Business Banking: Banks in the balance

Banks are falling over themselves to do business with SMEs. But with so many packages on offer, how does a business know which to go for? Steve Hughes examines the options

Choosing the right banking partner for a small or medium-sized business can be a daunting task. With so many options on the high street alone, it can be difficult to know where to begin, and it's vital to shop around.

Andy Brenan, director of the British Bankers' Association (BBA) says that businesses should be sure of their priorities before going in search of a bank. 'Decide what is important to you,' he says. 'Sometimes that may be an overdraft that is renewable on demand, perhaps free banking for the first year, easily accessible accounts or even something as simple as a local branch that allows regular personal contact. But always ensure that you'll be entering into a stable relationship.'

Mike Stevens, chief operating officer of restructuring at KPMG, concurs, believing it is crucial both when a business chooses a bank, and when it has an existing account, to understand the facilities that are available: 'It is imperative, especially in this economic climate, to understand your terms. If you have a renewable overdraft facility, or there is one on offer, remember that the bank doesn't have to renew it. All too often businesses forget this. And telling your bank manager where to stuff his overdraft fee probably isn't the best option!'

Adrian Piper, director of investment at the government's Small Business Service, claims the most important thing to look for in a bank is advisers that the business is comfortable working with: 'While you won't find too many bad banks, you might find bad advisers'. He advises trawling through bank websites, business publications and even visiting local branches. 'Basically, do your homework. Banks, like any other business, will have different offers on at any particular time. Be especially aware if you're a business start-up, because many banks offer free banking for the first year or two.'

Stevens also advises that businesses constantly keep their bank managers in the picture: 'It is important to have a good relationship with the bank you have chosen and to do this you must keep your bank informed - an unwelcome surprise is a death wish to a good relationship.' Nor should a business chop and change banks: 'It's a question of sticking with who knows you, rather than who you know.'

First port of call

A good place to start is at the BBA's website (, which provides information to help understand all the banking considerations companies may face in starting up and running the business. It also provides a range of other relevant information and contacts, from start-up to selling and closing down.

And thanks to the BBA, more help is on the way. From March 2002, after consultation with organisations representing small businesses, government, the Bank of England and the banking ombudsman, the BBA is to introduce a new code of practice for banks' small-business customers. The code is to focus on helping small businesses to choose banking products and services, understand interest and charges, account transfers, managing accounts, confidentiality and handling difficulties and complaints. The Banking Code Standards Board (BCSB) will oversee it.

But in the meantime, the BBA, in association with Business Moneyfacts, is filling the gap by providing a service that enables any small business to gather a wealth of information on business bank accounts from one central source. The Business Account Finder, which Brenan champions as 'an excellent move towards transparency in the world of banking', provides a facility to build tailored account comparison tables to suit particular circumstances. It also offers the option to view a full breakdown of any account listed, including the latest account charges, interest rates payable, borrowing rates and services that are available with the account, among other things (see panel). However, the banks themselves are only too willing to help answer any questions that a prospective customer might have, and comparing what the high-street banks have on offer is a sound starting point.

The main players

Where better to begin than with NatWest, the bank that for the ninth year running has been voted 'leading bank for small businesses' by business advisers in the latest NOP Financial Opinion Formers Survey, April 2001? In a nutshell, NatWest was voted the bank with the best understanding of the needs of new businesses, the keenest to help businesses grow, keenest to help businesses get started, as offering the best information and support, and having staff with the best small business expertise.

NatWest's support to smaller businesses (up to £1m turnover a year) is based around free local face-to-face advice with business managers; guaranteed business overdrafts that are not repayable on demand; a business manager for every business customer in place for four years; 'giving a business time to build a relationship and understanding'; free business service reviews; free banking to start-up businesses for up to 18 months; and free award-winning business planning and book-keeping software.

HSBC offers small businesses an equally large array of products and services. These include a current account, an instant access savings account, a 14-day notice savings account, a business charge card, a 'small business loan package', a debit card, a commercial mortgage, electronic banking, business insurance, asset finance, euro services, foreign currency accounts and international payments.

Going one step further, in December 1998 HSBC established the first Chair of Innovation at Brunel University. Professor Clive Butler, the current occupant, provides free appraisals on business proposals, together with guidance on commercial viability. He is also training the bank's managers in issues faced by hi-tech firms so they are better placed to provide guidance at branch level. To date, more than 200 managers have attended the course.

HSBC now has a dozen specialist technology banking managers placed strategically around the country to assist technology and science based businesses. The managers support hitech business as well as liaising with universities, venture capital firms, business angels and business incubators.

Lloyds TSB, similarly, offers a number of services; they include current accounts, electronic banking, easily arranged overdrafts and loans with varying terms to suit a business's particular circumstances. The bank claims to have helped 100,000 businesses start up last year, and its main selling point seems to be the tailored service it offers, to fit in with each business's specific needs. A business can choose the type of service it receives and what form its relationship with Lloyds TSB takes. The emphasis is on the amount of control that the the customer has.

Completing the line-up of the four main banks is Barclays, which emphasises the ' relationship element' of its banking and says that its customers believe its managers understand their business needs better than anyone else. This is supported by a survey that the Forum of Private Business carried out at the beginning of the year: members voted Barclays the best bank for quality relationships.

