Business Banking: Services, Accounts & Loans Explained

Banking services provided solely to business units are known as business banking facilities. Business units, which include corporations and limited liability partnerships (LLPs)Limited Liability Partnerships (LLPs)Limited Liability Partnerships (LLPs) are a corporate business structure that enables entrepreneurs, professionals, and enterprises to provide services via, may avail of services such as the provision of business loans and credit, and savings and checking accounts.

The owners of business entities are in close contact with the bankers in the case of business banking. In some situations, the owner’s personal bank account may also be used for the purposes of business banking. Banks may engage in business banking by catering specifically to business entities or by setting up separate units that specialize in the same. Therefore, the latter type of banks oversees multiple units that may undertake retail bankingRetail Bank TypesBroadly speaking, there are three main retail bank types. They are commercial banks, credit unions, and certain investment funds that offer retail banking services. All three work toward providing similar banking services. These include checking accounts, savings accounts, mortgages, debit cards, credit cards, and personal loans., corporate banking, business banking, etc.

Business Banking Services

The requirements for every type of business are unique. Companies may require to finance working capital through credit, while small businesses in capital-intensive industries may require credit for the purchase of fixed assetsFixed AssetsFixed assets refer to long-term tangible assets that are used in the operations of a business. They provide long-term financial benefits. Therefore, the services provided by a banker are customized to suit the specification of each customer. Some of the customized services include:

1. Bank financing

Bank financing involves the provision of fixed-term loans, long-term loans, asset-based loansAsset-Based LoansAsset-based loans involve something physical (an asset) that is used as collateral for a loan. For most companies, it is inventory or accounts receivable that act as the collateral. However, any asset whose value can be accurately quantified may potentially be used as collateral., and short-term loans as per the capital requirements of the business.

2. Cash management

Capital management services entail expert management of receivables, payables, and cash in hand. They result in lower transaction costs and more liquidity with the business.

3. Industry-specific advice

Some banks also cater to specific industries, such as commercial real estate or agriculture. In countries such as India, there is a large number of small and independent businesses that are governed by special regulations. Therefore, many local banks set up units that cater specifically to micro- and small- and medium-sized enterprises.

4. Automated Clearing House (ACH)

Automated clearing house refers to payment processing systems that accelerate the process of digital money transfers. They also facilitate the automatic transfer of money from accounts that are idle to those that would produce interest income for the owner.

Characteristics of Business Banking

1. Authority

The formation of a business bank account can be authorized by anyone who holds an ownership stake in the business. There are no requirements, such as an official vote by the board of directors.

2. Degree of independence

A regular business account is not independent of the owners of the business as they operate the account. In instances such as that of a sole proprietorship, the owner uses her personal bank account for the purposes of business banking. It is usually done because sole proprietorshipsSole ProprietorshipA sole proprietorship (also known as individual entrepreneurship, sole trader, or proprietorship) is a type of an unincorporated entity that is owned only aren’t recognized as independent business units.

All transactions of the business account opened as a personal account of the owner becomes part of the credit history of the owner. Similarly, the amount and interest rate applicable on credit extended via personally held business accounts may be subject to the credit report of the owner.

3. Liability

Business accounts that are closely tied with the owners may or may not be considered as personal assets. Therefore, a business account does not offer any degree of protection to business assets from the personal creditors of the owner.

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