass: picking the right bank for your business

Securing the services of a bank to handle one’s day-to-day monetary needs remains part and parcel of most entrepreneurs’ lives. Of the plethora of decisions a start-up has to make when taking its first steps, choosing the bank with which to open a business account is probably among the most important. But how can an entrepreneur ensure that they’re left feeling content with the financial institute they pick to take care of the cash?

 Assess your needs

Before checking out your banking options, it’s worth pinning down exactly where a bank is going to be of the greatest service to your business. Mapping out the future is a good way of working out your most pressing needs but it will also give banks a good overview of your enterprise. “The first place to start is always your business plan,” says Martyn Kendrick, north-west area director for SME banking at Lloyds Bank Commercial Banking. “This will enable you to plan strategically for your future needs, and will be essential in securing any growth funding or lending packages you may need in the future.”

“Even if you do not need to borrow from your bank from the outset, you may anticipate needing a loan or overdraft over the next few years,” adds Amanda Murphy, head of business banking at HSBC. “It is important to consider the financing options and lending services available from the different banks.”

Check the chemistry 

You have to feel a certain affinity with an organisation that’s going to be keeping your money safe and secure. If there’s no discernible connection there, it’s probably best to look elsewhere. “The bank and the account manager need to understand your business and what your goals are,” says Adam Ludwin, chief visionary officer at Captify, the ad-tech company. “If this isn’t agreed and understood upfront you might find that you both have different ideas of how to further the business and that makes accessing finance harder. For Captify, it was agreed that the business needed to work with a bank that was used to working with fast-growing businesses.”

And of course, familiarity can often breed contentment for an entrepreneur. “Around 70% of new business start-ups choose the same bank and branch that they use for their personal banking,” explains Murphy. “This is unsurprising given that a bank will already know the existing customer, and vice versa.”

What’s the damage?

As with a lot of business decisions – especially for start-ups – a choice of bank may eventually come down to price. Entrepreneurs should therefore make sure that are well-versed on how much they can expect to cough up in charges and fees for each bank. “A start-up will always have to manage a fine line on their cashflow so it’s essential that a bank is transparent about their overdraft allowances, along with the fees that might be incurred should the overdraft be exceeded,” says Ludwin. “In the initial first six months to a year the amount of payments fluctuate massively, due to set-up fees and payment from initial clients.”

“Many banks will offer you bundles with a variety of services,” adds Sophie Chandauka, head of asset financing at Virgin Money Group. “Quite often, the bundles encompass everything you could ever want. However, it is important to be clear about what your business really needs before you pay unnecessary fees.”

Size matters

Your choice of bank will also depend on the scope and ambition of your enterprise. Suffice to say, there’s something for everyone. “Significant national and international banks will generally have branches across the country, which is particularly useful for mobile businesses,” explains Chandauka. “They are also more likely to provide you with a one-stop shop – current account, commercial loan, insurance, savings products, online access, innovative technologies and other kinds of specialised services.

“Regional banks are attractive to small businesses that operate within a specified geography,” Chandauka continues. “Typically, they offer a more personal level of service, good customer care scores, and lower fees if you require simple products. Banks that offer most of their business products and services online, generally offer ease of access and internet banking services without high fees. However, the level of personal engagement may not be desirable, particularly for early stage businesses where being able to get some commercial banking advice is important.”

Test their industry knowledge

Some banks will have considerably more experience dealing with businesses from specific sectors. Therefore, it’s worth probing them about the sorts of enterprises they’ve dealt with before and checking that their knowledge of your particular industry is as sound as a pound. “Economic changes over the last few years have seen many lenders re-evaluate which sectors they operate in but having a bank manager who understands your industry and who has other customers trading in the same sector can be immensely helpful,” says Kendrick. “They will be well aware of current trends and the professional support available to similar firms to yours, such as trade bodies or business mentoring groups.” 

Ludwin can certainly speak from experience in this regard. “Particularly with high-tech businesses, many banks have very little knowledge or experience,” he says. “It’s advisable to ask about the bank’s experience and what other businesses they have worked with previously to ensure that they are a good fit with the company.” 

Adam Pescod
Adam Pescod

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