What Is Business Banking?

Business banking is a company's financial dealings with an institution that provides business loans, credit, and savings and checking accounts specifically designed for companies instead of 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 also deal with all three kinds of clients.

Understanding Business Banking

Business banking may also be called commercial or corporate banking. Banks provide financial and advisory services to small and medium business 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.

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 That changed in 1999 after parts of the act were repealed.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. The annual growth rate is expected to grow by 7.3%, with revenues reaching as high as $762 billion in 2019, according to research firm IBISWorld. Its January 2019 report states that the companies with the highest market share of corporate or business banking are Wells Fargo, JPMorgan Chase. and Bank of America.

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 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 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.

[Important: Banks many also offer asset management and securities underwriters to their corporate and business clients.]

Key Takeaways

  • Business banking is a range of services provided by a bank to a business or corporation.
  • Services offered under business banking include loans, credit, and savings and checking accounts, all of which are tailored specifically to the business.
  • Banks are able to offer business, retail, and investment banking services under one roof.