GrowthBusiness.co.uk: Your gateway to entrepreneurial success

Business banking is a fiercely competitive market these days, with financial institutions fighting it out for a share of the sector. As a result, high street banks now offer added-value services that were once the sole preserve of blue-chip clients to small and medium-sized enterprises.

Gone are the days when business bank accounts were just somewhere to stash your cash ready for writing company cheques. Additional services that were cutting edge extras available for corporations five years ago are today routinely offered to smaller businesses. Until recently, for instance, only companies with sales of over £10 million could use invoice discounting. Today, the bar is dramatically lower at £2 million and even new ventures on a start-up turnover of £250,000 might be considered.

Thanks to the power and transparency of financial planning tools, potential credit risks are becoming easier to spot – and to price. Cash holes can be identified well in advance and short-term loans at punitive rates of interest can be avoided. In fact, to take a small company through the ups and downs of its particular business cycle, banks will now fashion a sophisticated combination of services.

Behind these facilities lies the power of online banking portals, which allow smaller companies to manage their financial affairs in real time. As well as checking their balances, they can pour information from their accounts into the latest projections in their business plans or check a forward exchange rate while negotiating with suppliers on the other side of the world. Many of these online transactions are already being offered on a low-cost basis.

Free banking
John Brooks is happily stepping into the gap identified by the competition authorities for low-cost banking for smaller companies. As head of business banking at Abbey, he offers permanent free banking to companies that typically write less than 150 cheques a month and pay in fewer than 20 deposits.

He can afford to do it because as a late entrant to the SME market, he has no legacy issues. ‘We are able to build a financial model for the future, rather than allowing the past to shape us.’

He admits it is a ‘pretty basic banking service’, but he has won over 150,000 small companies so far, amounting to a market share of three or four per cent.

Others are not far behind. Switch to Lloyds TSB, for instance, and companies with sales of up to £2 million can bank for free for six months. ‘But if they organise themselves, they can extend free banking forever,’ says Stephen Pegge, the bank’s head of communications for business banking. ‘We have just introduced an electronic business tariff, offering free online transactions.’

Modern relationships
Relationships still matter in banking. Choose the wrong facility through missing out on crucial advice and you can end up paying over the odds – or running out of cash.
At Lloyds TSB, where 90 per cent of credit decisions are taken locally, the emphasis is for SMEs to have someone to bounce ideas off. ‘We have sophisticated account information on our systems, identifying where trends might be taking a company,’ says Pegge, ‘so we can ensure we have the right level of facilities in place to anticipate future needs.’

Instead of paying £10 or £50 a month for this kind of relationship, smaller companies now pay an account maintenance charge of £3.00 a month.

At Barclays, targets for managers to sell products like company credit cards have been dropped, so they concentrate on increasing value for customers. ‘It is an approach that is paying dividends for both us and our customers,’ says Brendan Horgan, the bank’s commercial director for medium business banking.