How the banks are betraying startup firms

Britain's banks have been accused of 'sending a terrible message' to entrepreneurs by leaving new business account customers out in the cold.

Many High Street giants stopped offering business accounts at the start of the pandemic, claiming they wanted to focus on existing customers. 

But while some have finally started accepting applications again, wildly divergent approaches continue to muddy the waters for start-ups.

Aceil Haddad, a businesswoman who has banked with Santander for 20 years, was 'flabbergasted' when the bank refused to allow her to apply for a business account this month. 

She was told by her local branch to apply online, but later found out the bank had halted all applications.

'I am conscious of the pandemic restrictions, but I was anticipating that I could sign up, given my long-term relationship with the bank,' says Aceil, from Camden, North London.

'They have all my details - I have never gone into my overdraft before. I wasn't even looking for a loan, I just wanted an account.

'When I asked what I was supposed to do, they said: 'We don't know'.'

Aceil, who is setting up a PR company, then found she could open an account with Starling Bank via its mobile app in minutes, after submitting a picture of her passport and further supporting documents.

T he mother of two, who is also head of communications for charity Pregnant Then Screwed, which offers free support and advice to those who face maternity or pregnancy discrimination, adds: 'I realise banks need to do due diligence for business customers, but Santander could see that I am quite careful with money.

'I've always had least £5,000 to £10,000 in my personal account. I just feel penalised.'

As the country toils under lockdown, a coalition of small business leaders and MPs is calling on banks to break the logjam.

Kevin Hollinrake MP, chairman of the All Party Parliamentary Group on Fair Business Banking, says Britain's entrepreneurial spirit is needed now more than ever.

'It's giving the impression that we are closed for business,' he says.

Urging lenders to get their act together, the Conservative MP adds: 'It is a terrible message to send at a time when people will be made unemployed and may be wanting to work for themselves. They are being deterred from doing that.'

Business accounts are not compulsory, but banks increasingly require customers to separate their personal and business affairs. The rules are different for limited companies, which must keep their business filings separate.

The features of such accounts make it easier to track income and expenses, make notifications to HMRC and create a paper trail for your company. 

It is also simpler to apply for business loans such as the Government's Bounce Back Loan Scheme.

However, each of the big lenders is operating a different policy on opening these accounts.

Santander does not currently accept new business account applications, even when they come from existing customers with personal current accounts, such as Aceil.

A spokesman says: 'We are doing all we can to support our existing business customers. Currently we are not accepting new applications for business current accounts but we continue to keep this under review.'

Metro Bank is also not accepting new business account applications in store or online, but 'hopes to reopen for new applications as soon as possible'.

At TSB, only those with a personal current account can apply for a new business account, though the bank will also accept 'switchers' who have business accounts elsewhere and want to move.

A spokesman says it plans to return to opening accounts for the wider market in the next few weeks.

Lloyds and Bank of Scotland have been opening new business accounts since December. Any start-up business is eligible to apply, but the banking group is not accepting switchers - except larger customers with a turnover of more than £3 million.

Barclays is also open to business account applications, but new customers must make an in-branch appointment and there are none available until April. However, if a customer already has a personal current account with the bank, they may be able to open a business account online within a week.

Before Christmas, HSBC was closed to all prospective business account holders with a turnover of less than £2 million, but was open to switchers, sole traders and limited companies with one director. However, it says it is now 'fully open and accepting applications once again'.

NatWest Group, which includes RBS and Ulster Bank, also reopened for switchers and start-ups in December. Starling Bank, which has 300,000 business accounts, says it has continued to accept business customer applications in the pandemic.

Mr Hollinrake says the differing messages from High Street banks are leaving the nation's budding entrepreneurs confused.

Industry sources say some providers have been 'spooked' by fraudsters trying to take advantage of the Covid-19 business loans.

In December, the Treasury Select Committee heard that Bounce Back Loan fraud was five times higher than typical levels for some banks. However, High Street lenders deny that the freeze on business bank accounts has been influenced by these fears.

The Federation of Small Businesses (FSB) says the Government, lenders and regulators need to come together to provide a 'guaranteed route' through which businesses can open accounts.

FSB national vice chairman Martin McTague adds: 'Start-ups and sole traders will be fundamental to our economic recovery from this recession, as they were to the last.

'If we want more people striking out on their own as the economy changes, creating the firms of the future, we have to equip them with the fundamentals they need to start a business - including a business current account.'