Over half of all small businesses in the UK have never tried to open an account with a high street bank.
According to new research from payment solution specialist Advanced Payment Solutions, 60 per cent of small firms have shunned the UK’s biggest banks due to the complexities of doing business.
For those that have applied for a traditional business bank account, the research found that companies had to wait more than two weeks – 16 days – on average to gain approval.
Over 15 per cent of UK SMEs had to wait over 26 days before they were granted access to their business bank account, enabling payments to be made and received. Just six per cent were granted access on the day of application.
Advanced Payment Solutions said that with paperwork and extensive credit checks delaying, and in some cases eliminating, many UK small businesses from trading, it was “perhaps unsurprising that a third of SMEs believe that dealing with banking red tape makes operating a business a laborious task”.
Meanwhile, over one third, 39 per cent of small businesses in the UK, described interacting with their bank as a “necessary evil of operating a business”.
Rich Wagner, chief executive and founder of APS, said that for self-employed workers or small business owners looking to open a business bank account, it was not just the time delay that is proving to be a challenge.
He said fees and charges mean that small businesses are paying an average of £468 a year to hold a business bank account with a high street bank – the equivalent of £39 per month.
Such charges lead 31 per cent of small business owners to believe that their bank “actively seeks ways to sneak in fines and fees that they do not understand”. As a result, the survey said, 16 per cent of small business owners admit that they do not know how much they are being charged to run their business bank account each month.
Wagner said that gaining access to credit, including overdrafts and loans, also emerged as a key difficulty small businesses struggle to overcome when operating with high street banks. Less than a quarter of self-employed workers and small business owners in the UK have been granted access to the full amount of credit they requested from their bank. Less than half said that their credit overdraft facility is “fully meeting their business’ needs”.
“It’s worrying to see that UK SMEs are finding it so difficult to gain access to a basic high street business bank account. The laborious credit checks and paperwork that SMEs must endure are an unnecessary hurdle, and is more to do with banks ensuring that their new small business customers will be profitable for them, than a risk assessment tool. This highlights that banks are not always best placed to serve the needs of the smallest business customers,” Wagner said.
“There’s no getting around the fact that you have to have a bank account to make and receive business payments. It is likely that a good portion of the 65 per cent who say they do not hold a traditional business account have been declined, and are therefore being forced to rely on risky alternatives such as cash or personal bank accounts, putting their own credit scores on the line for the sake of their business.”
Simon McVicker, director of policy and external affairs at the Association of Independent Professionals and the Self-Employed, added: “It’s hugely important that all businesses, including the self-employed, have access to a business bank account. If the facility isn’t available to them, independent professionals may have no choice but to merge their personal and business incomes. This can result in mismanagement of funds and create significant financial problems in the future. Banks should support these micro businesses by streamlining the process of opening a business account to make it as clear and simple as possible.”
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