The Barclays Business Account can provide customers with, among other things, a highinterest business account, Barclays Business Loans that can be used to buy assets, or flexible business loans available for capital projects, training or working capital. Barclays also offers a loan guarantee scheme for businesses lacking security or a track record, whereby the government guarantees a proportion of each loan made under the scheme along with the usual business relationship managers, telephone banking, commercial mortgages and the like.

Finally, the Bank of Scotland is equally willing to bank for SMEs, and recently merged with Halifax to form HBOS, partly in an attempt to capture a larger share of the SME market. Currently, the four main players control 90% of the market. HBOS offers 'free business banking forever'. Basically, this means that provided businesses maintain a minimum balance of £5,000 and issue 100 cheques or fewer each month, they won't be charged for any cheques. Also, standing orders and direct debits are free whatever the balance. The standard 'dedicated relationship managers' are provided between 8am and 6.30pm to answer questions and queries, there's free telephone, PC and internet banking, a fee-free business Visa card for the first 12 months and an overdraft without initial, or annual, fees. However, businesses will still be liable to pay if they use the facility.

HBOS is joined in its attack on the big four's dominance of the SME market by Abbey National and Alliance & Leicester, so there are likely to be increasingly attractive offers from all the business banking suppliers as competition intensifies. Thus, now more than ever, as Piper advises, 'it's critical that businesses do their homework when choosing a bank. Speak to the banks to see what's on offer, and be sure to understand the terms that you're signing up to.'

Keep your eyes peeled

But while a business decides who to give its custom to, it should keep its eyes peeled for possible action by the Department of Trade and Industry in the light of the Competition Commission's monopoly inquiry into the clearing banks' supply of banking services to SMEs. The inquiry follows an independent investigation of banking services in the UK, set up by the government in November 1998, and led by Don Cruickshank, now chairman of the London Stock Exchange. It looked at the level of innovation, competition, and efficiency in the industry and how well it serves the needs of business, other consumers and the UK economy.

The CC's own report was handed to the DTI on 19 October, and the latter is expected to make the findings public shortly. The CC has already floated a few 'possible remedies' should it conclude that banks are operating against the public interest. One would be a tax on past or current 'excess profits' and/or a tax or licence fee to reduce 'prospective high profits', that could be spent in ways to assist competition in the banking sector, bring prices down and encourage new entrants to the small business banking market.

Brenan says that he's looking forward to seeing the inquiry's outcome, but assures businesses that banks are not operating against SMEs' interests: 'Banks are interested in healthy SMEs as customers; to act against the interests of SMEs would jeopardise their own customer base.'

For more information, SMEs and their advisers should contact the banks themselves or organisations that support small businesses, such as the British Chambers of Commerce (, Business Link (, or Training & Enterprise Councils (

By way of introduction

Abbey National - 0845 300 3040 Business: Free banking for first 12 months

Alliance & Leicester Business Banking - 0800 587 0800 Business Current Account: Monthly fee of £25 for two years for accounts opened before 01/01/02

Barclays Bank - via local branch Small Business: New start-up businesses with turnover up to £100k receive 18 months' free banking if a personal account is opened or maintained. Twelve months' free banking available for other start-up businesses with a turnover of up to £100k

HSBC - via local branch Small Business: New businesses receive up to 24 months' free banking

Laiki Bank - 020 8492 2131 Ambitious: Twelve months' free banking if debit turnover is under £1m

Lloyds TSB - 0800 056 0056 Business Extra: New start-up businesses with turnover up to £1m receive free banking in Year 1, 50% discount in Year 2 and 25% in Year 3

NatWest Bank - 0800 028 2677 Smaller Business and Standard: New start-up businesses with turnover up to £1m receive 18 months' free banking if a personal account is opened or maintained. Twelve months' free banking available for all other start-up businesses

NatWest Direct Business Banking - 0800 028 2677 Smaller Business and Standard: New start-up businesses with turnover up to £1m receive 18 months' free banking if a personal account is opened or maintained. Twelve months' free banking available for all other start-up businesses

Northern Bank - 028 9024 5277 Business: Up to 12 months' free banking for new business start-ups meeting certain criteria, free business planner and software, registration for 24-hour telephone banking, free Telebank business software demo disk and financial health check

Royal Bank of Scotland - 0800 783 9777 Business Banking Direct: Free banking until 01/01/03 for new applications received by 31/12/01

Royal Bank of Scotland - via local branch Business Current: Up to 12 months' free banking for business start-ups under approved start-up schemes. Eighteen months' free banking for small consultancy firms that open/transfer business and personal accounts, 12 months for opening/transferring business account

Ulster Bank - 028 9027 6017 Current - non-personal: Twelve months' free banking for start-up businesses with turnover up to £100k

Yorkshire Bank - 0845 703 4567 Business Tariff and Small Business: Up to 24 months' free banking for business start-ups with a maximum turnover of £1m if an approved training course is completed, otherwise 12 months' free banking

From the Business Account Finder by the BBA in association with Business Moneyfacts
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