Business Bank Accounts

If you’re a business owner then you might be wondering how to choose a business bank account. With so many business bank accounts to choose from, it’s sometimes difficult to know what features you need and how to compare different accounts.

In this guide we explain how a business bank account works and the benefits of using one. We also answer common questions like “do I legally have to use a business bank account?” and “what extra features does a business bank account have?”

Table of Contents

What is a business bank account?

A business bank account is a bank account in a business's name, which keeps business funds and transactions separate from personal funds and transactions.

A business bank account is designed for businesses including sole traders, partnerships, companies and charities. It works a bit like a personal bank account but often includes extra features.

Having a separate business bank account will help you to build a credit score for your business. That’s important for applying for business finance in the future. It will also save you time at the end of the tax year as it will keep your business transactions separate from your personal transactions. This will make it easier to prepare your year end accounts.

Here are some of the key features of many business bank accounts:

  • Overdraft facility
  • Relationship manager and business support
  • Free invoicing, accounting and payroll software
  • Monthly admin fees and transaction fees

Compare business bank accounts

There are two options for opening up a business bank account—using a traditional bank or a digital challenger bank. Digital challenger banks often offer basic services for a lower cost than traditional banks. However, they will all typically charge for certain services (e.g. foreign currency accounts or transactions, overdrafts, tools to help with bookkeeping, tax and VAT, etc.).

Traditional banks include HSBC, Lloyds, Barclays, and other high street names.

Digital challenger banks include Starling Bank, Monzo, Revolut, and more.

Here is a comparison of some well known traditional business banking providers:

BankSuitable forFeaturesFees

BarclaysAny business
  • 12 months’ free banking for new businesses
  • Award winning banking app
  • Business direct team
  • Two price plans
  • Access to high-growth and entrepreneur experts
  • Overdraft facility
  • Monthly fees approx £8 to £8.50
  • Transaction costs 35p to £1.50
  • Reduction of fees & charges for loyal customers
NatWest MettleSmall businesses with turnover up to £100,000 or sole trader up to £50,000
  • Simple account with no overdraft facility
8% to 11% interest rate plus fees

NatWestAny business
  • 18 months’ free banking for new businesses
  • Relationship manager
  • Flexible borrowing options including overdraft facility
  • No monthly charge
  • Transaction costs 35p to 75p

Lloyds BankSmall businesses (under £3 million turnover)on_current="true" Free banking for new businesses
  • Dedicated support from UK-based business management team
  • Mobile Business Banking app
  • Free accounting software for 3 months trial
  • Additional technology available to take card payments
  • Overdraft facility
  • Monthly fees £7
  • Transaction costs 85p to £1.00

RBSStartup businesses with less than 1 year trading
  • No transaction fees for 24 months
  • Quick application process
  • Overdraft facility
  • Free accounting software
  • No monthly charge
  • Transaction costs 35p to 75p

RBSBusinesses over 1 year old
  • Free accounting software
  • Dedicated relationship manager
  • Overdraft facility
10% to 18% interest rate plus fees

HSBC KineticSole traders or limited companies with 1 director
  • No monthly fee for 12 months
  • Cash flow insights and categorized spending
  • Overdraft facility and credit card available
  • £6.50 monthly fee
  • Most online transactions free

HSBC Small BusinessSmall businesses
  • No monthly fee for 12 months
  • Cash flow insights and categorized spending
  • Overdraft facility and credit card available
  • £8 monthly fee
  • Most online transactions free

Do I legally need a business bank account?

Whether you have to legally open a business bank account depends on your business structure. If you run a limited company then having a separate business bank account is a legal requirement because your business is a separate legal entity.

Having a separate business bank account is not a legal requirement for a sole trader or partnership, but it will probably make your life easier and save time. Many personal bank accounts don’t allow business transactions so using your personal account for your business may be breaching your bank’s terms and conditions.

What are the pros and cons of using a business bank account?

