If you are a Self-starter, Entrepreneur, startup and small business owner, you definitely know that getting a business off the ground in South Africa is tough work. Deciding which bank account to go with might seem relatively unimportant when you’re starting a new business or when you’re busy running a more-established enterprise, but it has proven to be a key business decision – one that could ultimately save or cost your small business big money. Taking enough time to find out some basic facts is essential if you’re to find the best current account for your small business.
While government and financial institutions haven’t made it easy in the past, banks have started to make the financial side of things a little easier.
Getting your finances right in the early stages is an obvious hurdle to get over and several major banks now offer bank accounts dedicated to the small business sector.
If you’re on the lookout for a business loan or startup funding, having a business bank account gives you a competitive edge over your competitors.
Just remember, your business needs to be formally registered before you apply. Company registration with the CIPC is a simple process that can be completed online.
So, to help you decide which business bank account is best, read on for the top five accounts available to SMEs.
What is a business bank account?
Most banks offer the option to open a dedicated business bank account. These are different to personal accounts in that – you guessed it – they’re focused around business use. As well as keeping your business finances separate from your personal finances, a business bank account might include focused services such as:
· budgeting tools
· automated expense categorisation
· account management
· integration with accounting software.
Charges and fees may be different to what you pay on a personal current account. You’ll also have access to business-related financial products – such as loans, credit cards and overdrafts – to help you as your business needs change, whether that’s paying for everyday running costs or investing in your scale-up plans.
These days the choice is greater than ever when deciding the best business bank account for you. Commonly trusted South African business banks include:
- · African Bank
- · ABSA
- · Capitec Bank / Mercantile Bank
- · FNB
- · Nedbank
- · Old Mutual
- · Investec Bank
- · Standard Bank
The high street banks above offer in-branch services. However, there is also a wide range of digital-only banks (also known as challenger banks). Some of the best known include Tyme Bank, Mercantile Bank and Investec Bank.
If you are looking to change, it’s now easier than ever to switch business bank accounts – it takes just seven days with most of the work done by the banks.
Do I need a business bank account?
Sole traders are not required by law to have a separate business account – but it’s strongly advised. Even though there may be fees and charges in the future, keeping your personal and business income and costs separate can make life much easier when doing your accounts, claiming expenses and completing your tax returns, while making mistakes less likely. In any case, many banks will not allow you to use your personal bank account for business, while limited companies must have their own bank accounts.
In theory, you might be able to keep your business earnings in your personal account as a self-employed sole trader (check with your bank) but there are many reasons why you will probably want to be applying for a dedicated account:
It will allow you to keep a better handle on your earnings for tax purposes and it will be easier to keep costs under control.
SARS requires you to separate being a business customer from your personal transactions so having a separate account will simplify your accounting and save you time.
If you anticipate doing a lot of transactions, either through the bank online or using ATM withdrawals, then it’s best to get started with a business account.
If you have a different name for your company then you might want a bank account in that name and so that business cards, account charges, and cheques can be made out to it.
You can choose an account with the tools that you require, like directly linking to your accounting software.
If you ever need to apply for finance (like a credit card or loan) then having a business bank account will be necessary.
If you ever get selected by SARS for an in-depth audit then having your transactions kept separate will make things a lot easier.
Whether you’re starting a new business or you’re more established and thinking about switching banks, here are five key things to consider when shopping around for the best business account…
How to choose the best bank account for your needs
First, check with your bank if you definitely need a separate account, based on your specific circumstances. If you have very few transactions and your personal finance covers everything then you might not need to change or feel it’s worthwhile. If your bank tells you that you need another account, try to negotiate the rates with them (fixed term, the rate loan, account fee, etc) – don’t assume that they have to give you what’s written down. And don’t feel that you have to open one with the same bank that you have your personal banking with – shop around for the account that suits you best in terms of features, savings offers, fixed rates, and look for a good introductory offer.
Business bank account introductory offers
Many startup owners open a business current account at the bank where they have their personal current account. This can be the quickest and easiest option, but it may not be the best choice when opening a business current account. When choosing a finance and borrowing account you may also want to consider related products, poor credit scores, fees for cash deposits, fees for money transfers, and annual fees.
