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Small Business Accounts
October 28, 2016
12:28 pm
COJO
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Brand new to this Forum. Desperately seeking some help when it comes to choosing small business chequing accounts.
Sole proprietorships are actually individuals but as soon as the small business owner tries to open a small business account in a operating name, the big banks gouge mercilessly. Public outrage brought down fees for chequing accounts but it is going unnoticed that the major banks charge small business $6 per month for 7 transactions (ie deposit, cheque, transfer, etc) then a per item charge beyond that. And that all of the banks have basically the same plan (so much for competition!)
There are lots of no fee chequing accounts for individuals but has anyone found something that compares the equivalent for small, unincorporated businesses? Particularily those outside of major cities.
Bad enough that the banks treat the employees of the businesses as low risk for mortgages but treat the business owners as suspect. They also make it very tough for these small businesses to operate.

Anyone have any insight?

October 28, 2016
5:56 pm
Norman1
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I don't think there are any no-fee business chequing accounts.

Banking services are not actually free for the banks to provide. Businesses, small and large, are expected to pay for those services and incorporate the cost into what they charge their customers.

For business accounts, there's even a charge for deposits!

October 29, 2016
9:50 am
Loonie
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I don't know anything that would qualify either, but we have found that banks are notoriously insensitive to the needs of very small family businesses etc. No matter how small, they want to charge you quite a bit for these accounts and make you buy large batches of expensive cheques that you may never use. We have had business accounts that had fewer transactions and bigger balances than personal ones, and certainly paid a lot more for them. And they never pay a penny of interest.
I believe it's a deductible business expense, however, and that's the only good thing I can say about it!

October 29, 2016
11:39 am
Norman1
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I think a small business should consider whether or not it actually needs a business chequing account. There's no legal requirement that a sole proprietorship has to use one.

CRA doesn't care what account the cheque for taxes due is drawn on. Suppliers don't care much either, as long as the cheque doesn't come back NSF! Clients can be instructed to issue their cheques to the owner, who is appointed the accounts receivable agent.

It will become an issue once the business is big enough to start clearing 20 to 30 cheques a month through a personal bank account. The bank will notice and ask that the customer open a business account.

By that time, I think the business would be able to afford the $30 to $50 a month in fees for a business chequing account. They can also order their cheques elsewhere, like ASAP Cheques ($56 for 600 business cheques), instead of from their bank.

October 29, 2016
1:39 pm
COJO
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Thanks for your insights.
Unfortunately, even small businesses require ways of making payment to suppliers, etc.
A few banks have started offering the ability to use interact transfers, however, even they too come with charges.
While there is no obligation for small business to have a chequing account, they still have to pay employees, make government remittances, pay suppliers, etc. Using a personal chequing account is not necessarily appropriate.
If a small business is incorporated, it is even more necessary to open one.
Banks have small business over a barrel either way!
Disappointing that there is such a bias against small business in a society that is trying to kick start economic growth!
There certainly exists an opportunity for a credit union or a bank (schedule 1 or 2) to make a mark!

October 29, 2016
1:41 pm
COJO
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RBC offers a no fee ebusiness account. No fees for electronic transactions. It would be a major plus if they had more platforms for accepting mobile cheque deposits.
That might be the window or opportunity.

October 29, 2016
3:12 pm
Koogie
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Not sure of the size of your business but don't forget if you meet the monthly minimum balances (for instance if you have to keep a sizable float) then most of the big banks rebate the monthly fees. That is the way it is for our six business accounts (3xCAD,3xUSD) at TD Bank and has been forever.

October 29, 2016
4:27 pm
Norman1
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COJO said

…While there is no obligation for small business to have a chequing account, they still have to pay employees, make government remittances, pay suppliers, etc. Using a personal chequing account is not necessarily appropriate.
If a small business is incorporated, it is even more necessary to open one.
Banks have small business over a barrel either way!

One can do all those things from a personal account, provided the number of transactions isn't large.

Try it: Use a personal cheque to pay a supplier. They will cash the cheque. Same with payroll remittances. Not a problem, unless the remittance is over $25 million. I've used my personal credit card to pay for things instead of a business credit card. No complaints from the suppliers.

