Although limited companies and their owners are classed as separate entities, banks will need to carry out credit checks on a company’s directors before offering bank accounts or loans. If you are in any way unsure about your credit rating then it is worth looking at a copy of your credit file before proceeding with an application for a business bank account or loan. A poor credit rating can come about as a result of defaults on payments, county court judgement or bankruptcies, or it can simply be that you don’t have a credit rating because you have taken very little or no credit (loans, mortgages, credit cards) in the past. Sometimes people just don’t know why they are being rejected for bank accounts and credit, and the answer is often that there is something on their credit file that they weren’t aware of. By checking your credit file and resolving any issues prior to making any applications, you can avoid unnecessary rejections being recorded on it.
It is also worth noting the importance of being on the electoral register when it comes to credit checks. If an underwriter/automated process is unable to find your credit history then your application will be declined.
What to do if your poor credit rating is due to insufficient credit in the past
If you know that your credit rating is low due to insufficient credit then check whether the bank where you hold your personal bank account offers a business account option before trying anywhere else. They know you and will have the information that they need because they will be able to see how you have conducted your personal bank account during the time that you have banked with them. They may not offer the best start-up package initially but having very little credit history can cause applications for bank accounts to be rejected because the underwriters are unable to judge what type of customer you will be.
Rejections can be damaging to your credit file as each one is recorded on there. Banks and other lenders looking at your credit report will see that others have already rejected you and will more than likely follow suit, sometimes without even looking at the complete file to discover for themselves the innocent reason for your initial poor rating.
What to do if you have a “bad” credit rating or little Credit History?
Should your personal bank not offer a suitable business account then the banks listed below would be a good alternative to you:
Option 1 – Government-backed Banks
Provided you have no outstanding liability with a Government-backed bank, like RBS or Natwest, then there should be no reason why you should be turned down for a basic business account.
Royal Bank of Scotland and Natwest
RBS offer their “Foundation account” which gives you straightforward transaction based business banking. They offer two years- worth of free banking with this account, which is the same as their standard start-up business account, allowing you time to get established and build some credit and trading history without incurring charges for your business banking transactions.
Option 2 – High Street Banks
A few high street banks advertise basic bank accounts that are targeted to people with limited or bad credit history. The two main options are:
Santander – for limited credit history
Santander’s Start-Up business current account is also a solely transactional business bank account and therefore available to those with little credit history.
Metro Bank – for poor or limited credit history
If you have poor or little credit history, then Metro Bank Business Instant Access Deposit Account could be a suitable alternative. Credit checks are unlikely to be carried out as this is a basic deposit account, although you will still be required to prove your identity. There’s no minimum balance and the account will allow all straightforward business transactions. In other words, you will be able to receive payments in your business name and withdraw funds, however withdrawing money is only in branch, online or on the telephone – you will not receive a cheque book or debit card. The account has to be opened in person at one of Metro Bank’s branches, which are all in the London area, this could prove difficult geographically for many but will be worth it if it means getting your business on its way!
If you have any questions or would like to discuss your start-up business with a Free Consultation, please contact Sam on 0800 954 2099 or complete our online form.