There are many benefits to opening a business bank account. The main advantages are as follows:

  • Accounting is simplified. Invoices will be paid into your business bank account making accounting easier and quicker. Using a separate business bank account simplifies the preparation of year-end accounts, because all business transactions will be accurately recorded in one dedicated place. This makes it easier to match up bank statements with accounting records. And your accountant is likely to have fewer queries for you if there aren't any personal transactions mixed in with business transactions.
  • Personal accounts kept private. Your personal and business finances will be kept separate. Your accountant or the Inland Revenue won’t need to trawl through your personal transactions.
  • Build credit history for future funding needs. Having a separate business account will build up your business’s credit history which may make it easier to apply for other finance in the future, such as a loan, the Recovery Loan Scheme or even a business credit card.
  • Paying employees. It can be very difficult and complicated to manage payroll accounting from a personal bank account. Anyone thinking of hiring in the future would be better off setting up a business bank account right from the start, to avoid a painful transition later on.
  • Get more features. Business bank accounts often have extra features like a relationship manager or free invoicing software.
  • Abide by the rules of personal accounts. There's a good chance that the fine print of your personal bank account stipulates that the account can't be used for business. If you use your personal account for business, but it's against the rules, the bank could close your account.
  • Understand your business budgeting. Having a separate business account makes it easier to keep an eye on incomings and outgoings for your business.
  • Look professional. Clients may feel more comfortable sending money to a bank account in a business's name, rather than an individual.

How to choose a business bank account

It’s important to compare business bank accounts to choose the one that best suits your business’s needs. Most business bank accounts come with additional features and many charge monthly admin fees. These vary significantly between providers.

Here are some of the common factors to consider when you’re thinking of opening a business bank accounts:

  • Overdraft - this is useful if your cash needs regularly fluctuate. You may need to pay suppliers or wages before you receive sales. Check to see how much interest you will be charged and if there are any overdraft fees. Some simple business bank accounts don’t include an overdraft facility.
  • Interest on your account balance - this is important if you sometimes hold a large amount of cash.
  • Convenience - if you need to pay in physical cheques then check that there is a local branch.
  • Business support - some accounts offer access to business and tax advisers. This can be very useful if you are a new business owner.
  • Invoicing, accounting or payroll software - some business accounts offer free accounting or payroll software that’s linked to your bank account. This can save time and money when it comes to preparing your year end accounts.
  • Account fees - many business accounts charge monthly fees and some charge transaction fees. Some simpler business accounts don’t charge fees but they may not offer other features like an overdraft or business support.

Business banking tips

Here are some tips for how to get the most out of a business bank account:

  • Use your business bank account for all your business transactions including payroll, paying invoices and receiving cash. This will make your year end accounting process easier.
  • Keep track of your overdraft, how much you are using it and how much you are paying. Overdraft costs can mount up over time and aren’t always the cheapest way of borrowing. If you are regularly using your overdraft then compare the cost to other forms of flexible or short term business loan to see if they are cheaper.
  • Consider changing your business bank account if it no longer meets your business needs. You may have started your business with a simple cheap business account with no overdraft facility. It may make sense to pay a small monthly fee for more account features as your business grows.
  • Don’t forget to use the free banking support offered with your business account. It makes sense to use this first, where appropriate before paying for expensive professional advice.

How to apply for a business bank account?

The application process for a business bank account will depend on the lender and the type of account you’re applying for. Bank will carry out a credit search on you and your business. They will also usually ask for the following information:

  • Personal details and proof of your identity.
  • Details of the business owners.
  • Information about your business including the address.
  • Financial records or financial details of your business.

Most banks aim to open your account within 5 days of your application.

Frequently asked questions

Whether you need a business account depends on your circumstances. If you run a limited company then you legally need a separate business bank account.

It can also make sense for sole traders to open a separate business bank account as it helps simplify your admin if you keep your personal and business transactions separate.

Legally you do not need to have a business bank account as a sole trader. However, you may be breaching the terms and conditions of your personal bank account if you use it for business transactions.

Banks make lending decisions on an individual basis so it may be possible to get a business bank account if you have bad credit. Consider getting hold of your credit report to see if you can improve your credit score before applying for a business bank account.

Business bank accounts are designed for businesses rather than individuals. Many personal accounts don’t allow business transactions. Take a look at the terms and conditions in your personal account to see if this is the case.

Many business bank accounts also have additional features like a larger overdraft facility, a relationship manager and free accounting software.

A business bank account often includes extra features like a relationship manager, business and tax support and free invoicing or accounting software.

Some business bank accounts are designed for new businesses. These may be simple accounts that don’t offer an overdraft facility.

Most business bank accounts offer an overdraft facility. Some of the most simple business bank accounts don’t offer an overdraft facility. These accounts are usually designed for small or new businesses and charge low or no admin fees.

Alice Guy

Alice Guy is a Suffolk-based business and personal finance writer. She trained with KPMG in London as a Chartered Accountant before working as a business analyst for Tesco Plc. Alice has personal experience surviving on a tight budget when she took time out to care for her young family. She loves to write about business finance, saving and investing—all the money stuff we were never taught at school.