If there's a significant number of employees and suppliers, then it sounds like your business is not that small. sf-laugh

October 29, 2016
9:59 pm
Loonie
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You can, theoretically, do a lot of these things from a personal account.
But it's not the person or business that is cashing the cheque that poses the problem. The problem is that your bank has explicit rules about not doing so. As I recall, Tangerine says they reserve the right to shut down all your accounts if you do this - for example.

Due to retirement, our business is now so small that we can get away with a personal account, but we only made that decision about a year ago. Before that, we were paying through the nose at a CU and doing very few transactions..

If it's agreed that many people don't really "need" business accounts, then why do the banks push them into having them? The obvious reason is that they make more money that way.

I don't accept the argument that a small business can "afford" these fees just because they are clearing a certain number of cheques. It depends on the size of the cheques and the size of the business. Fees ought to be based on getting something for your money. You don't really get much, and the bank gets your money, especially when you have few transactions.

It's also not necessarily true that you can get by without cheques. Not everyone with whom you do business will accept interac or credit card payments, and cash is impractical, especially for larger amounts.

I have been part of both an incorporated business and an unincorporated one, with significant differences in cash flow, but the bank fees for the business accounts were always the same, regardless. It's about time they recognized that businesses come in different sizes and that dinging a start-up with $500-600/year is not good for our economy.

November 1, 2016
8:05 am
COJO
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Loonie,

You are expressing exactly what I have found in my operations. I support small business with record keeping and regularly deal with business clients who are being brought down by banks gouging them. The sole proprietorships are very poorly regarded and the small corporation (which is often the required business structure for many industries) is treated as though they are multi-national in size when it comes to bank fees.

Using personal accounts for business transactions for an incorporated business is an absolute no no. (just ask the CRA)

Not all businesses operate using interac/credit. Sole proprietorships, while legally the individual owner, in order to gain credibility, establish enough credit history, etc, it requires separation and proof of business activity. This includes obtaining operational financing, etc.

Sole proprietors are treated like crap by the banks. Interesting side note: employees of sole proprietors with regular pay cheques are regarded as great mortgage clients. Those same sole proprietors (who hire and pay those employees with pay cheques) are regarded as suspect.

A personal account, while certainly doable for an unincorporated business will not establish sufficient banking history to allow for operating loans or even small business credit cards.
As for minimum balance requirements, they are currently in the 25-35000 range for small business accounts. To wave $20-35 month fees.

Time for a small business bank perhaps? Used to be the domain of the CU but even they have bailed on that one.

Am currently looking at comparisons. Would love it if this site tracked and charted them.

November 1, 2016
2:26 pm
HiInterest
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Manulife Business Advantage Account is the best kept secret in Canadian Small Business Banking. The biggest caveat is that they market it as a "savings account" and require you to link it with an existing checking account at another Canadian bank. However, once connected you can perform 99% of your day-to-day business banking via Manulife (website and checks) and leave the other checking account dormant. RBC offers a free small business e-account which serves this purpose well.

I haven't paid a single fee or service charge for my business banking in over 4 years.

Pros
- No Fees
- No Minimum Balance
- Highest Interest Rate on any Business account (currently 0.75%)
- Free unlimited Checks
- Free unlimited online bill pay
- Free unlimited deposits (via mail-in check deposit, in-branch deposit via RBC proxy, bill pay from another account, interac etransfer, ach)
- USD account available

Cons
- no ATM Card
- online only (perhaps a pro)
- You need to apply for an account via an independent financial advisor

November 2, 2016
6:41 am
COJO
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Nice!
Will check out the Manulife idea (too bad the individual financial adviser thing)

On first glance, I am unable to find free cheques and cheques are charged at $1.50 each. What am I missing?

November 2, 2016
6:52 pm
Alx
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Thanks for the info about Manulife.
If you are in Alberta, Canadian Western Bank has a $5/month business chequing account. I know it has a fee but the real perk is a business savings account, currently offering 1.10% that you can attach to it. Free in-branch money transfers between the two. $10/month extra to have access to online transfers. So I guess it depends of how much money stays in your business... I think that's one of the best interest rates you can get for business savings acct.

