What Is Business Banking?
Let me explain business banking directly: it's your company's financial interactions with a bank that offers services like business loans, credit, savings accounts, and checking accounts, all designed specifically for businesses instead of individuals.
This happens when a bank or its division focuses solely on businesses. If a bank mainly handles individuals, we call it a retail bank, and one dealing with capital markets is an investment bank. Some banks serve both types of clients.
Key Takeaways
- Business banking covers a range of services that banks provide to businesses or corporations.
- These services include loans, credit, savings accounts, and checking accounts, all customized for the business.
- Banks can provide business, retail, and investment banking services together.
- JPMorgan Chase holds the title of the largest U.S. bank by assets.
Understanding Business Banking
You might also hear business banking referred to as commercial or corporate banking. Banks deliver financial and advisory services to small and medium businesses as well as large corporations, tailoring them to each business's specific requirements.
These services encompass deposit accounts, night depositories, non-interest-bearing products, real estate loans, commercial loans, and credit card services. Banks could also provide asset management and securities underwriting for their corporate clients. Some setups allow employees to deposit funds using a warm card, which is strictly for deposits and not a debit card.
Historically, investment banks and retail or commercial banks had to operate as separate entities under the Glass-Steagall Act, or the Banking Act of 1933. That requirement ended in 1999 when parts of the act were repealed, allowing banks to offer business, retail, and investment services all in one place.
Demand for business banking is on the rise in the United States as the business sector expands. The number of commercial banks has dropped since 2002, from 7,870 to 4,708 in 2018, mainly because of mergers and acquisitions. Wells Fargo, JPMorgan Chase, and Bank of America dominate the market share in corporate or business banking, with JPMorgan Chase as the largest, reporting 2019 revenues of $142 billion. These banks also function as investment and retail banks, diversifying their clients and products.
Services Offered by Business Banks
Business banks deliver a broad array of services to companies regardless of size. Beyond business checking and savings accounts, they provide financing options, cash management solutions, payroll services, and fraud protection.
Bank Financing
Bank financing serves as a key capital source for business expansion, acquisitions, equipment purchases, or covering increasing operating costs. Based on your company's needs, business banks offer fixed-term loans, short- and long-term loans, lines of credit, and asset-based loans. They handle equipment financing via fixed loans or leasing, and some specialize in industries like agriculture, construction, or commercial real estate.
Cash Management
Known also as treasury management, cash management services assist businesses in managing receivables, payables, cash on hand, or liquidity more efficiently. Business banks establish processes that streamline your cash management, reducing costs and increasing available cash.
Banks give access to Automated Clearing House (ACH) and electronic payment systems to speed up money transfers. They enable automatic shifts of funds from idle checking accounts to interest-bearing savings, putting surplus cash to work while keeping just enough in checking for daily payments. You get a customized online platform linking cash management to your accounts for real-time cash visibility.
Payroll Services
Many banks offer payroll services for small businesses. If your business is new or too small for a dedicated bookkeeper, banks provide software or targeted services for payroll management. Independent payroll providers exist outside of banks, so compare costs and benefits between the options.
Fraud Protection
Banks offer fraud insurance to safeguard businesses from fraud in their checking accounts. This covers issues like problematic customer checks or employee fraud from excessive account access, which can complicate transaction tracking.
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