There are several ways that banks help businesses of varying sizes. For instance, they offer business loans and overdrafts. Increasingly, too, banks are setting up separate areas within their banks to tend to business customers. In fact, that is where many of their staff are deployed these days, with the increased use of automated machines which allow customers to not only withdraw and deposit funds, and to find out their balance, but also to access a range of other services from the machine. Many small business owners, however, like and accept a more personal service, a more business-focused service, and for this reason they are likely to be allowed to continue to have face-to-face contact, despite ever-increasing technologies within the banking sector.
Banks will not just offer loans for start-up businesses they will also lend money at times of low cash flow. Sometimes a business can be seasonal or function with longer-term projects where it takes longer for the money to come in. For example, a property developer will spend many months renovating and improving a house before it is sold, and any profits are realized. Banks will assess the chance of recouping their money before approving the loan. Property-based projects will normally be considered a safe bet, as the money is contained within the bricks and mortar. It will also be important, though, that a decent profit was earned off the last property developed.
With a secured loan, collateral is required to borrow the money. The loan will most likely be secured against a property that is owned. So, although you might make your business a limited company to protect your own assets, loans may well take account of the property that you live in. However, there are unsecured loans available that rely solely on your creditworthiness. They are often referred to as personal or signature loans. Another option to raise further money might be to re-mortgage your house and use that money to fund the business in times of hardship. The bank will want to make sure, though, that you are not putting yourself into a position where it will be impossible to repay the debt within the timescales agreed.
An overdraft may be a better way to borrow a smaller amount of money over a short period of time. Sometimes banks will allow a certain amount of overdraft on an account before they charge any interest or fees. This can be a hidden amount and many people have not in the past realized that it existed on their account.
It is generally cheaper to take out a loan than to pay overdraft charges.
The main advantage of the business loan over the overdraft is that it allows a business to borrow a significantly larger sum of money.
For sole traders, it is important to keep their assets separate for tax purposes. This is where a business account is useful to make clear which transactions are business-related and which are from personal use. This also helps with budgeting, allowing a business to know just what financial position it is in.
The above all suggests that much banking help is out there for businesses, new and established, so the only thing to consider is which bank offers the most favorable rates combined with the best service. A good start is to see which banks clearly label their business areas However, for more privacy, you might like this to be upstairs rather than be observed by other customers through a see-through glass door, or worse still, waiting in an open area.