What is Business Banking?

What is Business Banking?

Business banking is the industry that provides financial services, including bank accounts and lending, to businesses. If you’re starting your own company, getting a business banking account is one of the first things you should do. It will make it easier to manage your business’s finances and can help you grow your organization over the long term.

Overview

Business banking refers to all of the services that banks offer to businesses rather than individuals. For the most part, business banking is very similar to consumer banking, with business-focused banks offering deposit accounts, loans, lines of credit, and similar services.

The difference is that business banking services are focused more on the needs of companies rather than individuals. For example, a business might need to deposit or withdraw large quantities of cash on a regular basis while many people will only make cash transactions once or twice a month. Businesses might need flexible lines of credit while individuals are more apt to get mortgages or auto loans.

By focusing certain services on the needs of companies, banks can more effectively serve businesses small and large.

Pros and Cons

Business banking has both advantages and disadvantages to consider.

Pros

• Separate finances. Business banking will make it easier to manage a company’s money by keeping it separate from the owner’s. For some forms of business, this is necessary to receive legal liability protection.
• Business-focused tools. Many business banks include access to bookkeeping tools or integrations with business services that make things like accounting easier.
• Business financing. If you’re trying to expand your company, most commercial banks offer loans and credits for businesses. You can get specialized loans for different purposes, such as buying new equipment or renovating a store.

Cons

• Higher fees. Many commercial banks charge higher fees than consumer banks. You might also see higher minimum balance requirements to open an account.
• Many options. There are many business banks out there and some will focus on specific types of companies. For example, some online business banks are a good fit for online businesses or those that don’t use cash but aren’t great for cash-heavy businesses. You’ll need to do research to find the right business bank for your needs.

How Does Business Banking Work?

Business banking works very similarly to consumer banking. You find a bank, open an account, and can store your company’s money in the business bank account. You can also work with your business bank to get loans or other forms of financing such as lines of credit or credit cards.

One difference between business banking and consumer banking is who has access to the account. With a business bank account, the company’s owners and representatives can access the funds. You may even give employees business credit cards so they can purchase things on the company’s behalf.

Products and Services Offered

Business banking usually includes these services.

Deposit accounts

Deposit accounts are the most basic business banking service out there. You can use a business checking account or savings account to hold your company’s extra cash while retaining easy access with a debit card or checkbook.

Cash management

Cash management services are like a more involved form of a basic checking and savings account. Business banks offer these services to help companies use their money in the most efficient way possible, ensuring sufficient liquidity while keeping their suppliers paid and receiving payment from suppliers.

This service often includes access to electronic payment systems for making and receiving payments and automatic movement of funds between accounts based on rules set by the business.

Financing

If you want to grow your company, you’ll need a source of funding to pay for the expansion. Business banking services typically offer loans, lines of credit, and other types of financing.

Companies typically use financing services to invest in growth or to cover short-term cash flow issues. Some banks offer discounts to customers who use both their deposit accounts and lending services, so it can be a good idea to use a full-service business bank to keep your money all in one place.

Payroll services

One of the most important things for any company to do is to make sure that it pays its employees. Most business banking services come with payroll tools that you can use to easily run payroll and make sure your employees get the money they’ve earned.

Fraud protection

Business banking services, like consumer bank accounts, usually come with some form of fraud protection. The bank can help you screen for bad checks from customers and identify instances of employee fraud.

This can include things like help with limiting access to the business’s bank account or tracing unusual or confusing transactions to see where they came from and why they occurred.

Bottom Line

Every company should have a business banking account. On top of being required to gain the liability protections of business entities like limited liability companies, they simply make life easier. Using a business banking service makes it easier to keep track of your company’s financial situation and will give you access to valuable financial services for your business.

Frequently Asked Questions

Related Articles:

• 5 Best Business Banking Companies of 2023
• Do I need an EIN to Open a Business Bank Account?
• 5 Best Business Loan Companies of 2023
• How to Get a Business Credit Card
• Do I need an EIN for a Business Bank Account?

How does business banking differ from personal banking?

While both business and personal banking offer many similar services, such as checking and savings accounts, business banking services are specifically designed to support the operations and growth of businesses. This includes handling larger transactions, providing business loans, and offering tools for managing cash flow and payroll.

What are the primary services offered in business banking?

Business banking typically includes:

• Deposit Accounts: Checking and savings accounts designed for business use.
• Cash Management Services: Tools to help optimize cash flow and handle large transactions.
• Business Loans and Credit: Financing options to support business growth and operational needs.
• Payroll Services: Systems to manage employee payments.
• Fraud Protection: Services to help protect against financial fraud.

Who can benefit from business banking?

Any business entity, from solo entrepreneurs and freelancers to large corporations, can benefit from business banking. It's essential for managing finances more efficiently and professionally, separating personal finances from business operations, and accessing business-specific financial services.

About The Author

Bryan Huynh

Product Tester & Writer

Bryan Huynh, a committed Product Tester and Writer, ensures that you are well-informed, guiding you in discovering and comparing top-rated financial services, including personal loans, business loans, credit repair, and tax relief.

Articles by Bryan Huynh

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