Your Concise Guide to Choosing a Business Bank Account for Working Capital

Rajath Kumar

Having a dedicated business bank account is important for business owners to effectively manage and utilise their working capital. With a simple segregation between personal and professional funds, the day-to-day transactions will be easier to track and document. It is also essential for compliance in IT returns filing and will help you to identify the correct deductions for your tax savings.

In India, small and medium enterprises (SMEs) generally use current accounts to manage their funds and to get a working capital loan. While no interest is received from these accounts, lately some banks in the private sector have started offering interest to attract more buyers for opening accounts with them. As a part of their services, the banks also provide working capital finance to their eligible customers with current accounts. However, these grants are sanctioned upon the pledging of an asset as collateral. Industrial, commercial or residential property or liquid securities have to be pledged while borrowing funds for business from a public or private sector bank.

With the availability of working capital financing solutions from digitally operating NBFCs – known as FinTech (technology) companies ¬– entrepreneurs can now have their dedicated business bank account and procure loans without pledging any collateral. These online platforms provide financial the benefits of less stringent terms and flexible repayments.

The question then is – how to choose the right bank account for business transactions? Most banks have now customised their current accounts into different sub-categories, and an enterprise can choose one based on its annual turnover and particular needs. The key expectations from such an account are:

Salary solutions for employees: You need to pay your employees on time every month, and may have to remit their remuneration through dedicated salary accounts or crossed cheques. The business bank account must make the execution of these processes simpler.

Digital banking services: In an era where all personal banking transactions can be done online, current accounts must also come with a host of online banking services. Your account must give you the flexibility of transferring funds anytime, anywhere, and of making regular payments on working capital demand loan that you may have procured from another financial institution. In addition to net banking, services such as phone banking, mobile banking and quick reverts on SMS-based queries are looked forward to as well. Mobile instant alerts on transactions must be provided by banks in the digital age.

Cheques payable at par: Your business bank account should offer the provision of personalised cheques payable at par across India. This conventional facility is good for business owners who prefer to use cheques over online banking for making payments to their employees, vendors, suppliers and to the companies that issued working capital finance to them.

Competitive foreign exchange rates: If your business operations involve buying from or selling to other countries, you will need seamless foreign exchange transactions. Choose your current account from a bank that offers competitive rates on foreign exchange rates routed through them.

Zero balance account: No business wishes to reach a point where they have zero balance in their bank account. Nevertheless, there can be tough times in the market and you may experience some strain on your finances. For emergencies, your business current account should allow you to reach zero balance even if it is for a temporary period. There should be no ‘penalty charges’ on such accounts. You can always update the balance with relentless focus and consistent efforts while working on your business objectives.

Where a zero balance account is not possible, the minimum monthly average balance (MAB) must be made affordable for SMEs. Alternatively, the penalty for non-maintenance of minimum balance must not be very high. Do not hesitate to compare business accounts of different banks on this basis. Your working capital finance provider may also be able to guide you here.

Interest rate: We had mentioned earlier that current accounts do not usually involve interest earnings. This had been the norm in the banking industry for decades. However, with an increasing competition between public and private sector banks, things have changed. All financial institutions are trying to enhance their brand image in the industry by offering products that are more attractive to prospective customers. In this race, they have started delivering interest on idle money in business accounts while also giving the flexibility of accessing the funds anytime. With interest earnings on your account, you can also speed up the payments on your working capital loan procured from any source.

Businesses do have good reasons for applying for a separate banking account, and it also proves their creditworthiness to sources of working capital loan in India. Non-banking financial companies (NBFCs) and FinTech lenders can directly disburse funds into a current account.

The documents needed to open such accounts vary from bank to bank and depend on the type of business. Those investing in their start-ups are often asked to submit copies of their latest IT returns, PAN Card and ID and address proofs such as Aadhar Card or Passport copy. Partnerships, Limited Companies, Trusts, Associations and other corporations that involve more people and hire employees need extra documentation, which among other things must also include the registration deed for the business.

Further, check the fee and applicable charges on these business accounts. There may be charges for remittance facility from other banks, for the maintenance of debit cards and duplicate or ad hoc account statements.

As a FinTech lender, Capital Float disburses loans into your accounts in a duration as short as 3 days, helping you to keep going further for the consistent success of your venture. We have an array of loan products to help you work on the seamless growth of a project that you have enthusiastically nurtured.