Banks are ‘stifling’ small businesses by imposing lockdown on new accounts

Frustrated entrepreneurs are being “stifled” by the decision of almost all high street banks to stop opening new business accounts, a investigation has found.

Banks claim they need to prioritise the needs of their existing customers, which has seen them bring the shutters down on new accounts for periods of up to three months.

Mike Cherry, the chairman of the Federation of Small Businesses, called for urgent action to unblock the system.

He said: “We simply can’t afford another extended period of banks refusing access to financial fundamentals. Regulators, government and lenders must work closely to ensure firms have a guaranteed route to opening commercial accounts and making bounce back applications that will be assessed swiftly.”

He highlighted that start-ups and the self-employed were central to the economic recovery from the last recession.

“The inability to open new commercial bank accounts is stifling our small business community at a time when it’s already struggling to keep its head above water,” he added.

“A lack of access to basic financial products will hamper the creation of start-ups at exactly the moment when we should be encouraging those out of work to consider launching their own enterprises.”

HSBC, Lloyds, NatWest, Santander and Metro have all stopped accepting new business customers, with many citing the same reason, to ensure existing customers can be provided with the right amount of support during the pandemic.

A spokesperson for Lloyds said: “The Group took the difficult decision to temporarily stop accepting new business account applications, to ensure that our colleagues can provide the right level of support to our customers, at this unprecedented and challenging time for British businesses.

“We are sorry for the inconvenience this may cause and the ability to apply for new accounts will be reinstated at the earliest opportunity.”

Of the major high street banks only Barclays and Handelsbanken are still offering new business accounts. The former however is warning that due to demand there are delays in its system, while the latter has stated its branches “are empowered to make business decisions regarding their customers”.

In contrast, digital challenger banks such as Starling and Tide are both still open to new business customers. Although there have been some reports of difficulties with Starling, a spokesperson for the firm said: “We have always accepted new business customer applications and this has never changed.”

Mark Hales, an experienced entrepreneur, angel and technology investor, highlighted the predicament: “There are two main problems with the current situation of banks not accepting new customers. The first is it is stifling start-ups as without a bank account how can a business effectively trade.

“It’s putting obstacles in the way of entrepreneurs who wish to start a business, making it more difficult at a time when everybody should be working together to make it as easy as possible and to support the country’s economic recovery.

“As a result of the main high street banks being ‘closed’ my latest venture Smrtlinks, which provides software solutions to businesses and is looking to create new jobs in the region, has been forced to go with a challenger bank.”

He added that challenger banks won’t work for all businesses as, “their services are more expensive and are only available online, the latter of which could create further issues for some businesses. Not only that but some don’t offer international payments or payments via an IBAN – which means their offer is restricted.”

Aside from slowing start-ups, the entrepreneur who is currently invested in over 50 businesses, including this media title, said: “The other issue with this approach, is it’s anti competitive. Banks are not only refusing to accept new businesses but are also refusing to move customers from other banks – which goes against previous legislation from the Government and the FSA that enabled businesses to move banks more easily and vote with their feet if the service wasn’t of a sufficient standard.”

Hales’ argument highlights that after 272 days (the number between the Coronavirus Act 2020 being given royal assent and today) big businesses and organisations such as banks should have been able to adapt and utilise technology to “at least offer the most basic services to businesses”.

In fact it would appear Hales and Cherry are both embracing and following the message from central government, that the country needs to rebuild its economy in the wake of Covid-19.

This mantra which has been spoken about by Ministers for weeks, may appear on the surface to be working. Companies House recorded the largest year on year increase in the number of incorporations between April & June this year, 176,115, but how can this trend continue if banks aren’t accepting new customers?

Tej Parikh, the chief economist at the Institute of Directors commented: “It is likely that budding entrepreneurs will struggle to set up shop while the pandemic and its effects still linger. Though a potential vaccine-led recovery will lift spirits, investment could still be hard to come by, and even setting up business accounts may be a challenge with banks eager to limit risks after months of handing out loans.

“These challenges in launching businesses will no doubt hinder the economic recovery, and the government should go further to support start-ups as it looks to boost the economy.”

One suggestion for the stopping of new business bank accounts was to combat fraudulent claims relating to the Government’s package of support for businesses through the current pandemic. With it suggested that the FCA had issued a directive on the matter.

However a spokesperson for the FCA confirmed that no instructions have been given to firms to stop them offering business current accounts to new customers in order to prevent financial crime. It did highlight that on 10 November it updated guidance on the authority’s expectation of banks and lenders for managing financial crime.

It’s clear that although it may appear a small matter, the impact of a reduction in the availability of business bank accounts, could like a ripple in the water, have longer term effects.

What the banks said

A Santander spokesperson said: “We’re working hard to do all we can to support our existing business customers under the Bounce Back Loan Scheme. This means that we are currently not accepting new applications for Business Current Accounts, but we will review this position over the coming weeks and further details will be available on our website.” – I don’t have a date for restart as per the above.

A spokesperson for Lloyds said: “The Group took the difficult decision to temporarily stop accepting new business account applications, to ensure that our colleagues can provide the right level of support to our customers, at this unprecedented and challenging time for British businesses. We are sorry for the inconvenience this may cause and the ability to apply for new accounts will be reinstated at the earliest opportunity.

“Taking this decision has allowed us to support over 290,000 business customers with approx. £8.8bn in bounce bank business loans.”

A spokesperson for Handelsbanken said: “Handelsbanken is a decentralised bank where our branches are empowered to make business decisions regarding their customers. We would not comment on individual customers but there is no current closure to business accounts.”

A spokesperson for Metro Bank said: “As a result of the significant surge in demand we were seeing from businesses opening new accounts with us, we decided on Friday 9th October to temporarily pause new business account applications in store or online. We needed to ensure that we can continue to support our existing customers, the pipeline of new account applications already in progress, and associated Bounce Back Loan applications which we’re continuing to fulfil.

“We expect to reopen for new business account applications early in the New Year.”

A spokesperson for HSBC said: “We closed to applications for all new accounts across Small Business Banking for businesses up to a turnover of £2million in the UK on 30 September. We have taken this decision to ensure we have the capacity to provide important Bounce Back Loans to our existing customers and for those businesses who have already registered with us and are waiting for their application to be processed before the scheme ends.

“We welcome interest from UK businesses looking to open an account with HSBC UK but we are being clear and open about our waiting times, so that new customers can make an informed choice. We will only ask new customers to complete a full application when we can process it. In the meantime, you can register your interest on our website.

“We have remained open for all switcher accounts for our relationship managed banking propositions. We remain open to sole traders and limited companies with one director who do not require a Bounce Back Loan. These businesses can apply through our new mobile app HSBC Kinetic (available via the iTunes App Store), more information on eligibility criteria and how to apply can be found on our website.”

A spokesperson for Starling Bank said: We have always accepted new business customer applications and this has never changed. We check each customer before we accept their application and set up an account.

A spokesperson for Tide said: Tide is still accepting new business accounts. We have seen higher demand over the course of the pandemic – we believe this is because high street bank branches were closed, high street banks stopped opening accounts, and people have been more willing to embrace digital alternatives. We can’t foresee any reason why we would stop opening new accounts

A spokesperson for Barclays confirmed the bank is still accepting new customers but there is a delay due to the high demand brought about by the lack of competition.

NatWest and TSB were approached for comment but did not reply.

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