This article is aimed at reducing the odds of rejection when applying for a business bank account, and offering alternatives to for those that can't open a traditional business account
For those that don't have time to read through the whole article, we've listed our top business bank accounts for would-be business owners with bad or poor credit histories below:
Top business bank accounts – no credit checks:
The top card based business accounts for those with bad credit or who need an account opened ASAP.
- Cashplus Business Account – No up front fees, instant sort code and account number, low annual fee
- CardOneMoney Account – Guaranteed acceptance, account open within 24 hours
- Acorn Account – Small Business Account, regardless of credit history
Top traditional business bank accounts:
The top three traditional business bank accounts for those with poor credit histories.
- Barclays Business Account – best if you have a Barclays current account
- NatWest foundation business account – see below of more details
- Santander start-up business account – Good value account, but terrible app
Millions of people in the UK suffer from a bad credit history. Whether that's from defaults, County Court orders, or bankruptcies. In some instances they might not even be to blame for the initial debt. Think couples with joint finances, or students renting a shared house.
The affects of a poor credit history on your personal life are well known. Difficulty in obtaining loans, credit cards, or mortgages at a decent rate, or even being accepted for credit at all. But at least there are a number of ‘Basic Bank Accounts‘ that will allow you to make deposits and withdraws and even use a debt card.
What if you are self-employed and need a bank account for your business? If you're a sole trader with extremely limited activity, you might be able to use your personal bank account for very basic transactions, but if expect to do a decent trade, or you're setting up a limited liability company (LTD) or limited liability partnership (LLP), you will likely need a dedicated business bank account.
Despite limited liability companies, and partnerships being separate legal entities to that of their owners, or directors, both high-street and on-line banks require the director(s) to pass a personal check before an account for the business can be opened. For those with a bad credit history, that can often lead to rejection, as many would-be business owners have found out.
Unfortunately there's no such thing as a basic business bank account, but there is action you can take to help tip the odds of acceptance in your favour.
With that in mind, we've created this guide to help you open a business bank account even with a bad credit history.
1. Create a solid business plan
Many of the traditional high street banks are stuck in the past, and opening a business account means setting an appointment with a ‘business advisor'. Creating a solid business plan is a sure way to show these advisers that you are serious about your new venture and have a good understanding of the financials. You don't have to be a Cambridge MBA to create a decent business plan nor does it have to be a mammoth document; you can get advice and support from Business Link (now part of gov.uk), as well sample business plans. The most important aspect here is to base your plan around solid financial forecasts and projects giving both you and your new bank an idea of the business' potential.
2. Check your credit report history
You'd be surprised by the amount of people who apply for big-ticket financial products, like a loan or mortgage, without first checking their reported credit history. If you are one of these people, stop now.
You need to get hold of your credit report. It will flag up any potential issues in your credit history and allow you to get them sorted out before applying for your business bank account. It could literally be the difference between acceptance and rejection. Not only that, but checking your report is free with Noddle, and Clear Score.
In the case of Experian's Credit Expert, and Equifax you can even get paid to check your report by taking advantage of special offers through cashback websites like Quidco (you'll get £2 for signup via his link) or Top Cashback.
What should you be looking for?
Check your file for any County Court Judgements (CCJs), Bankruptcies, and defaults. Make sure all the basics are correct, your current and previous addresses, name, date of birth, and financial accounts. If you notice anything that seems wrong or out of place such as outstanding debts that you've long since cleared, or misspellings in you name or addresses, contact the agency and get the information corrected. It is also worth find out exactly how your address is listed on the report and ensure you copy that format when you apply for an account, as even slight discrepancies can trip up your application.
If you are currently in a dispute with a company over a debt, you can place a notice of correction on your file. This will force new lenders to personally look over your file to see what you have written, rather than the process being an automatic “computer says no” affair. It will make the application process take a little longer but at least you get to explain yourself.
3. Get on the electoral role
Next check to make sure that you are listed on the Electoral Roll at your current address. This is extremely important, as not being registered will make it nearly impossible to open a business bank account. If you are not registered, make sure you register by clicking here. Do this as early as possible as the register is only up dated twice yearly (Spring/Autumn) and it can take credit referencing agencies up to two months to update their records once the register is published.
