How to open a business bank account with a bad credit record
Over a million people in the UK suffer from 'bad credit' histories. From missed payments, to defaults, to CJJs, and bankruptcy.
Having a bad credit history can negatively impact your life. Just ask anyone who's had a mortgage application turned down, or a credit card declined. But how does this affect you when you're a business owner?
Under UK law limited liability companies (Ltd) are distinct legal entities in their own right, separate from their owners.
Despite this separation of finances, many buddying entrepreneurs, and directors are being rejected for business bank accounts, due to their adverse personal credit histories.
So just how do you open a business bank account when you yourself have a poor credit history?
Firstly it's worth noting that unlike personal accounts, there is no such thing as a basic business bank account. All banks perform a credit check on the company directors when applying for an business bank account. With that in mind, the first thing you need to do is get hold of your credit report for inspection.
Checking your credit record
There are three main credit referencing agencies in the UK. These are Equifax, Experian and CallCredit. The first two are by far the most popular. Both Equifax and Experian charge a monthly fee for checking your report online, but you can often get 30 days access for free, and even get paid to check your report with them if you sign up via a cash back website such as Top Cashback. CallCredit actually offer free online credit reports via their spin off brand noddle.
What should I check for?
Once you've got your report you'll want to check it through with a fine tooth comb. Any inaccuracies, and errors should be reported as soon as possible and a notice of correction applied to the account.
You'll also want to make sure that you're address is correct and that you're registered on the electoral role. The importance of being on the electoral role cannot be stressed enough. It is practically impossible to pass any credit without being registered on the electoral roll.
The good news is that registration is easy. Visit http://local.direct.gov.uk/LDGRedirect/index.jsp?LGSL=364&LGIL=0 to register.
The bad news is that it's only updated twice a year, so you might have to wait a while for any updates to show up on your report.
What should I do next?
The status of your report will determine your next steps. If you've got CCJs, or bankruptcies then the only high-street bank worth an approach is Natwest with their Foundation Business Account. This is specifically tailored towards people with adverse credit histories.
Failing that, you're going to need to look for an account that doesn't credit check. That limits your options to an instant access deposit account such as Metrobank's Business Instant Access Deposit Account, or the Cash Plus prepaid credit card, that allows you to make and accept payments just like a traditional bank account. The downside is that it costs £59 per year.
Those with defaults but no CJJs or bankruptcies, have a wider choice of account available. Oddly, I've heard of people being rejected for the Natwest foundation account, but then accepted for a Santander Start-up Business Current Account.
The best advice though, would be talk to your current bank. They already have a wealth of credit data on you and will be aware of your likely risk, history, and identity, which should help. If you bank with Barclays already, make an appointment with a business relationship manager. These guys are often extremely helpful and can use some discretion when it comes to handing out accounts.
Whatever you decide, the key is to be prepared.
Make sure that you have solid business plan
Don’t make multiple applications in a short space of time
Make sure you're on the electoral roll.
You can find further tips and advice on opening up a business bank account with a poor credit history here. Or the complete guide to small business bank accounts