What is 'Business Banking'

Business banking is a company's financial dealings with an institution that provides business loans, credit, savings and checking accounts specifically for companies and not for individuals. Business banking is also known as commercial banking and 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.

BREAKING DOWN 'Business Banking'

In the past, investment banks and retail/commercial banks had to be separate entities under the Glass-Steagall Act, but changes to the law made it so a single bank can deal with business banking, retail banking and investment banking. The Glass-Steagall Act is also known as the Banking Act of 1933, and was introduced to manage speculation. Parts of the act were repealed in 1999, making it no longer illegal for an investment bank to also engage in business/commercial and retail banking.

Services Offered by Business Banks

Business banks provide a wide range of services to companies of all sizes. In addition to business checking and savings accounts, business banks offer a range of financing options and cash management solutions.

  • 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 business’ needs, business banks can offer fixed term loans, short and long term, as well as lines of credit and asset-based loans. Banks are also a main source of equipment financing, either through fixed loans or equipment leasing. Some banks specialize in lending in 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 the cash coming into the business, or receivables; cash going out of the business, or payables; and cash on hand, or liquidity. Utilizing the latest digital technology, business banks set up specific processes for businesses that help them 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 for accelerating the transfer of money in and out of the business. They also allow for the automatic movement of money from idle checking accounts into interest-bearing savings accounts, so surplus cash is put to work while the business checking account has just what it needs for the day’s payments. Businesses have access to a customized online platform that links their cash management processes to their checking and savings account for a real-time view of their cash in action.

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