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You might be reasonably happy with the service you've received from your bank so far, but small business banking is a competitive market and, as with every type of supplier, it pays to shop around. For instance, are you paying too much for standard banking charges? Could you get a better rate of borrowing elsewhere?
Gone are the days when swapping banks was a complicated and prolonged process better avoided, under the instruction of the government it's now a very simple procedure and the banks are obliged to pass over your details within two weeks.
The 'big four' banks still dominate the small business market but alternative banks are becoming increasingly popular - but what's the difference? The following pages look at each type of bank, assessing the advantages and disadvantages of using each:
- The 'Big four'
- Other high street banks
- Smaller banks
Who are they?
Barclays, HSBC, Lloyds TSB and NatWest. These four banks hold over 80% of small business accounts.
What do they offer?
They will offer the full range of products. Bank transactions can be made either at your local branch, over the telephone or via the internet.
Where they distinguish themselves from other banks is the support that they offer their small business customers. Every customer is assigned a ‘relationship manager’. Usually based in the local branch, this person will be experienced in dealing with small businesses and will offer support and advice on general business issues as well as banking matters.
The banks often have a library of information on different industries and markets, which could be invaluable as you set up your business.
Banking with one of the ‘Big four’ will open up a range of funding options. From loans to leasing, your relationship manager will suggest which funding will suit you - and having built up a track record with the bank, you may be able to get favourable rates.
The bank may provide seminars or educational literature on various aspects of running your business. They often provide bookkeeping software (profit and loss accounts, cashflow forecasts) or sample business plans. And if you’re online, they all have a website offering information and services to customers.
Drawbacks
The ‘Big four’ have received a lot of criticism recently for their bank charges. Despite a big crackdown on dodgy small business accounts by the government - which stipulated that banks must offer interest on in-credit accounts or free banking or both - big banks still come under fire for profiting from their small business customers. When compared to smaller banks, they seem to charge for everything from paying in a cheque to making a direct debit payment.
You may also feel uncomfortable with accepting advice from a bank manager who is clearly not an independent advisor. But it is worth remembering, that, although a bank manager will be keen to recommend the bank’s own products, it is not in their interest to give advice that will harm their client’s business.
Who are they suited to?
Despite the criticisms, the fact is that most small businesses bank with one of the ‘Big four’, if for no other reason than convenience. Despite the emergence of internet and telephone banking, many people feel happier having a local branch as well, where they can pay in money and talk, face-to-face, with their manager. If you run a shop or restaurant, having a local branch will be invaluable since you’ll be making regular deposits.
These banks also have a wealth of information and experience, which could come in very useful as you are starting up, as well as the full package of funding options.
So if you need these services, it is probably best to bite the bullet with banking charges. Try to see them as a business cost, in the same way as electricity and the rent, and make efforts to reduce them.
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