Last updated 05:12, Friday, 24 October 2008

The financial world has undergone a significant upheaval through 2008 with the banks being hit hard by the credit crisis.

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The recent finance package announced by the Government is designed to restore confidence in the markets and provide the banks with much-needed cash.

This, together with the criteria now laid down by the Government, should ensure that the banks continue to lend to the business sector.

The immediate effects of the credit crisis will be a return to more traditional methods of banking.

For those businesses that need to borrow funds, this will possibly mean providing a larger deposit for those property purchases, or additional security being deposited to support the lending request.

The key criteria, however, will be affordability and the ability to demonstrate that the business cannot only afford to repay the lending but can also support the other business expenses including the owner’s personal requirements.

Showing that the business can put funds aside for such things as tax or other contingency items is a prudent strategy and one which clearly shows good business practice.

For those businesses that have surplus funds, this money should be working for the business and using a savings account which pays an attractive rate of interest would meet this need.

For those businesses that use internet banking, a savings account operating alongside the business current account would allow quick and easy transfer of those surplus current account balances which could then benefit from additional credit interest.

For those businesses that simply leave the credit balances on a current account which either does not pay interest or receives a very low return, I would pass on this anecdote: If you had an employee who did nothing in the business and simply sat around the office or workshop all day what would you do? Probably find him some work – so why leave your cash doing nothing? Make it work for you.

For those businesses that have significant credit balances, a longer-term plan is required to ensure that these funds earn a higher rate of interest on terms that meet both business requirements and match your own risk appetite.

Whatever your strategy, making your surplus funds work for the business is definitely a step worth considering.

The Cumberland Building Society now provides a range of business products including internet access, instant e-savings accounts and longer-term business savings products including a 40-day notice account and Treasury Deposits.

Mike Keen is a business manager at Cumberland Building Society. Visit the website at www.cumberland.co.uk or call 0845 601 8396.

This article should not be relied upon when making investment decisions. Always obtain financial advice.