Tip: Unless you want to be inundated with junk mail make sure you don't sign up for the ‘edited, or open' register. This is the one is open to companies for marketing purposes.
4. Register with HMRC
Current tax rules mean that you must register with HMRC within three months of trading. There can be reasons delaying this registration but we recommend registering before you apply for your business bank account.
It seems that some accounts now check this and will reject your application if you are not registered.
The actual registration process is straightforward, and can be done online via the gov.uk website. Register with HMRC.
Applying for a business bank account
If you have and outstanding balances on credit cards, store cards, or overdraft, it's best to clear these (if you can) at least three months before making your application. This helps because typically banks are wary about ‘lending' to those who might be overexposed financially. Yes, you may just want a simple business account, and have no intention of obtaining credit, but banks will be assessing your business' potential to make them money, and means loans, overdrafts, and credit cards.
Once you are satisfied that your credit report is order (as much as it can be), and you've got at least a basic business plan prepared complete with financial projections, you're ready to apply for a business a bank account.
Where to apply
Do you have defaults but no CCJs or Bankruptcies?
In this case it might be worth talking with your current personal bank about a new business account. If you have a basic current account with one of the main high-street banks, and you’ve run your account well then they should be your first port of call. Half of the work is already done. They have already verified your ID and address and will have a good idea of the risk you might pose. Barclays is known to be particularly accommodating if you are a current account customer, and a new account can usually be opened within 10 days.
To avoid an unnecessary credit check, arrange an appointment with one of their business advisers, explain your situation and ask for their opinion on the chances of you successfully opening an account. You might be asked some tough questions about your business, so make sure you know your stuff inside out.
Can't open an account with your existing bank or you have some CCJs?
If you have previous CCJs, and can't open a business bank account with your existing bank, the Natwest Foundation Current Account might be the one for you. The account is specifically designed for those with poor or bad credit histories looking to set up in business. Here's what they say:
If you're starting your first business and have no trading history, or if you have a poor credit history, our Foundation Account could be just what your business needs.
It provides straightforward, transaction-based business banking, giving you and your business time to establish a credit and trading record.
Natwest regularly change their website. Often information about the foundation account is missing, but their business account page recently stated:
If you don’t qualify for our startup Business Current Account package, for example if you have a poor credit history, we will talk to you about our Foundation Account when we receive your application.
There are no borrowing facilities available with a Foundation Account.
Update Apr 2017: Natwest Business confirm via Twitter that the Foundation Business Account is still available. For an application pack contact the New Accounts Team on 0800 206 1962
Can't use the Natwest Foundation account?
Despite specifically being aimed at those with a bad credit history, the Natwest/RBS Foundation account is only offered to those who fail a credit check for their main business accounts. Even then, it's not unknown to be turned down for this account, particularly if your adverse history is with any of the banks in the RBS group.
In this case your options in terms of the main highstreet banks are more limited. Though it has been known for people to be turned down by Natwest only to be readily accepted for the Santander Start-up Business Current Account, or the Clydesdale / Yorkshire Bank Business Account. Though for the latter you must not have been Bankrupt at any point, or have any current CCJs against you.
Digital challengers and app-based business ‘bank‘ accounts – A fast surefire alternative with no credit checks
If you need a business account in a hurry, then perhaps card-based accounts offer the best solution. These accounts have improved massively over the years and offer most, if not all of the features of a traditional bank account at a similar cost and are much faster to open.
Even if you don't intend to use a card-based account in the long term, in the short term, these accounts can be a life-saver, enabling you to get your business up and running with minimum delay. Once your business is earning money consistently you can then re-apply for a traditional bank account, and back up your application with proven financials to help your case.
These type of accounts are great for small cash handling businesses, contractors, freelancers, you name it. Everyone should be accepted for these accounts as there no credit check involved, but you will need to verify your identity.
The beauty of these accounts is that if you are rejected for one of them (and we can't think why you would be), then you can apply for the other without it affecting your credit record.
The top card based business accounts are summarised below:
Cashplus Business Account
Update: Cashplus has now applied for a Banking licence. If/when granted, it will become a fully fledged bank joining the likes of HSBC, Barclays, Santander etc… Applying now could be a good method of obtaining a full business bank account later on.
