In 2023, controversial politician Nigel Farage was publicly de-banked. What’s gained less attention is the news that in the same year more than 140,000 SME accounts were forcibly closed by high street banks (source: The Treasury Committee).
The vast majority of these were cases of suspected fraud and financial crime.
But if your business isn’t acting illegally and the bank closes your account citing these reasons, they will not tell you what looked suspicious to allow you to stop it happening again. The idea being they don’t want criminals to know how they’re being identified.
When Risecap analysed data from the Treasury Committee, we found that among the high street banks Barclays was responsible for closing more than half (56%) of the total accounts shut down.
In terms of the proportion of Barclay’s business customers debanked, this equates to 7%.
In comparison, HSBC debanked 3.6% of its business customers while Natwest closed 1.5% and TSB 1.1%.
Both Lloyds and Santander closed less than 1 percent of their customers’ business accounts during the same period.
In this analysis, we don’t have the data to see what proportion of account closures were from legitimate businesses being incorrectly flagged as criminal.
All your business account’s transaction data are monitored by your bank, usually by AI. The software will have set parameters around what to flag as high-risk activity. By examining the available evidence and our own experiences working with debanked clients, we believe the biggest risks come from the following areas.
It is illegal to do business with specific countries and terrorist groups identified by the UK government, a list of which is accessible >here<.
Internationally, the Financial Action Task Force (FATF) lists countries with weak finance regulations which could allow for money laundering and terrorist financing. You can view their current list >here<.
Lenders will also typically refuse to lend to companies operating in adult entertainment, tobacco, politics, and trade union activities.
On paper, banks show consternation around the reputational damage from serving clients engaged in high-polluting activities, but we have yet to see this play out for SMEs.
Your bank must give you 60 days’ notice before it closes your account. But in the interim it can freeze the account, which means you can’t withdraw money or make payments.
If you have a finance facility, such as a fixed-term loan, you won’t be able to make your regular repayment amount if it comes from that business account. This could negatively affect your credit score and put at risk any assets you have listed as guarantees.
Immediately make a formal complaint to your bank. However, they will have eight weeks to respond, which may not be soon enough to save your business. If the bank responds and doesn’t reinstate your account, you can take your complaint to the Financial Ombudsman Service (FOC) for small businesses to get the account reinstated and your business compensated.
But when we helped an SME that had its business account closed by HSBC, we had to work to much tighter timescales to ensure its survival – days, not weeks.
We advised them to open a business account with an online challenger bank – in this case, Revolut – as this could be set up extremely quickly. Meanwhile, they could start the slower process of opening an account elsewhere, which typically takes 2–3 months.
With their account frozen, cashflow was zero. They did get the money in the frozen account returned, but the bank sent it by cheque – and Revolut only accepts digital transfers.
So to get their cashflow moving again we sourced them £600k of revolving credit secured against the company’s trade debtors. By securing this against trade debts the company directors did not have to provide personal guarantees nor give away any company equity. After three months of strong performance the lender expanded the credit to £1 million.
Having more than one active business bank account will certainly help. Many of our clients already have this set up to manage their working capital for different activities (for example payroll, expenses, and invoices). But in the case where one account is frozen, a proportion of your capital will be safe in the other account, allowing you to continue with some activities.
If you have ambitions to trade internationally, find out ahead of time what your bank’s policy is around making and receiving transactions through your targeted geographies. If their answer isn’t satisfactory, consider switching.
Sharing more of your business plan with your bank should give them more accurate information about the sector and geographies you operate in. This will enable them to better assess whether your business really has the potential to be illegal or damage their reputation.
FX providers can be used as an alternative to banks for international business transactions. In addition to lower FX fees, if needed they can operate as temporary custodians of your international income.
Debanking is incredibly stressful, even for experienced CFOs and founders. Our team is here to offer sympathy, support, and financial solutions if needed.
0203 089 7919
hello@risecap.co.uk
3rd Floor, 86-90 Paul Street, London EC2A 4NE
0203 089 7919
hello@risecap.co.uk
3rd Floor,
86-90 Paul Street,
London EC2A 4NE
Risecap Ltd Data Protection Number ZA553906. The registered address is 85 Great Portland Street, London, England, W1W 7LT. Risecap is a credit broker and not a lender.
Copyright © 2022 Risecap. All rights reserved.