Finding the right bank for your business is always time-consuming and, given all the competition for your custom, can be confusing and stressful. So how do you separate the gimmicks from the must-haves? Do you trudge the high street for local, on-the-ground support? Or do you search the internet in the hope of a deal that, give or take, ticks all the right boxes?

According to Yvette Coles, a finance adviser from Business Link, most entrepreneurs need local banks that really understand their business. “My view is that most banks offer pretty much the same sort of services and widgets,” she says. “What should be most important is good quality advice and guidance from your bank manager, as well as being able to make use of their networking capabilities.

“If you are dealing with a bank in Edinburgh and you‘re based in Devon, for example, then they probably have no idea about the trading challenges or struggles in your part of the world,” she adds. “So it‘s important that your bank has a local, physical presence.”

Another alternative is to save your feet and fingers completely by sticking with the bank where you have your personal account, suggests Stewart Dickey, a director at the British Banking Association. If you don‘t need to borrow money immediately, he says, you have probably already built up a solid credit history. “They can look at that immediately,” he says. “There‘s no need for extra paperwork or references.”

The market for start-up business banking is pretty competitive, says Dickey, because banks know that later on, as your business expands, there‘s more opportunity to sell other products and services, with fatter margins. “It‘s quite similar to the market for student bank accounts,” he suggests. “There are a lot of free offers so it is worth looking around, and not just at the big four.”

Shopping around
When Tony Cross started out with his Banbury-based communications agency Monk Communications, his priority was to keep fees low. Yet none of the four major banks – Barclays, HSBC, Lloyds TSB and Royal Bank of Scotland – offered genuinely free banking at the time. “Some of the banks were offering free banking for six months,” he says.

“But then I spent more time on the internet researching it and came across Abbey. I opened an account with them in December 2003 and since then I‘ve paid absolutely nothing in charges and have had no problems with their service,” he adds. “Some of the big names even told me that no bank would provide free business banking for more than six to 12 months, which wasn‘t true.”

Cross wasn‘t that interested in having a local Abbey branch near him. When he needs pay a cheque in, he drops it in the post. “The vast majority of my banking is done online anyway,” he says. Most banks do offer online business bank accounts, which can be a boon when you need to switch money around fast at the end of the month for payroll. But do check for monthly fees and response times to emails before signing any contract.

In any case, the banking landscape could be about to change still further, following a recent ruling made by the Competition Commission that abandoned restrictions imposed on the so-called big four banks in 2002, in a bid to break up the virtual monopoly they enjoyed over the small business market. If the ruling is later implemented after a consultation period, those banks will no longer need to either pay a minimum 2.5% interest below the Bank of England base rate on deposit accounts, or to offer free business banking.

The Federation of Small Businesses admits the four banks‘ stranglehold on the market has lessened since the restrictions were introduced but has urged the Competition Commission to keep the price controls in place until at least 2010. “It is very worrying that small businesses now face the real prospect of their banking services deteriorating further,” says the group‘s financial affairs chairman Mike Cherry. “Small businesses cannot afford to see the banks being let off the hook. Some welcome progress has been made but there is a long way to go yet.”

Charged issue
Bank charges, of course, are a real bugbear when you‘re first starting up. ’Free‘ banking, you are warned, always has its limits, ending when you overstep your overdraft or, once a year, when you have your overdraft extended, or even if you carry an unusually high level of transaction volumes.

The view of Steve Jennings, director of business banking at Alliance & Leicester Commercial Bank, is that start-ups often aim for low running costs. “We provide two free business accounts,” he says. “We offer free banking with our business builder account for the first two years, specifically targeted at start-up companies who will turn over less than £500,000 in the first two years. After that time your account is automatically transferred to our regular free business current account with no day-to-day charges on normal transactions. Young businesses often deal a lot in cash, so we say the first monthly £4,000 worth of cash deposits is free and then they pay 23p in every £100 after that.”

According to Neil Tomlinson, head of business-to-business financial services at accountancy firm Deloitte, there could be other options to consider when looking for the best deal. “Do you want to keep all your business and personal banking in one place, which may make it easier for a bank to make lending decisions?” he asks.

“Or do you cherrypick the best value bank accounts, business savings vehicles, asset finance and other products from different providers? If a relationship with a dedicated business banker is important, find out which banks offer a conveniently contactable relationship manager. If it‘s industry expertise and knowledge you need, consider a bank offering sector specialists, for example in areas like agriculture or technology.”

Finding the right account, then, isn‘t straightforward by any means. And it‘s easy to be distracted by teaser offers that run for a while before petering out. If your banking relationship isn‘t right, of course, the hassle of switching to another partner can be huge, although it‘s likely to be worth your while in the long run.

Business Link‘s Coles stresses that most people who have set up their own business need a bank that really knows what they‘re about from the very start. “One of the most stressful issues when running a business is having a bank that doesn‘t understand you,” she says. “If you have an overdraft facility of £10,000 and you need to go beyond that, you don‘t want them to suddenly start bouncing cheques and charging you extra. Most banks will accommodate you, provided they know you.”