November 2, 2016
7:39 pm
Norman1
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Loonie said

You can, theoretically, do a lot of these things from a personal account.
But it's not the person or business that is cashing the cheque that poses the problem. The problem is that your bank has explicit rules about not doing so. As I recall, Tangerine says they reserve the right to shut down all your accounts if you do this - for example.

True, I've seen the same term from Royal Bank and CIBC. That's leverage in case someone tries to deposit and write a large number of cheques for a business through the unlimited plan of a personal account. That term can also be used to stop large regular deposits of cash into a personal account to escape the $2 fee per $1,000 for cash deposits.

Loonie said

… Before that, we were paying through the nose at a CU and doing very few transactions..

If it's agreed that many people don't really "need" business accounts, then why do the banks push them into having them? The obvious reason is that they make more money that way.

I don't accept the argument that a small business can "afford" these fees just because they are clearing a certain number of cheques. … You don't really get much, and the bank gets your money, especially when you have few transactions.

… It's about time they recognized that businesses come in different sizes and that dinging a start-up with $500-600/year is not good for our economy.

Of course: The banks do make more money from the business accounts. That's why they push them. sf-laugh One can also say they don't subsidize them as much, by not waiving fees for cheque clearing and cash handling.

When I looked into business accounts years ago, the fees weren't that much. I think I looked at business accounts at TD Bank and Royal Bank.

The fees were definitely more than I was used to paying on my personal accounts, which had fees waived for a minimum balance. I remember the business cheques being expensive. But, I don't think the fees were going to $500-600 per year or $40 to $50 each month, unless I had a large number of transactions.

I just had a look at Royal Bank's RBC Business Essentials $6 Small Business account. $1.12 per credit or debit. 22¢ per item deposited. $2.50 per $1,000 of cash deposited. $6/month for the minimum fee.

For about $45/month, one would be doing something like the following:

  1. Write 20 cheques = 20 x $1.12 = $22.40
  2. 4 weekly deposits. Each deposit is 10 cheques and $1,000 cash. = 4 x ($1.12 + 10 * $0.22 + $2.50) = $23.28

The revenue in cash alone would be $4,000 per month. I think such a business can easily afford the $45/month in transaction fees.sf-laugh

November 2, 2016
8:15 pm
Loonie
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We weren't with RBC, and had a different set-up, but I am not impressed with such a large list of ways in which you will get dinged by them for having a business account. They make it almost impossible to know how much you will be paying them. This is definitely not what a small business needs.

Further, a small business MAY generate quite a bit in deposits, but its viability depends in the long run on whether the owner is getting a reasonable income out of it. A small business can go on for years without that happening.
It makes no sense to make a small business suffer more than an individual. And, for what? The business doesn't get any better service than the individual, and in fact will likely get worse service because of the banks' innate suspicion of small businesses.

There is no equation to be made between a business' gross income and its ability to pay excessive bank fees. Neither do the size of each deposit have anything to do with it.

November 3, 2016
7:40 pm
Norman1
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I don't think the $45/month fee in my example is excessive for what the bank processed each month: 20 cheques written, 40 cheques deposited, and $4,000 of cash deposited. That's way above the regular account use a person is expected to have.

True, the significant gross receipts doesn't mean that there's enough at the end of each month to give the business owner a reasonable income. However, I think it is a bad omen to have worries about $45/month in banking fees with $4,000 of cash plus 40 cheques coming in each month.

Profits would be thin and the situation would be precarious. The $500/year in accounting and business tax return fees would also seem to be excessive.sf-frown

November 3, 2016
9:16 pm
Loonie
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Your example is hypothetical, Norman. There might be only 2 or 3 larger deposits that come in, and so on, but they plan to ding you according to the size of the deposit, as if it were more bother to them simply because of its size. There could easily be 10 cheques written or less, depending on the nature of the business and credit card usage. This is reminiscent of our discussion about the merits of RSPs. It depends on your circumstances.

Accounting fees must be way more than $500/yr. by now. Many charge almost $1000 now just for an uncomplicated return for a married couple - which is less work! However, in that case, one can choose to do it oneself. It's harder to get along without a bank.

