What is business banking, how does it work, and why is it important? We explain the answers in this guide to the basics of business banking.

According to the U.S. Small Business Administration, there are more than thirty million small businesses operating in the United States. Together, those businesses employ around sixty million people. Small businesses are the lifeblood of the American economy. But it’s not always easy to start your own business. Thankfully, there are business banks out there designed to cater specifically to budding enterprises.

In business banking, a financial institution will offer banking solutions to private companies. These are financial products that are meant specifically for companies rather than for people. Business banking takes place when a bank, or a segment of a bank, only does business with enterprises. A bank that deals mainly with people is usually known as a retail bank. A bank that does business in capital markets is known as an investment bank. Some banks deal with both kinds of clients.

If you’d like to learn more about business banking, how it works, and why it’s so important, then you’ve come to the right place. So keep on reading and we’ll walk you through everything you need to know about the practice.

Understanding Business Banking

Business banking is also known as corporate banking or commercial banking. A business bank provides advisory and financial services to small and medium businesses and may even work with large, multinational corporations. These services are designed to meet the specific needs of each company. The services can include commercial loans, deposit accounts and non-interest-bearing products, credit card services, and real estate loans. Business banks might also offer securities underwriting and asset management to their business and corporate clients.

In past years, retail, commercial, and investment banks needed to be separate entities under the Glass-Steagall Act. This is also known as the Banking Act of 1933. However, in 1999, that all changed when parts of the law were repealed. Under the new rules, banks have the ability to offer investment, retail, and business banking under the same roof. As the business sector continues to grow, the demand for business banking is increasing in the United States. Commercial banks, on other hand, have been on the decline since the start of the 21st century. Many of the biggest business banks in the world also operate as retail banks and investment banks. This allows them to be diversified in both the products that they offer and the clients that they serve.

Services Offered by Business Banks

Business banks provide a variety of products and services to enterprises of all sizes. Other than savings accounts and business checking, business banks provide fraud protection, payroll services, cash management solutions, and financing options.

Let’s look more in-depth into each of those services below.

Bank Financing

Bank financing is the main source of capital for equipment purchases, acquisitions, and business expansion. It also can simply help a company meet its growing operating costs. Depending on the needs of an enterprise, a business bank can offer short- and long-term loans, fixed-term loans, lines of credit, and asset-based loans. Some business banks will cater to certain industries, such as commercial real estate, construction, and agriculture.

Fraud Protection

Business banks offer fraud insurance in order to protect companies from any kind of fraud that might have taken place in their checking accounts. An example of fraud can include problematic checks from vendors. It can also be employee fraud that can lead to too many people having access to the company’s accounts, making it hard to trace the source.

Payroll Services

There are many banks that have the ability to provide payroll services to small businesses. If a company is too small or new to take on the expense of paying a bookmaker, they might be able to find a bank that provides special services or software specifically designed for payroll management. Other than banks, there are also many independent payroll service providers that serve small businesses. It’s worth comparing the benefits and costs of the two.

Cash Management

Cash management is also known as treasury management. These are services that help companies achieve more efficiency in managing their payables, receivables, cash on hand, and liquidity.  Business banks set up certain processes for companies that help to expedite their cash management. This results in more cash on hand and lower costs. Banks provide companies with access to ACH and electronic payment processing systems. This helps to accelerate money transfers.

Business banks also allow for the automatic transfer of money. That money can move from idle checking accounts into savings accounts that bear interest. This means that the cash surplus is being put to work. And the company’s checking account will have just enough money for the day’s expenses.

Companies can also get access to a customized online platform. That platform can link their savings and checking accounts to their cash management processes. This allows for a real-time view of their money in action.

The Importance of Knowing About Business Banking

Nobody said starting your own business was easy. But as we can see, business banks can help you get your business off the ground and manage your financial and banking needs. Our team is hard at work building Hatch Business Checking, a modern business bank account with no minimum balance requirements, no overdraft penalties, and exclusive access to cashback rewards and business perks! Sign up for our waitlist now and get your first month for free when we launch later this year.


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