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 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 Parts of the act were repealed in 1999, making it no longer illegal for an investment bank to also engage in business/commercial and retail banking.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 company's 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 accounts for a real-time view of their cash in action.

RELATED TERMS
  1. Universal Banking

    Universal banking is a system in which banks provide a wide variety ...
  2. State Bank

    A state bank is a financial institution that a state has chartered ...
  3. Open Banking

    Open Banking is a system that provides a user with a network ...
  4. Chain Banking

    Chain banking is a form of bank governance that occurs when a ...
  5. Commercial Account

    A commercial account is any type of financial account, which ...
  6. Checking Account

    A checking account is a deposit account at a financial institution ...
Related Articles
  1. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  2. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against their brick-and-mortar peers. Find out what internet banks have to offer and where they fall short.
  3. Investing

    Bank of America's 4 Most Profitable Lines of Business (BAC)

    Discover how each of Bank of America's primary lines of business impact the company's bottom line and learn about the factors that affect each one.
  4. Investing

    How Bank of America Holds 1/8 of All U.S. Deposits

    Bank of America isn't America's central bank, but given its size and spread, you could be forgiven this misapprehension.
  5. Investing

    Key Financial Ratios to Analyze Retail Banks

    Learn about key financial metrics that investors use to evaluate retail banks, and how the industry is fundamentally different from most other industries.
  6. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  7. Personal Finance

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
RELATED FAQS
  1. What's the difference between investment banks and commercial banks?

    Understand the principal differences between investment banks and commercial banks, and the areas of banking services that ... Read Answer >>
  2. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  3. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  4. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
  5. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
Trading Center