Yes, profits may very well be thin and the situation precarious. That is the whole point of the struggling small business person who does contribute to the economy but can't afford to be squeezed without any consideration of their real circumstances. The small business may employ 2 or 3 additional people besides the owner, keeping those people in the labour force and paying taxes, but may still be having trouble making a reasonable income for themselves. They may stick with it, accepting a smaller wage because they would feel badly about firing their staff and because they have a product or service that is needed and the business has potential. It takes a lot of work to make a "go" of it. And the reality is that the vast majority of small businesses fail. To keep going is quite an accomplishment, considering the odds.

There is a lot of complaining out there about precarious employment, lack of good jobs for graduates, insufficient GDP, etc., and the complaining is valid. It's time the big banks got on board with the solutions, especially as they keep laying people off. They offer generous start-up deals for new graduates, immigrants, seniors (of which I am one who benefits). They need to get more realistic about small business' needs and circumstances.

November 4, 2016
9:31 pm
Norman1
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Loonie said

Your example is hypothetical, Norman. There might be only 2 or 3 larger deposits that come in, and so on, but they plan to ding you according to the size of the deposit, as if it were more bother to them simply because of its size. There could easily be 10 cheques written or less, depending on the nature of the business and credit card usage. This is reminiscent of our discussion about the merits of RSPs. It depends on your circumstances.

In that case, it won't be $45/month. The minimum fee is $6/month for that particular RBC Business Essentials business account. The fees are on the number of cheques written, number of cheques deposited, number of branch visits, and amount of cash deposited.

If instead, each month, ten cheques were written (10 x $1.12) and three in-branch deposits were made (3 x $1.12) to deposit a total of 30 cheques (30 x $0.22) and $1,000 of cash ($2.50), then the transaction fees would drop to $23.66/month.

Accounting fees must be way more than $500/yr. by now. Many charge almost $1000 now just for an uncomplicated return for a married couple - which is less work! However, in that case, one can choose to do it oneself. It's harder to get along without a bank.

Knowing that I'm saving $500 to $1,000 each time makes doing my own tax returns more bearable.sf-laugh

Yes, profits may very well be thin and the situation precarious. … They may stick with it, accepting a smaller wage because they would feel badly about firing their staff and because they have a product or service that is needed and the business has potential. It takes a lot of work to make a "go" of it. And the reality is that the vast majority of small businesses fail. To keep going is quite an accomplishment, considering the odds.

…It's time the big banks got on board with the solutions, especially as they keep laying people off. They offer generous start-up deals for new graduates, immigrants, seniors (of which I am one who benefits). They need to get more realistic about small business' needs and circumstances.

It is definitely not easy to run a small business and succeed. But, like our personal bank accounts, there are lots of choices. A business owner can shop around just as we can for our personal high-interest savings accounts.

Like that from in-branch financial advisors, I think one needs to be wary of advice from those small business advisors too. They may pitch some $50/month account "to know what you'll be paying each month" instead of a pay-as-you-go account that can cost less.

November 4, 2016
11:00 pm
Loonie
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Then, again, it might be some other combo of transactions. Every month, your bill will be a surprise! - just what is not needed.

And, even at $24, I can't see any reason for it to cost so much, considering that these kinds of accounts rarely if ever offer any interest at all.

The banks have never really done their share to help small businesses as far as I know. They will lend megabucks to big corporations, hardly batting an eye, but the bar is much higher for the little guy.

Shopping around with the faint hope of finding a reasonable deal is a big time-waster, something the small business person can ill afford, especially considering how unlikely it would be to find a significantly better deal. And who wants to waste their time with some advisor from ManuLife? You'd never be rid of them!

November 9, 2016
12:07 pm
COJO
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I agree Loonie.
It really just is a money grab. Made acceptable because the small business does not have the opportunity to go elsewhere. Furthermore the general perception that a business should be able to afford fees of 45$ a month is part of the problem.
Isnt it interesting that basically all of the small business accounts have the same fees?

While a sole proprietor can use a personal account, a small corporation cannot.

So here is the uestion to ask: if you received personal income of 4000$ per month, would you be happy paying 45$ bank fees?
So why is it ok for a small business?

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