Business banking services refer to a company’s financial relationship with a company that provides financial services such as business loans, credit, savings, and checking accounts designed for companies instead of individuals. Let me explain this with an example – a bank that deals with individuals are called retail, and the one that deals with capital markets is called an investment bank. Now some banks can deal with both kinds. Usually, in most cases, a bank has a special segment dedicated to this branch.
How does business banking work?
Also known as corporate or commercial banking, business banking, this special sector of a bank is dedicated to providing financing solutions to small to medium corporate empires. These services are tailormade to the requirements of the clients. Some of the services provided are as follows:
⦁ Estate loans: a type of loan where the collateral is a piece of real estate. It differs from mortgage loans as the funds received can be used for any purpose.
⦁ Commercial loans: this is a loan specifically given to corporates and other businesses and is based on debt.
⦁ Credit card services: a service where the customer is provided with a card that can be used for making purchases and paid later.
⦁ Deposit accounts: the accounts that are used for making business payments.
⦁ Securities underwriting: it is the process by the lender company to raise investment capital by issuing securities. An underwriter is the one who carries out the job.
Features of Commercial Banking
Apart from the regular banks, commercial banks are another kind of money lenders whose sole focus is on providing financial services to business owners. Commercial banking’s only focus is on products and services designed and custom made for businesses. These banks are stock corporations; therefore, the aim is to generate profit for their esteemed shareholders. This is done through financial intermediation, where the savers who are ready to keep their accounts with the bank are matched with the borrowers who need loans.
This cash movement between the savers and borrowers is facilitated by the customer deposits placed in different accounts and the extension of loans with interest on these deposits. These deposits are addressed to businesses and individuals, and the interest proceeds go to the borrowers on the deposits using business banking services.
The interest paid to the borrowers can pose a liability to the commercial banks, but the banks loan the funds at high-interest rates than the rates they pay the borrowers, which generates profit for the banks.
Services offered by the commercial banks
⦁ Deposit accounts: this includes both checking and savings accounts. These accounts help firms make payments to their vendors and employees, and the saving accounts are used to hold the cash reserves required for several investment purposes.
⦁ Loans: no matter how successful a business is, it requires regular loans for different purposes such as the upgradation of equipment, expanding the business, and assets. Commercial banks step in and provide the necessary loans so that the businesses can facilitate their plans.
⦁ Letters of credit: this document vouches for business about its ability to pay for the goods and services it avails. This document is issued by the bank. This document is useful for businesses when trading with international businesses as the letter of credit increases your credibility.
⦁ Lockbox Services: this allows the businesses to efficiently handle the payments that are done in large volumes. It includes customer mail payments, post box office set up in the nearby locations, and transfer of the funds into the business’s accounts. This method ensures that the firms can receive and deposit checks faster than usual.
Financing options provided by Business banks
Apart from the services offered above, these banks offer several financing options such as cash management, solution, payroll services, and protection against fraud.
⦁ Bank financing: this is the most sought after and also the primary source of income for businesses across the world for ventures such as acquisitions, equipment purchases, expansion plans, and growing operating expenses. Based on the company’s profile, the bank offers loans in different forms such as short and long term loans, asset-based loans, and several credit lines. They also give equipment financing leasing of pieces of equipment. Some banks cater to specific industries such as commercial real estate, construction, agriculture, etc.
⦁ Cash management: this system aims to aid the businesses in managing their receivables and payables, ready cash, and liquidity. Business banks or commercial banks. This step will help the companies lower their costs and have more cash to spend on the necessities. Apart from this service, the bank also provides an Automated Clearing House (ACH) and an efficient electronic payment processing system to accelerate the money transfers. ACH also allows automatic cash transfers from checking accounts into interest-bearing savings accounts. The cash is used for company purposes, and there is enough in the checking accounts to meet the daily expenses. The businesses are given access to a tailormade online platform where the cash management processes are connected with the checking and savings accounts. The concerned people can view the transactions in real-time.
⦁ Payroll services: some businesses cannot afford the expense of a bookmaker, the banks provide the payroll service. Their efficient teams ensure that there is customized software that ensures that the payroll is managed efficiently. Some companies specialize in payroll services. Before finalizing, it is recommended to compare the prices and choose the one that fits the profile the best.
⦁ Protection against fraud: online frauds have become a commonplace activity, and businesses require increased protection against all fraud elements. Commercial banks offer various services in this sector, such as checks from vendors and employees. At times, too many people have access to accounts, and frauds can be difficult to trace. Therefore, business owners require a robust fraud protection system that will safeguard their money.
They offer online payment services to the business houses for accepting payments electronically through various means such as credit card, bank-based payments such as direct debit, bank transfer, and online banking. It is software designed to provide the payment gateway to the clients.