Should your business switch to a new current account?

The current-account market has plenty to offer small businesses. Don't be afraid to switch, says David Prosser.

934_MW_P30_Small-Bus
Metro Bank has won plaudits for its business banking

The current-account market has plenty to offer small businesses.

There has never been a better time to switch business current-account provider. Competition between banks targeting small and medium-sized enterprises (SMEs) has never been this intense and not just among the digitalnew entrants we hear somuch about.

Like most individuals, SMEs have often been deterred from switching because of the perceived hassle, or because they assumed other products aren't sufficiently different or compelling. As far as the first problem is concerned, however, businesses with an annual turnover of up to £6.5m and fewer than 50 employees are now covered by the Current Account Switching Service. This scheme counts all the major British banks among its members and guarantees a trouble-free current-account switch completed within seven working days, with compensation if something does go wrong.

On the second count, there are also now some really compelling products on the market. For SMEs looking for a high-tech service, digital players offer an innovative approach. New entrants such as Tide and Cashplus make it much quicker to open new accounts than traditional banks and offer a superior range of mobile and web-based services. Monzo, one of the UK's best-known digital banking brands, is starting to develop a business account.

However, other types of challengers offer alternatives. Specialist SME-orientated banks such as Aldermore have targeted the SME sector with products designed specifically for its needs, rather than trying to tweak their consumer accounts. Metro Bank and Shawbrook Bank new brands serving both sides of the market have won plaudits for their business products.

Don't rule out older names

This range of choice underlines an argument that SMEs haven't always appreciated: there's more to choosing a bank than simply comparing headline interest rates. In this context, the independent Business Banking Insight is a good place to start for SMEs contemplating changing account. It ranks small-business banking services according to the ratings given to them by other business customers, based on a broad range of criteria.

SMEs' costs go up

The FSB's research focused on taxes, business rates, employee obligations and other government levies, recording a 15% increase in annual costs for the typical small business over thepast eight years. But in April new rules on pension contributions, along with a higher minimum wage, will add to the burden.

On pensions, the minimum contribution rates are increasing in the auto-enrolment system, which requires all employers to set up and pay into a pension scheme for their staff. From6 April, employers will have to pay 3% of salary into the pension funds of staff, up from 2% now.

As for the minimum wage, the minimum hourly rate for staff over the age of 25 increases to £8.21 on 6 April, up from £7.83 today. The increase, at just under 5%, is more than twice the current rate of inflation.

Many businesses will support the principle of more generous pay and pensions for employees, but the ever-rising cost burden will put them under considerable and in some cases, intolerable strain.

Recommended

Small business: how to chase late-paying customers
Small business

Small business: how to chase late-paying customers

Many small business have trouble getting their customers to pay up on time. Here's what you can do about it.
23 Jan 2020
The pros and cons of the government's new Kickstart jobs scheme
Small business

The pros and cons of the government's new Kickstart jobs scheme

The government’s new work placement scheme, which provides funding for employers to offer work placements to young people, is appealing. But the red t…
11 Sep 2020
The cost to small businesses of the return to the office
Small business

The cost to small businesses of the return to the office

The costs of employees returning to the office may be tough for some small businesses to swallow, and there is financial support for back-to-work cost…
11 Sep 2020
Government opens up second round of help for the self-employed
Small business

Government opens up second round of help for the self-employed

The second round of the government’s SEISS scheme, which offers grants of up to £6,750 to self-employed people, is now open. Applications will be acc…
28 Aug 2020

Most Popular

Oil producers are back at their Covid-19 lows – is it time to buy?
Oil

Oil producers are back at their Covid-19 lows – is it time to buy?

With demand for oil hammered by Covid-19 and talk of “peak oil demand”, there are lots of good reasons to be bearish on oil producers. So, asks John S…
22 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020