Money Matters

How to choose the right banking partner for your small business

In light of the upcoming exit of Ulster Bank and KBC Bank, here's how you should go about choosing a banking partner for your small business.

So far, 2021 hasn’t been a good year for banking competitiveness in Ireland.

Ulster Bank announced in January that it’s pulling out and then in April, KBC Bank announced it’s in talks with Bank of Ireland about offloading its performing loans and deposits.

On top of this, Bank of Ireland is closing a further 88 branches and has formed an agreement with An Post to enable the post office to carry out its transactions.

But, of course, An Post is also under pressure to cut down on its number of post offices.

This is not good news for Irish businesses.

Ireland already had one of the highest costs of mortgages and business loans in Europe and the exit of Ulster Bank and KBC Bank will put further pressure on these costs.

Of course, what this effectively means is that thousands of businesses across Ireland will have to change bank.

While this won’t happen overnight and will probably not happen for several years, you, as a small business owner, should start thinking about the implications now.

Though changing banks may not be such a big deal for large businesses, as banks usually greet them with opens arms, it can be trickier for smaller businesses.

And this is at a time when many small businesses have depleted balance sheets, due to the coronavirus pandemic.

When choosing between banks, your business has different needs and priorities than its larger counterparts. So, you need to take this into account as you search for the best bank for your business.

With this in mind, we spoke to Daragh Cassidy, who is head of communications at Irish comparison website, about what businesses should consider before choosing their new banking partner.

Here’s what this article covers:

Check the fees and services

Should you be loyal to one bank?

Be proactive in building a personal relationship

Bank versus credit union?

Could you choose a bank in another EU country?

How to overcome the negative financial impact of coronavirus

Finally, do your research

“Fees are the main thing to consider,” says Cassidy. “Doing business these days is costly enough and you don’t want to overpay on your banking.

“Things like ATM withdrawal fees, lodgement fees, cash handling fees, direct debit and standing order charges, and overdraft rates all need to be considered.”

He also reiterates that you need to find the right bank for your business.

For instance, If you have a cash-heavy business, then choosing a bank with a branch close by might be something to consider.

On the other hand, if your business deals with the UK or US markets, then foreign exchange fees should also be considered and these can vary wildly between banks and can really add up.

But it’s not just about fees – it’s also the range of services available.

Cassidy says: “Online services are also a key consideration. What’s the app like? What transactions does your bank allow you to carry out online?

“Does it offer mobile payments like Apple Pay and Google Pay – or are these even important to you?”

Lastly, Cassidy points out speed of payments might also be important for your business. For example, does the bank support instant SEPA (Single Euro Payment Area) payments?

At the moment, very few providers in Ireland provide this, with online bank Revolut being the first mainstream provider to announce in August 2020 that it would begin offering instant bank transfers.

For the most part, the answer is no. You should not look at your bank as a one-stop-shop for all your financial needs.

Cassidy says: “Some SMEs [small and medium-sized enterprises] might feel it’s more convenient to have all their business with the one bank and that it will help them build up a good relationship with the manager.

“This is understandable – as business can often be personal.

“However, it’s extremely rare for the one bank to have the best lending rates, the lowest lodgement fees, the lowest credit card rates or the smallest overdraft charge.

“If you do all your business with the one bank, the chances are you’re overpaying on something.”

Of course, in terms of looking for a business loan, it may be quicker to get one approved with your own bank, because it already has your financial details.

However, you can approach any lender and it will base its decision on your cash flow, profits, repayment capacity and purpose of the loan.

So if timing is not an issue, Cassidy says you should shop around.

It’s getting harder for a small business to build a personal relationship with a bank, as the push is more and more into the online sphere.

And while you may be happy with having a purely functional relationship with your bank, there can be benefits if your bank understands your business and your needs.

But some banks are better than others at supporting growing businesses.

Cassidy recommends setting up a meeting to introduce yourself and explain your business goals and objectives. Then if you decide to sign up with that particular bank, you should try to set up biannual meetings to discuss how business is going and your plans for the future.

Not all credit unions offer current account services, a mobile app, or even online services, and none offer credit cards, so it’s unlikely a credit union will be able to meet your business needs.

The credit union does provide low-cost financing options and also works closely with those in the agri sector. However, in general, its services are unlikely to fully meet an SME’s needs.

The premise of the European Union (EU) is the free movement of goods and services, so theoretically, you could choose to bank with a financial service provider in another EU country.

However, the reality is that it’s not really possible yet.

Cassidy says: “In theory, a business in Ireland should be able to get loans, finance, insurance and banking services from anywhere in the EU. In practice this isn’t true at all.

“Which is unfortunate as banking fees and insurance costs here are quite high and we need the extra competition.

“The EU’s open banking stance is helping to change that – and ultimately should mean more timely payments (often in real time) and lower charges.

“But for now, we’re still not really seeing a huge impact from it.”

However, tentative steps are being made, with online banks such as Revolut and N26 being the most proactive.

For instance, Revolut allows customers to view balances and transactions from their AIB, Bank of Ireland, Permanent TSB or Ulster Bank accounts in app and also offers instant payments.

Hopefully by the time you need to switch bank, your business will have recovered from the disruption caused by coronavirus and your finances will look robust.

However, the key when approaching a bank, Cassidy says, is to prove that your business was in a healthy position before the pandemic.

And in the meantime, you should ensure that you avail of any government support that is available.

A good partnership with your bank is key for any successful business. So bear in mind, when deciding on which bank to give your hard-earned cash to, that you need to do research to find the best partner for your business needs.

As Cassidy points out, even after Ulster Bank and KBC’s planned exits, there are eight other current account providers in Ireland and several credit card providers.

So choice and better value, although dwindling, is out there if you’re prepared to take the time to compare the market.

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