From high street to online-only banking, research the full range of business bank account options available and compare introductory offers. Normally, new businesses get charge-free periods (eg first 12 or 18 months), possibly followed by discounted standard charges or fees for a fixed period. Less generous introductory deals are also available to businesses that want to switch banks.
Monthly business bank account fees and standard charges
Once introductory periods are over, businesses normally pay monthly bank account fees (usually averaging R85 for high-street banks; more for different features/terms from these and other providers). Some accounts are not available to startups; banks normally offer accounts better tailored to new businesses.
Banks can also make a small charge every time your business:
· withdraws cash
· gets cash deposits
· pays by bank transfer
· uses or goes over its overdraft
· receives a card payment
· receives foreign currency payments from overseas.
When comparing business bank accounts, find out exactly what fees and charges you will pay and when. Some current account providers offer a cheaper tariff of charges for transactions made electronically (online) to reflect the lower cost of servicing these transactions compared to traditional branches.
Business bank account interest rates
Many current business banking website accounts offer a 0% AER (Annual Equivalent Rate – the interest money in your South Africa business current account will earn), although there are some (usually subject to different terms and conditions) that offer current accounts with 0.1%-0.25% AER.
In reality, interest rates are much less of an issue for many small businesses when comparing current business bank accounts, because other options (including savings accounts) provide greater interest/returns. Business savings accounts can offer 0.65%-1.75% AER, although there are minimum deposits (eg 100) required and they must be left for an agreed time (eg one year).
Main business bank account key features/benefits
Business current accounts normally include similar service features as personal current accounts and some will be more relevant/attractive to your small business than others. For example, your business might want an overdraft or you may want a cheque book or need to bank cash regularly. Business owners may also want to consider internet banking opportunities such as mobile banking apps.
If your business needs access to finance, such as bank loans or a business credit card, you may be able to find slightly better rates/deals from someone other than your bank, so it pays to perform price comparisons. Most providers offer online banking facilities, of course, which can save you time and help you to better manage your cash flow and is something that you must consider when you compare business bank accounts. You might need to make frequent online payments to recipients in South Africa or overseas or receive payments in overseas currencies as a business or sole trader.
Your chosen current international business bank account should provide the most cost-effective solution – especially when concerning foreign exchange rates. You may be able to negotiate a reduce tariff if you think a bank’s standard charge is too expensive. No harm in asking. A bank may be able to suggest ways to minimise your banking costs, for example, by paying online rather than by cheque.
Customer service and support
Also think carefully about the level of service and support your business will need from your bank. You may be perfectly happy to go with an online banking-only solution, which can be cheaper, with customer service and support less of an issue for you, especially when you’re opening an account for startups to perform your day-to-day banking.
Alternatively, in-branch banking might be essential. Your business may need its bank to be on a nearby high street, where you can deposit cash, get change, pay in cheques or arrange face-to-face meetings with a relationship manager. Find out exactly what services, support and tools a bank will provide.
Which is the best business bank account?
South Africa has a highly competitive banking sector and its emergence as a leading player in the fintech world has only increased the choice on offer. For businesses this is good news as it means you’ve got lots of banks vying for your custom. In conclusion, when picking the best business account think about the following factors and what is most important to you:
Service quality – See if the bank has won any awards and how it performs in customer satisfaction surveys.
Mobile and app services – All the banks now have a substantial digital offering. Understand what sorts of features are included within their app – e.g. expense categorisation, budgeting and invoicing tools.
Overdrafts – Having an overdraft facility can be incredibly useful. However, this is not always available – especially with digital-only banks.
Account management – If you think you’d benefit from having a direct contact at the bank for advice and support, some paid accounts offer dedicated account management.
In-branch services – If you’re going to need to pay in cash or cheques, you’ll need to know how this is done if your bank doesn’t have in-branch services.
How to open a business bank account:
Once you’ve chosen the bank account you want to go with it’s time to apply! While every bank is slightly different, generally you will need to submit the following documents once you’re at the bank or applying via their website.
- · ID document
- · Proof of address no older than three months
- Company registration documents if required
While not all of these offer the cheapest business bank account fees, they’re the top-rated accounts for people entering the entrepreneurial space. So at the end, which business bank account is best? The answer to that question depends entirely on your business needs, budget and what matters most to you. Figure out what you want from a business bank account before starting the process to help you ask the right questions and get the right answers when the time comes.
All the best!