What Is Business Banking?

Business banking is a company's financial dealings with an institution that provides business loans, credit, savings accounts, and checking accounts, specifically designed for companies rather than for individuals.

Business banking occurs when a bank, or division of a bank, only deals with businesses. A bank that deals mainly with individuals is generally called a retail bank, while a bank that deals with capital markets is known as an investment bank. There are some banks that deal with both types of clients.

Understanding Business Banking

Business banking is also called commercial or corporate banking. Banks provide financial and advisory services to small and medium businesses as well as larger corporations. These services are tailored to the specific needs of each business. These services include deposit accounts and non-interest-bearing products, real estate loans, commercial loans, and credit card services. Banks may also offer asset management and securities underwriting to their corporate and business clients. Some companies might allow employees to deposit funds into their accounts using a warm card. These cards allow only deposits and are not debit cards.

In the past, investment banks and retail/commercial banks were required to be separate entities under the Glass-Steagall Act—also known as the Banking Act of 1933. That changed in 1999 after parts of the act were repealed. Under the new rules, banks could offer business, retail, and investment banking services under one roof.

Demand for business banking is increasing in the United States, as the business sector continues to grow. Commercial banks have been declining since 2002, when there were 7,870 commercial banks, compared to 4,708 in 2018. This has primarily been due to mergers and acquisitions. The companies with the highest market share of corporate or business banking are Wells Fargo, JPMorgan Chase, and Bank of America, with JPMorgan Chase being the largest commercial bank in the U.S., with 2019 revenues of $142 billion. It's important to note these banks also operate as investment banks and retail banks, allowing them to be diversified in both clients and products offered.

Services Offered by Business Banks

Business banks provide a wide range of services to companies of all sizes. Aside from business checking and savings accounts, business banks offer financing options, cash management solutions, payroll services, and fraud protection.

Bank Financing

Bank financing is a primary source of capital for business expansion, acquisitions, and equipment purchases, or simply to meet growing operating expenses. Depending on a company's needs, business banks can offer fixed-term loans, short- and long-term loans, lines of credit, and asset-based loans. Banks provide equipment financing, either through fixed-loans or equipment leasing. Some banks cater specifically to certain industries such as agriculture, construction, and commercial real estate.

Cash Management

Also referred to as treasury management, cash management services help businesses achieve greater efficiency in managing their receivables, payables, cash on hand, or liquidity. Business banks set up specific processes for businesses that help streamline their cash management, resulting in lower costs and more cash on hand.

Banks provide businesses with access to Automated Clearing House (ACH) and electronic payment processing systems to accelerate money transfers. They also allow for the automatic movement of money from idle checking accounts into interest-bearing savings accounts, so the cash surplus is put to work while the business checking account has just enough for the day’s payments. Businesses have access to a customized online platform that links their cash management processes to their checking and savings accounts for a real-time view of their cash in action.

Payroll Services

Many banks are able to provide payroll services for small businesses. If your business is new or too small to incur the expense of a bookmaker, many banks provide software or specific services specifically geared towards payroll management. Aside from banks, there are many independent payroll service providers. It's worth comparing the costs and benefits of the two.

Fraud Protection

Fraud insurance is offered by banks to protect businesses from any sort of fraud that has occurred in their checking accounts. These can include problematic checks from vendors or employee fraud that can result from too many people having access to accounts, making transactions difficult to trace.