The CashPlus Business Account operates just like a regular business bank account, allowing you to send and receive cash in your business name, as well as use online banking and Mastercard debit facilities. There is a near 100% acceptance rate and no credit checks are required.
The drawback is that there is an annual charge of £69 to keep the account open, though this actually cheaper than traditional business banking, such as Santander at £7.50 per month (£90 for the year). Additionally, you won't be able to accept cheques, but that is likely to change once Cashplus gains its banking licence.
Here's what they say:
- Send and receive bank transfers and pay in cash for free
- Set up Direct Debits and Standing Orders for free
- The account will be in your business' name
- Register the account for Merchant Services & with HMRC
Cashplus account holders (and there's more than a million of them) can also use the Post Office to carry out ‘in branch' style transactions. The company's clients include government departments, and councils, as well as business of all kind. Cashplus has recently applied for a banking license, if granted, and there is every reason to believe it will be, Cashplus will become a fully fledge bank. That means it will be able to offer additional services, and perhaps even be able to reduce the costs of some transactions. Applying now, could be an easy way to get a full bank account without the hassle of going to major highstreet bank.
>> Apply directly for the CashPlus Business Account and get your account number and sort code immediately
The CardOneMoney alternative business account
The CardOneMoney account (formerly CardOneBanking) is similar to the Cashplus option, but it does allow you to deposit cheques, unlike the Cashplus account, and utilises Barclays branches as well the Post Office for other deposits and withdrawals.
Transaction fees are similar to the CashPlus option, though the CardOneMoney service fee is higher at £12.50 per month, but this can be off-set against tax as a business expense.
Crucially, this alternative business account allows you to easily accept international payments either electronically or as cheques, and of course there are no credit checks involved.
There is a £55 application fee, but this is refunded if you don't pass the identification process. CardOne tell us that the majority of accounts are opened within 24 hours.
Like the CardOneBanking account, Acorn is a card based account that allows customers to pay in cheques via Post Office, and Barclays branches. Giving it a distinct advantage over some of the other accounts listed in this section. There's a steep £65 activation fee, that combined with £12.50 a month service charge, gets you a working business current account, that not only accept cheques, but also international payments too.
In terms of trying to open an Acorn account with a poor credit history, their websites reads:
You can get a Acorn Account For Small Business Account, regardless of credit history. We don't carry out any credit checks.
There are some caveats around that, such as businesses or persons currently in or about to enter an insolvency event, but otherwise it looks good for those who've previously experienced financial troubles.
Fair Everywhere – Mutli-currency and international banking
Businesses needing regular access to international payments and multicurrency accounts may find their options are more limited. Yes, you can receive money from abroad via the options above, but it’s not all plain sailing.
In this instance the Fair Everywhere account from Fair FX is worth a look. It gives customers access to all the usual day-to-do day business banking, plus international money transfers in one current account with balances in Sterling, Euro and US Dollar. Exchange and transfer costs are claimed to be up to 60 per cent cheaper than the top 5 high street banks. Though it’s worth doing your own comparisons.
Application takes 5 minutes, and while there are the usual identity and anti-money laundering precautions, there shouldn’t be any hard credit checks. If all goes well, the account could be up and running in as little as 4 hours. The catch comes in the cover charge, which at the time of writing is hefty £50 per month.
Compared to the other options on our list, it’s certainly not the cheapest alternative, but it’s specialist nature could save business thousands in foreign exchange and transfer fees.
Try Tide – a new fintech start-up
If you're running a small business, and prepared to carry out all your transactions electronically only, then perhaps Tide might work for you. We have a full overview of the account here , but essentially, it's mobile app based account aimed at small to medium businesses.
It's still early days, and some commentators claim it isn't quite there yet, but it's worth keeping an eye on. Do be sure to check the comments section in our overview to get real world views from others.
The main selling point is that there's no annual or monthly fee, just a £1 charge for using the card in UK ATMs, and a 20p charge for all faster payments transactions. The drawback being that you can't pay in physical cash like you can with the Cashplus or CardOneBanking accounts, can't use cheques, nor can you accept international payments, but not everyone needs those features (at first).
Also take a look at our guide to the top business bank accounts for more banking solutions.
We want to hear your success stories. Share your thoughts and experiences on business bank accounts by leaving a comment below.