Research conducted by the Current Account Switch Service (CASS) and Small Business has revealed that 20 per cent of small business owners are still using their personal account for their business banking.
Though it may seem more convenient to bank with your personal current account, you could be putting yourself at a disadvantage. Here, we outline some benefits of having a business bank account.
While your personal account may be cheaper, you won’t be able to carry out some vital business functions in place to support small business owners. For instance, you won’t be able to cash cheques made to your account as they’ll need to be in your company’s name. It will also be easier to manage your expenses and complete your tax return if you are using separate accounts.
Greater protection for you and your business
Having a business bank account is a means of protecting your identity as the account will be under your business’ name. As the number of transactions you make will likely be higher than on your personal account, you’ll need greater security. Banks tend to have information in place to warn business banking customers of potential scams, as well as security systems that can help you spot scams.
It keeps you safe too – if one of your accounts gets hacked, the other is more likely to still be safe.
You can compare your options on Nerdwallet here.
A better relationship with your bank
Having a business account will help you build a better relationship with your bank. You may have a business banking manager as part of your account. They can also give you advice to help drive business growth and efficiencies. As your business evolves, you may need to seek other financial assistance from them at a later stage so it’s a good idea to get acquainted with them early on.
In some cases, your bank won’t let you use your personal account for business transactions, even if you’re a sole trader. If your bank catches on that you’re using your personal account for business, they may close your account – and sever any kind of relationship that you previously had.
Build a credit rating for your business
Speaking of applying for credit, having a dedicated business account is a way of building a credit rating for your business. This can better your likelihood of securing a loan if you need one. Just make sure you manage your business account well.
Of course, you were expecting this one. Business bank accounts offer freebies and perks which could be useful for your operation, such as free accounting software or a card reader. Some give you a free banking period too, say 12 or 18 months.
I’m not sure which type of account I use
Rather worryingly, two per cent of survey respondents weren’t sure what type of account they had. If you’re not sure, check your online banking – it should tell you, even if it’s purely based on the name of account you have. If that doesn’t confirm it, contact your bank.
At this point it’s worth mentioning that there can be perks to having your personal and business accounts with the same bank. You may be entitled to discounts and other perks if you have both accounts with one provider – you’re depositing more money with them, after all. It does feed into a couple of the reasons mentioned above, such as building a stronger relationship, which in turn can help with moves like taking out a loan later down the line.
For those who are not happy with the account that they have, business or personal, it’s easy to switch through the Current Account Switch Service. You just need to allow at least seven working days. You can even pick a date which is convenient for you to switch. Speak to your new bank in the first instance to discuss your circumstances and switch options or find out more at the Current Account Switch Service. Your new bank will handle most of the work.
Jo Ainsley, Senior Service Lines Manager, Pay.UK said: “When starting and running a small business, there are many different factors to consider from employees to products and customer service. Ensuring you are with the correct business current account provider can help to tick off one of the things to think about.
“There remains a high number of SMEs that continue to use personal current accounts for business banking who could be missing out on key benefits and support. We know that SMEs have been hugely impacted over the last few years and so, as they move towards a new period of recovery and growth, ensuring they are with the correct business account provider is more important than ever.”
If you want to see all your options easily in one place, you can easily compare business bank accounts with Nerdwallet now.