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Contractor banking – applying for and opening a business bank account

Contractors who require a business bank account for their limited company and have done their research to identify the financial institution that best fits their needs, then have to go through the process of applying for and opening their account.

UK anti-money laundering regulations mean that if applying to a high street bank in almost every instance contractors will be required to present documents confirming their identity and address, either in person at a branch or via mail, before their account can be opened. That means opening an account with a traditional bank is rarely an instant process, no matter what banks might claim in their marketing materials, and so contractors should plan ahead.

Some newer challenger banks are available who operate online application and approval processes which may significantly speed up the time to open a business account.

Those with a poor credit history and/or no trading history may find it very difficult to find a high street bank that will allow them to open a business bank account; some banks will even decline an application from contractors who do not have a perfect or near-perfect credit rating, regardless of whether they hold a personal account with them.

How to apply

The process of applying for a business bank account typically involves completing an initial application form, either online, over the phone or face-to-face in a branch. The contractor will be asked to provide detailed business and personal information that the bank will assess before accepting the application.

Most high street banks will take at least a few days to process the application, as this involves background checks, credit referencing and identity checking. Confirming the identity of the contractor is a legal requirement, brought in to combat money laundering, and so even contractors who have an existing relationship with a bank may find themselves being asked to ‘prove’ who they are.

This can generally be done in person in one of the bank’s branches, or by sending identity documents through the mail that have been verified by an authorised person. In many ways, it’s a similar process to applying for a UK passport. That being so, it is worth taking extra care to ensure the right documents are provided in exactly the way requested, and verified by the correct people in the right way. Not to do say can end up causing days or even weeks of delay to the process.

Some alternative providers of online business current accounts are available which manage this process online, thereby simplifying the application process and reducing the time it takes.

Business information required for the application process

Whether it’s by telephone, online or in person at a branch, banks will ask contractor provide a wealth of business and personal information, typically including:

  • Contractor’s contact details
  • Business name and registered address, which for most limited company contractors will be their home address or their accountant’s address
  • Nature of the business – most banks will class contracting as ‘business services’ or ‘business consultancy’
  • Business’s legal status, usually a limited company for contractors
  • Business start date, which would usually be the date when the contractor started incurring start-up expenses
  • Anticipated turnover – a calculation or estimate of the first year’s contract fees will normally suffice
  • Any funding requirements, although most contracting businesses do not require loans or overdrafts
  • Incorporation details and a copy of the contractor limited company’s incorporation certificate.

Some banks say they need to see a business plan, but in practice contractors are unlikely to be asked for a business plan document.

Increasingly, banks say that pre-application interviews are no longer necessary to open an account, but when contacting a bank it is advisable to have the above information to hand, in case some or all of it is requested.

Personal information required for opening a business account

In addition to information about their contracting business, contractors will also be asked to provide detailed personal information. As with the business information, it is best to have this ready when starting the application process.

Contractors are likely to be asked to provide the following at the time of application, or during the application process:

  • Personal name and home address
  • The date the contractor moved into their current home, and/or how long they have lived there
  • Previous addresses, particularly if the contractor has been at their current address for fewer than three years
  • Existing personal bank account details;
  • Financial information on borrowings, such as overdrafts, mortgages and credit card debts
  • Date, country and city of birth, country of nationality and residence.

The personal details are usually required for all directors and signatories on the account, so contractors with a business partner, or who plan to include their civil partner or spouse on the signatory list, should be ready to provide the details for these individuals as well.

Why so much information?

The personal information is generally required so the banks can perform checks related to the money laundering regulations and also extensive credit checking and referencing. These checks have become more stringent following the banking crisis in 2008, as banks are now more cautious of taking-on ‘risky’ business customers than they once were.

Checks have become more stringent following the banking crisis in 2008, as banks are now more cautious of taking-on 'risky' business customers than they once were

Contractors who are unable to provide or substantiate any personal or business details will probably have their application to open an account refused by most high-street lenders. Similarly, if any information is found to be incorrect or false, the application will be refused.

There are banks that specialise in ‘higher risk’ business customers run by directors or proprietors with a poor credit history. There are also providers who offer business current accounts without automatic overdrafts who do not therefore require credit checks prior to account opening. Contractors should therefore decide whether a business overdraft is needed before applying.

Visiting the branch, or mailing ID, and completing the application process

Identity verification is normally a vital stage of the application process for all banks. In some cases this is carried out automatically online while with other more traditional banks it will be an offline process involving a visit to the branch..

If the contractor already has an account with the bank, they should make this clear, as it could speed things up, although this is by no means guaranteed. Most high street banks will accept an ID check at any one of their branches, so a contractor can pop into a branch convenient to where they are living or working.

Finally, assuming the contractor has provided all the information requested by the bank, has (where applicable) passed all the credit checks and references, has confirmed their identity and everything else is in order, the bank will accept the application and open a business bank account in the limited company’s name. Shortly afterwards, they will receive a ‘welcome pack’ with details of how to run their account and access various bank services.

Updated: Thursday, 28 July 2016

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